Give Me Back My Five Bucks

How to spend your tax refund responsibily

We’ve all been there before: you realize you’re getting back a huge tax refund, and the first thing you do is start thinking about is that new expensive toy you could buy with the money (hellllo iPad 3!), or a holiday somewhere warm. The possibilities are endless!

While a new gadget or a shopping spree might seem like great ways to spend your hard-earned money, getting a lump sum back from the government is the perfect opportunity to achieve or start a financial goal you’ve been putting off.

Here are some ideas:

1. Pay off credit card debt 
Maybe the last thing you want to do with your refund is do something boring like pay down your consumer debt. But since most credit cards charge around 20% on outstanding balances, can you afford to waste money on something that gives you nothing in return?

Putting a significant amount towards your high interest debt will help you sleep easier at night, and get the ball rolling to help you get rid of the rest of your debt.

2. Save for retirement 
Most of us aren’t saving enough for retirement. So your tax refund provides a golden opportunity to save more than you normally would. The best part is, by investing a lump sum into your RRSP and continuing your monthly contributions, you will get a bigger tax refund next year.

3. Start an emergency fund 
It’s hard for a lot of people to get started when it comes to setting up an emergency fund. But the truth is, if you don’t have a 3 to 6 month cushion,  you can’t afford not to start saving. When you are faced with an emergency, life is so much easier when you have a little money tucked away to help you get through hard times.

4. Make an extra mortgage payment
Just by making one extra payment towards the principal amount of your mortgage, you could reduce the interest paid over the life of your mortgage by thousands of dollars.

5. Invest in your home
If you have been putting off a home improvement project, your tax return is an excellent opportunity to finally get the job done. Not only will you improve your quality of your life by making improvements to your household, but you will probably also be increasing the value of your home.

6. Get your car serviced
Take the opportunity to use your tax refund to buy new tires, get an oil change, or repair whatever else your car needs to keep running properly. Putting money into your car now, means you will potentially avoid bigger, costlier problems down the road. Note that putting money into your car does not mean spending money on tinted windows, heated seats, or a new sound system. :)

7. Improve yourself
If there is a cooking class you’ve always wanted to take, a conference you’ve been dying to attend, or second language software you’ve always wanted to buy – this could be the perfect opportunity to take the plunge and invest the money into improving yourself.  If you’re a former bookkeeper who’s been at home with the kids for a few years but you want to start working from home, invest some time and money in becoming fluent in a cloud accounting software system, for example.

8. Invest in your health
Do you have dental work you’ve been putting off? Could you use a few sessions with a chiropractor or a massage therapist? Have you always wanted to get in shape with a personal trainer? Using your refund to invest in your body and your health is priceless and can have a major impact on your life.

Two years ago, I spent my tax refund on LASIK eye surgery. Being extremely active, I found my eyesight was holding me back from the things that I loved to do. So after much thought, I decided to do something about it, and it ended up being one of the best decisions I’ve ever made. My quality of life has improved so much since that day.

I’m not getting back a tax refund this year (in fact, I’ll owe taxes), but every year I would get back a tax refund, I’d try to use the 90/10 rule – where 90% of my money went to something responsible – like paying down my debt or saving for retirement. And the left-over 10% I’d spend on something fun for myself. For example, if you’re getting back a $1,100 refund, you would earmark $990 towards debt or savings, leaving you with $110 to spend on whatever you want. :) I like this rule because you’re allowing yourself a treat, while still being wise with the majority of your tax refund.

What do you plan on doing with your tax refund?

Author: Krystal Yee

I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.


  1. Awesome ideas miss K. I just got my tax refund recently. It’s not a whole lot this year, but at least it’s better than owing taxes ʘ‿ʘ I plan to invest this money for my future kid’s educational costs, which experts predict will be $60,000 for one year of university tuition by 2035 ( ゚д゚)

  2. Erin says:

    I always split any windfalls three ways – 1/3 to debt reducation (credit card if I have a balance, extra money towards my mortgage), 1/3 to savings (emergency fund, rsp) and 1/3 to something fun.

  3. wolfshades says:

    I like the way you think about stuff like this. My tax refund has already arrived, and I used it to pay down some debt.

    Here’s a question you probably get asked often: if you owe on credit card debts, is it still wise to save toward the emergency fund while paying down the debts, or is it better to concentrate 100% on the debts before starting the cushion?

    • Krystal Yee says:

      Well everybody has an opinion on whether you should be saving while still in debt, and I personally think that you should. Even putting away $25 bi-weekly into an EF is better than having to rely on credit should an emergency come up while you’re still trying to get out of debt. You will have confidence that you can deal with the problem by using cash, instead of adding more to your debt.

      When I was getting out of debt, I put away $25 bi-weekly into an EF and $25 bi-weekly into my retirement account. It wasn’t a lot, but it helped make me feel good to have a little bit of cash in the bank, and it got me into the habit of paying myself first – so that when I was out of debt, automatic deductions into savings was already second nature to me.

  4. Modest Money says:

    Like you I’ll be owing money on taxes instead of getting a refund. I do miss that sudden windfall. For the irresponsible spender it is tempting to spend your tax refund on an expensive vacation or big shopping spree. While those ideas may be fun, they don’t do much for your finances long term.

