For many Canadians, tax season means seeing a refund in your bank account. While this expected or unexpected deposit can be exciting for some, it can also be a source of uncertainty for others.
Should you spend the money or save it? Treat yourself to a vacation or invest in your future? Or maybe it’s the right time to pay down some debt. We have some strategies to help you make the best decision for your refund.
1. Focus On Priorities
A good first step when deciding how to handle an influx of money is to consider what matters most to you. While it’s tempting to go searching for a universal “right” answer, there’s no one-size-fits-all when it comes to financial decisions. It’s more helpful to take a
look at your specific situation—your needs, desires and goals. What can you realistically do with the amount of your tax refund that will most effectively meet your needs, satisfy your desires and help you realize your goals?
Brainstorm some ideas and think about how each might help you achieve the financial future you are working towards, whatever that looks like to you.
2. Evaluate Your Financial Situation
Next, take a holistic view of your current financial situation. Unless you decide to meet an immediate need or want using your tax refund, consider how the ideas you brainstormed can be leveraged to reach your short- or long-term financial goals.
While building your investments and repaying debt might seem like two separate objectives, in reality, debt and investments are inextricably connected. It’s important to not make a plan for one without accounting for the other.
When considering what to do with your tax refund, think about the benefits of paying down your debt and reducing your costs of borrowing versus maximizing returns on your investments. Take the time to assess how contributing to your investments can accelerate your progress towards achieving long-term goals, such as buying a home, building your children’s education fund, or planning for retirement.
3. Speak With A Financial Advisor
Finally, make sure you understand all your options before making a decision. Having a conversation with a financial advisor can provide information and advice that will look beyond this one-time refund and help you clarify your priorities to make the most of your
money.
Typically, your financial advisor will review your situation and work with you to establish a plan. This includes determining your short- and long-term savings and investment goals, as well as any other financial priorities—such as going on vacation, helping a family
member or taking up a new hobby.
Even the best financial advisor can’t decide what you should do with your tax refund for you. Analyzing your own big picture is the best first step to making a smart financial decision that aligns with your goals and takes the reality of your life into account.
Speak with an ATB Wealth advisor to help determine how to translate your financial goals into a financial strategy.
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