Pattie Lovett-Reid

Chief Financial Commentator, CTV

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Here is something I never thought I would hear myself say: Celebrate your tax refund. 
 
I have never touted tax refunds because it is simply your money being given back to you by the government — money that could have been working hard for you. 
 
I’ve changed my tune this year. If you are fortunate enough to be getting a tax refund, it can feel like newfound money. And it could also be the financial lifeline you need right now.
 
Don't feel guilty about using it. While it is technically your money, you should also think about using it to your best advantage, especially if finances are tight right now. 
 
Here are a few things you can do with it.
 
1. Pay down debt. Highest interest credit cards with large outstanding balances will take years to pay off, and should not be used to supplement your income. Reduce the number of credit cards you have, try not to exceed your credit limit, and use your refund to make the minimum payments where you can. 
 
2. Build up your emergency fund. I've always advised to maintain three-to-six months living expenses in a cash or near-cash equivalents, such as a guaranteed investment certificate (GIC). However, given the employment landscape, it may tougher to bounce back and find a job that will pay the bills. I now recommend building an emergency reserve anywhere from six-to-nine months. 
 
3. Start to build an investment portfolio. Good quality investments have been beaten down, and for those with a long-term perspective – five years or more – now is the time to slowly buy into the market. I would suggest exploring exchange-traded funds (ETFs) or balanced growth mutual funds. You could buy in slowly using a pre-authorized purchase plan to take advantage of dollar-cost averaging.
 
4. Invest in yourself. Those who are industrious may already be exploring ways to upgrade their skills to make themselves more marketable when the economy reopens. Invest in an online course, offer yourself up as an apprentice, or consider taking up a side hustle. Any of these will give you a leg up when you begin to explore next steps. 
 
5. Give yourself permission to spend. Being in a deep retail freeze has given us a razor-sharp focus on differentiating between the things we need and the things we simply want. A tax refund might give you an opportunity to splurge a little – and quite frankly, I think you’ve earned it. It may also be an opportunity to support your local small business that is suffering as a result of the pandemic or to donate to a local charity. That is a win-win. 

One last thought: If you’ve received a government benefit such as the Canada Emergency Response Benefit (CERB), remember it’s taxable. So if you haven't tucked a little aside, you run the potential of being caught off guard next year and could owe money. As a precaution, you might want to use this year's tax refund to cover off that liability.