In Canada, April is usually associated with endless rain showers and tax season. Although tax season can be stressful, there can be a silver lining to the stress you are going through. The best part about filing your taxes?
Getting your tax refund!
It’s amazing how much a small increase in money can help you towards achieving your financial goals. During the time of Covid-19, we understand that finances can be tight and spending frivolously is tempting. While you may want to use your tax refund to splurge on new clothes, eating out or that one expensive item you’ve wanted all year- using your tax refund to help improve your credit, will be more beneficial in the long run. There’s nothing more rewarding than knowing you spent this money on self improvement or financial goals rather than material goods.
We recommend breaking up your tax refund to best budget for life’s unexpected expenses and put you on the path towards financial freedom!
So how do you use your tax refund to your advantage?
At Plastk, we understand how tempting it can be to jump at the first chance to treat yourself, the moment you get paid. While it can be important for your mental health to buy your wants occasionally, investing in your financial well being, can be more beneficial in the long run. That’s why we’ve broken down a few steps you can take to use your tax refund to improve your credit history.
Look at your debt
The first step you need to take towards improving your financial situation is paying off any debt you may have. Using part of your tax refund towards paying off your debt is the perfect way to start on your journey towards financial freedom.
It’s no secret that paying off your debt is the easiest way to start on your journey towards financial freedom. Credit card debt is the most common reason why an individual has a lower credit score, struggles to get approved for credit or struggles with their finances! Putting a portion of your tax refund towards your debts is an easy way to pay off your debt.
The Benefits of Paying off your Debt
We recommend using 30% of your tax refund towards paying off credit card debt. This means if you get a tax refund of $1,573 (the average tax refund in Canada for 2021), you will use $471.90 towards paying off your debt. Don’t have any debt? You can put these funds towards your personal savings, investments or getting a secured credit card!
Put Your Refund Towards Your Secured Credit Card
Another great way to improve your credit history is to apply for a secured credit card. Secured credit cards offer guaranteed, instant or easy approval and can help you achieve financial freedom. Something that can hold individuals back from getting a secured credit card is the deposit. Many people need to wait for payday, before putting down their deposit, or have to put their deposit down in increments. Now that you have your tax refund, you can easily put a portion of this towards securing your secured credit card!
With Plastk secured credit card, your deposit can be anywhere from $300-$10,000. If this part of your ‘tax refund budget,’ works out to be less than $300, no need to worry! Our company offers a deposit payment plan program, where we allow our customers to pay their deposit in increments that work with their financial situation. This means if you can only pay $100 once you get your tax refund, you can work towards paying our minimum deposit, at a pace that works for you!
This deposit will reflect the credit limit you will have once you start using your Plastk Secured Credit Card! As we’ve mentioned in various other blogs, getting a secured credit card is the easiest way to start building and improving your credit history.
We recommend using 40% of your tax refund towards the deposit for your secured credit card. This means if you receive the 2021 average tax refund of $1,573 you’ll put approximately $630 towards your down payment.
The Benefits of Getting a Secured Credit Card
SAVE SAVE SAVE
Putting money in your savings account or TFSA is a great way to save for lives unexpected problems, save up for big ticket items or help you put more money towards paying off your debts! Even if your current financial goal is just making it to payday, having a savings account will provide you with a strong foundation, that will allow you to live more freely in the long term.
As we mentioned in prior weeks, there are various different ways you can budget your money and grow your savings account. While some popular methods include the 50-30-20 or saving the 10’s, because your tax refund isn’t a regular paycheque, we can apply a slightly different savings method.
Now that you’ve put 30% of your refund towards your debt and 40% towards getting your secured credit card, you have 30% left. We recommend putting 15% of your tax refund towards your personal savings or investment account.
This means if your refund is $1,573, you’ll put $253.95 in your savings account. While this may seem like a small amount, it’s important to understand that savings accounts are designed to grow with you. Essentially, this means that saving small amounts of money regularly, is a more sustainable savings method than putting large sums of money away all at once. Saving small amounts over a long period of time also helps you to feel more in control of your personal finances.
Reward Yourself
We’ve talked a lot about how you should be putting your money towards improving your credit history, improving your credit score or paying off your debt. However, we understand that this year has been unbelievably hard for many people. That’s why we recommend putting a small sum of money aside to reward yourself for getting through this year. This money can be put towards a nice meal, clothes or other material goods, or redistributed to other aspects of the above budget.
If you’ve been keeping track of our recommended budget, you have 15% of your budget remaining for this section. This means if we’re using the $1,573 benchmark payment you’ll have $253.95 to spend on something to reward yourself.
Tax season doesn't have to mean stressing out over how to use your new found wealth! If you follow our tips, you can be well on your way towards financial freedom and improving your credit history! If you're interested in learning more about how to use your tax refund towards growing your personal finances or to build your credit, send a message to a member of our team on social media or via our customer service chat. We're always happy to help.
Disclaimer: The content provided on the Plastk Financial Inc. Blog is information to help Canadians become financially literate and learn about credit. Plastk is not responsible for building or ruining an individual's credit score or credit rating. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment, credit inquiries, and all other decisions should be made, as appropriate, only with guidance from a qualified professional.