Make your tax refund work for you

(NC) Are you getting excited to receive your income tax return? It’s a great opportunity to plan and budget for the year, or even longer. Here are some tips on how best to invest any money you get back:

Use your refund to help you reach your goals

Are you planning to save for home renovations, a down payment or vacation? If you’re interested in investing your tax return, call your bank or financial advisor about options to help you reach your goals.

You can also try the Financial Consumer Agency of Canada’s free online financial goal calculator. You just need to answer a few questions and the tool then helps you create a realistic savings plan.

Pay down your debts

Some debts, such as credit cards and loans, may have high interest rates. Look at those with higher rates and decide which ones you want to start with. These will have the biggest impact in reducing your debts and allow you to save the most money in the long term.?

Another approach is to pay down the smallest debt first. Maybe your tax return can pay off it all in one shot. For some of us, that feeling of eliminating one debt altogether can be a great motivator.

Set up an emergency fund

Your tax return can give you a head start setting up an emergency fund, so you aren’t starting from zero. From there, even setting aside a few dollars each week can add up.

As we’ve seen during the pandemic, setting money aside for unexpected expenses or lost income is key. And surprise vet bills, car repairs or a leaky roof can catch anyone off guard. Paying for these from an emergency fund instead of with your credit card means not having to pay interest.

Another tip is to keep your emergency savings separate from the account you use for day-to-day transactions. You can find bank accounts with no or low transaction fees so you can withdraw your money easily when you need it.