  5. Jordann says:

    I’m getting a $5,440 tax return this year (somehow). I’m sort of using the 90/10 rule. Putting away $440 for the future purchase of a dog (something I’ve been wanting for awhile), $4,000 is going to student loans and $1,000 into savings.

  6. Marianne says:

    We aren’t getting a huge refund this year but I actually ‘borrowed’ from another area in my budget to maximize our RRSP contribution so I’ll be paying myself back with the refund.

  7. Pamela says:

    We are finally updating our kitchen!!!!!!

  8. DebtnTaxes says:

    We are putting 100% of our refund straight onto one of our debts. It will be nice seeing a big chunk of that going away. Plus it saves a little bit on interest for the life of the loan.

  9. I really like the 90/10 rule… I think I might have to start applying that to my everyday spending as well.

  10. Amy says:

    We will spend 25% on fun, 33% on retirement savings, and 42% on short term savings.

  11. Michelle says:

    We bought a used car with cash and saved the rest!

  12. Really like the 90/10 rule as well! I think I will start applying that to any windfalls from now on. In the past, I’d initially decide it should be ‘fun money’ but then end up being guilted into saving it so that rule is kind of the best of both worlds!

  13. Krista says:

    I am always kind of upset when I get a refund. It makes me mad that I lost an investment opportunity all year and the government got it tax free. It’s too bad there’s not a more sure fire way to ensure that you receive no refund and actually get to take home what you are supposed to every month, but I guess that’s not entirely possible with deductions…

    • Anonymous says:

      Hi Krista it depends on why you got the refund. Your workplace can only use the annual tax forms to base the calculations off. They won’t know if you had medical expenses to claim, RRSPs or donations, etc. If you consistently get larger returns then you are expecting visit an accountant to see if you can swing more onto your paycheque than waiting for the tax return.

  14. These are all fantastic ideas! Now I am crossing my fingers for an even larger tax return. But I have been planning all year to put the entire sum toward my student loan, and I am counting on that fact in order to reach my goal of having it all paid of by June. Still, I feel equally as excited for my tax refund as I would if I were using it to buy an expensive new toy.

  15. Ella says:

    For me the tax return is extra money, I don’t put it in my budgeted earnings therefore the whole thing goes to CC debt immediately.

  16. Jason says:

    I receive a return in the mid-4 figure range. Put 1/3 into my Roth, 1/3 into my housing fund, 1/6 on top of my already adequate emergency fund, and am currently deciding what to do with the rest.

  17. Meghan says:

    I won’t be getting a big refund this year, since one of my jobs did not deduct any income tax. But I won’t have to pay any either due to rrsp contributions/education credits. I really feel at a loss what to do, my emergency fund is funded, student loans paid off, no credit cards… I have a small LOC with interest-only payments that I use as an investment loan, might pay that down, or put the money in my house fund towards a down payment. Or I might just save it for the summer when my income drops due to a few job contracts ending. It always feels like there is too much to do, and not enough money to do it! Sigh!!

  18. Frugal Fries says:

    This year I can’t really use the 90/10 approach that seems to work for you.

    Half will be going towards the RSP and the other half will go towards the wedding.

    I might drop 0.01% into my fast food budget though. You’ve gotta live a little, right?

  19. munchkin says:

    Some of us may not be getting a refund.. LOL
    I wrote a post about this a little while ago was wondering if you could take a look and let me know your initial thoughts? I know you’re not an expert but you know more than me Im sure :)

  20. M. Alice says:

    Mine will be going directly into my TFSA! (Yay for FINALLY being debt free!)

  21. I was surprised to be getting a refund this year — I did some pre-calculations based only on my income and my paycheck withholdings, and expected to pay in the low 4 figures. But when I was using TurboTax, I added in the tuition that I’m paying for grad school — and all of a sudden I got a couple of hundred dollars in a tax refund! (They went straight to grad school savings, to repay my student loans.)

  22. Joe says:

    I agree that a small splurge can prevent waste and I employ this tactic but, unless you’re getting a small refund, 10% is a bit much. I am only going to buy a used $20 copy of Halo: Reach and probably a bacon cheeseburger from Five Guys which will be under 1% of my refund. Also, this is only if you’re not in consumer debt. If you’re in debt, you’ve already done your splurging.

  23. Rose says:

    Mines almost all gone….I got about $330, but my ex owed $500, and since they were his deductions too, we split the refund..

  24. Slweal says:

    I use mine to pay my auto insurance in full. A payment plan with my insurance costs 18% on the unpaid balance- worse APR than my credit card – but no they won’t take credit payments either. Thinking of switching to something other than AAA.

  25. I put all of it into savings, and about $50 for books (to study).

  26. I plan to top up my TFSA emergency fund and throw an extra $150 into my vacation fund!

    What ‘Savings:Fun’ ratio do you suggest for extra cash like bonuses and tax returns?

  27. jay says:

    Great post. especially #6
    We’re getting a lot of people who are using their refund to replace an engine or transmission.
    This makes a lot of sense since we have a 3yr/100k mile warranty.
    Sure beats a new car and all of that additional debt.

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