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A lot of people are expecting a tax refund in 2024. There is one mistake a lot of these people are going to make immediately.
A lot of people make mistakes with their money. That’s especially when they end up with a large payment in one go.
Of course, the tax refund is one of those large payments. A lot of people are expecting a refund in their taxes in 2024. More often than not, people who work for an employer end up paying more in taxes throughout the year than they should.
However, if you’re self-employed like me, you’ll find that you owe taxes every year. You’ve saved for them, though, right?
The one mistake people make with their tax refund
So, what’s this one mistake? It’s a lack of planning.
You get your tax refund and then you have no idea what to do with it. That money then ends up sitting there in a checking or saving account, earning nothing or very little in interest. That’s if you haven’t spent it already.
How many people end up spending their money immediately? You see a few thousand dollars come in, and you immediately want to get the items you wanted for the house or you go shopping for new clothes. You don’t need these items; they’re just luxuries.
Don’t spend the money right away. You need a plan!
Save and invest the lump sums that you get
When you do get a lump sum, such as you tax refund, you need to make sure you save and invest it*. You can take a small amount if you’d like, such as say 10% of it, for yourself. However, you want to save the bulk of it.
Your tax refund is a great way to set up for your future. I know a lot of people who immediately put their tax refund into their retirement plans. In Canada, they will max out their RRSPs and TFSAs immediately.
That’s a great way to make sure the money is there and ready for the future, although I don’t recommend maxing everything out immediately. There are downsides to this due to market volatility. I’m more than happy to explain this to you in more detail when you meet with me.
However, it is worth investing the money as much as you can. You’ll see it grow in the future and then you get to retire with more money. Don’t you want to live life well in the future?
Home improvements and debt payments
There are a couple of instances where the investing for the future might not work out. That tax refund could be a great way to get out of debt* a little. Consider putting the money onto your credit cards or a high interest loan. You end up saving money in the future by doing this since you won’t have to make as many loan payments.
Another option is to make home improvements. This is great to boost the value of your home, which could help you in the future if it comes to selling the place. You’ll also benefit from the home improvements while you live there. However, this isn’t always the best decision, especially if you just want the home improvements rather than need them. Remember that you need to save for your future.
Your tax refund can be a surprise each year. That doesn’t mean you don’t need to plan for how you’ll use it.
MORE: 3 things to do with your tax refund
Want to know more about your investment options? Get in touch to find out how I can help.
