You just filed your taxes.
And you’re gleefully waiting for your cheque or the notice that it’s in your bank account via direct deposit.
What are you doing with it? Last week, we talked about what most Canadians are doing with their tax returns.
Today, we’re going to help you out with a few ideas, if it isn’t already gone.
Tops on our advice list are debt repayment and investment.
Pay down debt
A good first step in approach financial freedom and security is getting rid of high-interest debt, like credit cards. This can give you more benefit than many realize because when you get your credit-card balance lower, the interest you pay also goes down.
Depending on your interest rate, you could save between 10 and 30 per cent per year in interest on your balance.
We live it in a society that’s often focused on instant gratification but we need to be looking out for our own futures. Retirement could be just around the corner for many of us. It’s never too late — or early! — to start building a nest egg.
According to MoneySense.ca, fewer people have employer-sponsored pensions and recent changes by the federal government force us to wait longer to apply for Old Age Security.
“Future generations will receive less money from the government in their post-working years,” David Hodges writes.
Canadians have two excellent options: the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP).
The TFSA contribution room sits at $25,500 for each Canadian who was at least 18 in 2009, or $51,000 for couples. TFSAs are good for short-term savings, like a rainy day account. If you have a TFSA with a bundle stashed, you save yourself from borrowing money on your credit-card for emergencies or taking out a short-term bank loan.
Hodges writes that an annual contribution to your RRSP savings can “supercharge” your investment.
“Let’s assume you regularly contribute $5,000 to your RRSP each year and your marginal tax rate is 30%,” he says. “That means at tax time you’ll net a refund of $1,500. If you reinvest that next year along with your usual $5,000, your RRSP contribution will be $6,500 for that year, netting you a refund of $1,950.
“Add that to your regular contribution the following year and it becomes $6,950, which gets you a refund of $2,085, and so on. After 10 years of reinvested tax refunds and 5% annual growth, your RRSP would be worth almost $90,000. If you get the same rate of return but never reinvested the refunds, it would be just over $66,000.”
Those are some impressive numbers.
Invest in your children
If you have youngsters running about, it might be a good idea to start saving for their education. Look into the Registered Education Savings Plan, a special account that helps you save for your child’s post-secondary education.
The money grows tax-free and you could qualify for additional funds through the Canada Education Savings Grant, the Canada Learning Bond and the Alberta Centennial Education Savings Plan.
Can you help?
We sure can. Contact one of our tax specialists and we can help you find tax savings and get a bigger refund.
Fill out our contact form or give A1 Accounting a call at 403-226-8297.