Make your tax refund really count

At this time of year, the thought of receiving a tax refund is enough to brighten even the rainiest day. With so many options to use the money — a trip, home renovation or some other immediate splurge — we don’t always take the time to consider all of our choices.

People often think of their tax refund as “found money.” Actually, a tax refund is your own income that you lent the government interestfree, and now it’s paying you back. That’s why you should definitely give some thought to this cash and how you can make it work for you immediately, and over the long term.

Paying off debt, especially highinterest loans, or making a pre-payment on your mortgage will reap immediate rewards. Also, if you borrowed to invest in your RRSP, repayment is probably a priority item.

Using at least a portion of your tax refund to make this year’s RRSP contribution is also a sound idea. This is especially true since we often hear investors say they can’t afford to save more for retirement. If that’s the case, your tax refund is a good way to help keep your retirement plans on track.

If you’d like to save for retirement, but you think you may need the money sooner, a tax-free savings account (TFSA) is a great solution. The income in the account grows tax-free and you can choose the investments that are right for you within the plan. This means you can customize your choices to use it as both a retirement plan and have some liquid investments tagged for use as an emergency fund.

As you consider how best to spend and/or invest your tax refund, it’s also a great time to look at setting up a pre-authorized saving plan to keep the savings momentum going. Perhaps paying off your short-term debt has freed up some cash flow to invest.

To help prioritize the items on your list, make an appointment with a financial advisor. Together, you can decide how to balance your short- and long-term goals, ranging from debt repayment and retirement to a vacation fund or a registered education savings plan.

Your advisor can help create a plan to identify what matters most to you, and map out a path to reach those priorities. This will help you make the most of your much anticipated tax refund, and make the best choices both for today and your longer-term goals.

Ahmad Dajani is the vice-president of investments

at Scotiabank.