When a Canada Revenue Agency (CRA) payment hits your account, it can be tempting to use it for a quick splurge. But what if you could make that money work harder for you?
Canadians receive a variety of payments from the CRA, such as GST/HST rebates, child benefits, and climate action incentives. These payments can range from a couple of hundred dollars to a few thousand depending on your family situation and income. Instead of letting that extra cash slip away on everyday expenses, here are a handful of ways to make the most of it and boost your financial future.
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The RRSP
One of your best options is to invest the money into a Registered Retirement Savings Plan (RRSP). By contributing to your RRSP, you’re not just saving for your future. You’re also reducing your taxable income for the year. This can lead to a refund during tax season, giving you more money to either invest or save. Plus, the growth within an RRSP is tax-deferred, meaning you won’t pay any taxes on the gains until you withdraw the money in retirement.
Emergency savings
If retirement feels too far off, another option is to build up your emergency savings. Having a solid emergency fund can give you peace of mind when unexpected expenses pop up, like car repairs or medical bills. Financial experts recommend having three to six months’ worth of living expenses saved, just in case. Putting your CRA payment towards an emergency fund ensures that when life throws a curveball, you’re financially prepared without needing to rely on high-interest debt like credit cards.
A safe investment for beginners
If you’re looking to invest but aren’t sure where to start, a good option is an exchange-traded fund (ETF) like iShares S&P/TSX Composite High Dividend Index ETF (TSX: XEI). ETFs are a great way to get exposure to a broad range of stocks, and XEI focuses on Canadian companies with high dividend yields.
This means you not only have the potential for capital growth over time but also benefit from regular dividend payouts. Dividends can be reinvested to buy more units of the ETF, creating a compounding effect that grows your investment over the years.
Investing in XEI is an excellent way to take advantage of the long-term growth potential of Canadian stocks. It includes major players like banks, utilities, and energy companies, all of which have shown resilience and the ability to pay consistent dividends. Over time, these dividend-paying companies can provide a reliable income stream. This is particularly helpful if you’re thinking ahead to retirement. Plus, since XEI is diversified, you’re not putting all your eggs in one basket, reducing the risk compared with buying individual stocks.
Bottom line
So, what should you do with your CRA payments? Whether it’s through contributing to your RRSP for a tax break, boosting your emergency fund for added financial security, or investing in a reliable ETF like XEI, you can turn that extra cash into something that benefits you well into the future.
