Smart Tax Refund Investments: 5 Genius Ways to Use Your Return (That Aren't Paying Debt)
Mar 16
3 min read
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It's tax return season, baby! That magical time of year when the government basically says, "Sorry for borrowing your money interest-free. Here's some of it back!" Sure, financial experts might argue that getting a big tax refund means you've been giving Uncle Sam an interest-free loan all year, but let's focus on the positive: You've got a chunk of change coming your way!
So before you blow it all on that impulse purchase you've been eyeing (looking at you, an unnecessary kitchen gadget that will definitely change your life), let's talk about some more brilliant moves. And no, I'm not just going to lecture you about paying off high-interest debt—we already know that's the financial equivalent of eating your vegetables first.
Assuming you've handled the high-interest debt monsters, here are five actually interesting ways to use that tax refund:
1. The Emergency Fund Glow-Up
What It Is: That savings account you've meant to build but never do.
Why It's Smart: Life has a funny way of waiting until you're financially vulnerable to throw expensive surprises your way. Car repairs, medical bills, sudden unemployment—these uninvited guests require a financial bouncer for 3-6 months of essential expenses saved up.
The Emotional Win: The blissful peace of mind knowing you won't have to put emergency dental work on a credit card or borrow from your judgmental relative who will definitely bring it up at every family gathering until you die.
2. The "Future You" Investment
What It Is: Boost your retirement contributions or open an investment account if you don't already have one.
Why It's Smart: Thanks to the magic of compound interest, even a modest tax return invested now could be worth significantly more when you're ready to live your best-retired life.
The Emotional Win: The satisfaction of knowing you're taking care of Future You, who will someday be lounging on a beach (or whatever your retirement dream is) thanking Present You for this moment of financial foresight.
"The average Canadian tax refund is around $1,800—larger than many people's emergency funds. While Canadians are generally more conservative with refunds than our American neighbours, we still see over 60% of refunds spent rather than invested. The most financially successful Canadians I work with view their refund as deferred salary, not a windfall." – Preet Banerjee, Canadian financial analyst, advisor, and host of the "Mostly Money" podcast
3. The Skill-Building Splurge
What It Is: Investing in education or training that could increase your earning potential.
Why It's Smart: Whether it's a certification, course, workshop, or conference, upskilling is one of the few expenses that actually pays dividends in the form of increased earning potential.
The Emotional Win: The confidence boost that comes from levelling up your skills and potentially opening new career doors (and salary brackets).
4. The Life Quality Upgrade
What It Is: Something that genuinely improves your daily life—not just a momentary dopamine hit.
Why It's Smart: Some purchases actually save money or time in the long run. Think: a quality mattress for better sleep (and fewer chiropractor bills), a decent coffee maker to curb the daily café habit or tools that help you cook at home more often.
The Emotional Win: The satisfaction of making a purposeful purchase that enhances your everyday existence instead of just cluttering it.
5. The Joy Fund From The Tax Refund
What It Is: Setting aside a portion (keyword: portion) of your refund for pure enjoyment, but with intention.
Why It's Smart: Completely denying yourself any fun is the financial equivalent of a crash diet—eventually, you'll binge. Allocating a reasonable amount of joy keeps you motivated on your financial journey.
The Emotional Win: The guilt-free pleasure of spending money you've designated explicitly for happiness, whether that's a memorable experience, a hobby you love, or supporting a cause you care about.
The Tax Return Strategy
Consider the 50-30-20 rule for your refund:
50% toward financial foundation (emergency fund, debt reduction beyond the high-interest stuff, retirement)
30% toward life improvement (skills, quality upgrades)
20% toward pure enjoyment (because you're human and joy matters)
The Bottom Line
Your tax refund isn't found money—it's your hard-earned cash making its way back to you. Treat it with the respect it deserves by making intentional choices that benefit both Present You and Future You.
And remember: the absolute best way to use next year's tax return is to not get one at all! Adjust your withholdings to keep more money in each paycheck throughout the year. It might not give you the same psychological thrill as a lump sum refund, but it's financially more competent.
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