Tip #7: Use Your RRSP Refund or Tax Refund

Everybody dreads tax time; the stress of learning exactly how much money the government is taking out of our pockets. We have few options for hiding our income; one exception is RRSPs.

Many people plan grand purchases using any tax refund they get from the government. Some people use this refund money for investment purposes, while others use it for a vacation, furniture, or clothes. We all plan—months ahead of time—what we are going to do with this extra cash, right?

Remember the first few Tips you read? How little it takes each year to make such a big difference in what you will finally end up paying? By investing your refund into your mortgage each year you will once again save thousands of dollars in interest and payments.

I know it’s not very exciting to think about investing all your refund, so do not invest it all: Remember that a small investment is better than none at all. As we have already proven, small extra payments each year can make a big difference. You need not invest all the refund; just enough to equal one or two regular monthly payments and this will make a big difference in the end.

You can still plan for some fun, just not quite as much. You should note that you will be paid back ten-fold for this “forced” savings plan. You will be saving thousands of future dollars, plus the inflation portion of those dollars. You can then get all the toys you want or travel anywhere you want!

Normally, I would provide you with some examples of how much you can save using your tax refund, but by now I assume you have the point. If you are still unsure of how much you can save please refer back to Tip #5.

NOTE: Some of my clients will borrow money for their RRSP and use the savings on their taxes to pay down the principle. The cost of borrowing is more than recouped in future savings.

In today’s economic times, interest rates are very low and borrowing is cheap. The flip-side is that your interest-bearing account is making less than 2.00% annually.

Investing in your mortgage has never been better. Every dollar you pay towards your mortgage today will mean that much more in your pocket in the future. It’s a win-win situation.