I get excited when it’s tax time (yah I know). In completing my tax return for 2016, I started wondering how I spent my tax refunds over the last decade. With the Government of Canada’s MyCRA account which shows all your tax information since 2006, I knew I had this information right at my finger tips.
If you are a Canadian resident and don’t have a MyCRA online account, I highly recommend it as a quick and easy way to get your tax information (most T-slips) and to update the government on any information that may affect your taxes (i.e. marital status). You can update your personal/banking information, review your tax returns, notice of assessments and reassessments, receive notification of any audits on your account. Upload and send your tax return, supporting documents for an audit and complete an amended return. It is awesome!
Back to my tax refunds. Since the information in the online account only goes as far back as 2006, that was the furthest back I was willing to go, but the information revealed taught me a lot about my spending habits and how it has changed over time.
Here are the numbers:
|Tax Year||Tax Refund Amount|
|2006||$ 466.20||Spent on “stuff”
Total amount = $8,952.64
*This amount was spent on thing like: clothes, gifts, new furniture (which we ended up selling when we relocated to Alberta), electronics, food and other discretionary spending.
*These items are not inherently bad, but with someone that graduated with $54k in student loan debt, I feel the money was not spent wisely.
*I was not concerned about my financial future, but only cared for the immediate things in life.
|2013||$7,196.07||Spent on debt repayment
Total amount = $19,254.67
*We started our $120,000 debt repayment journey in 2013
*It had also been a couple years since completing my graduate degree and I could feel the mental heaviness and stress of monthly student loan payments taking its toll on our finances. My monthly repayment amount was about $750 and my husbands was $450 (to be paid over 10 years)
*By addressing my old financial mess from the past, I got a better appreciation for the value of money and the importance of spending wisely and having a balance between spending and saving money.
|2016||$4,821.50||Spent on retirement savings
Total amount = $4,821.50
*This year will mark the first year where we will use our tax refund to grow our retirement savings. With an emergency fund in place and minimal to no debt, this seemed like the natural progression towards financial freedom.
*I got my money somewhat under control. At a minimum, I feel like I have a game plan for the long term.
I absolutely love windfall income. Whether it is a bonus, commission, monetary gift or a tax refund, nothing beats unexpected money coming your way. The only difference is I am putting the money into good use.
Between 2006 to 2012, I did not have a budget, all the money I made, including my tax refund was spent as quickly as I got it. I bought what I wanted, when I wanted with no care in the world about my existing debts and future goals. The way I spent my tax refunds reflected the way I was living as well. Not surprising, I did not use this opportunity to increase my net worth by paying back some of my debt or increase my assets (save). Because of this, my financial situation did not get better, if anything, it got worse.
(GIF: The way I was spending my tax refund before I got smart about my money)
Between 2013 to 2015 I finally decided to get on a budget. My husband and I were almost 2 years into making our regular monthly student loan payments and the thought of making these payments for the next 10 years was too depressing. We had listened to Dave Ramsey in the past, but we finally decided to implement his plan. For the first time in, well ever, we were spending our money to improve our net worth. We were doing this by paying off our debts. All discretionary income went towards paying off our debt. This almost $20,000 in tax refund helped us expedite our student loan debt repayment.
Now for 2016. The 2016 tax refund will be the first refund used towards savings. Well, to be more accurate, investing. This transformation is huge for me because it symbolizes a change in my behaviour towards money. From spending it like its going out of style, to paying off debt, and now, being able to save for the future. We decided to invest the entire refund into our TFSA to give our retirement nest egg a boost. We will keep up this approach in future years until we are not able to, at which point we will drop the savings rate to 50%.
(GIF: the way I felt after having zero debt)
Receiving windfall income and deciding what to do with the money can reveal a bit about our money personality, financial savviness and priorities in life. It can also address whether we are living within or beyond our means. If you are expecting a tax refund this year, here are a few questions that you can ask yourself:
- How do I plan on using my tax refund this year?
- Will what I decide to do with my tax refund increase my net worth, either by paying off debts or increasing my assets by saving/investing the money?
- Will I use my tax refund to cover an immediate expense? How can I cover this expense another way in future years?
- Do I have a fully funded emergency fund? If not, how do I plan to fund an unexpected expense?
- Do I know how much I want to have in savings and investments when I retire?
- Have I done the math to see how much I will need to save each month to get to that goal?
- Am I on track to reaching my retirement goal without using my refund towards this goal?
- Can I put a percentage of my refund to go towards long term savings and use the remainder to cover immediate expenses?
How do you plan on using your refund this year? Do you feel this reflects your money habits/personality?