How to Spend (or Save!) Your Tax Refund for Maximum Happiness

Hundreds – or thousands! – of dollars is about to hit the bank accounts of tax-filers everywhere over the next two months. That’s right, it’s tax refund season – and it’s time to make sure that you spend (or save) your tax refund for maximum happiness.

I know, taxes and happiness don’t usually go hand in hand, right? But they totally can, especially when you’ve got some fresh cash to play with in your account. Thanks, taxes!

The tricky thing is, there isn’t one guaranteed way to make sure that money will make everyone happy. (And even if there was, you know the internet would find a way to argue about it anyways. You know we would.)

Your tax return plan for maximum happiness might look similar to mine, or it might be wildly different. Luckily, there are four big strategies that can up your happiness quotient this tax season, based entirely on the things that matter most to you and your money right now.

And yes, these things can totally change from year to year. As you’ll soon see, they definitely have for me, and will continue to in the future!

The “Duh”: Save it for retirement

In case you’re not super-well versed on how tax-deferred accounts work (that’s the RRSP in Canada, or the 401k and the Traditional IRA in the States), there is actually a reason every personal finance article ever says that the only “real” way to handle your tax return is to toss it back into your retirement savings account.

Related: The Millennial’s Guide to the RRSP

It’s because for most of us, a big huge chunk of our annual returns comes ℅ our contributions to tax-deferred savings accounts.

Basically, at their core, these accounts are a way to not pay tax now, and pay the taxes later when we’re done earning money.

When you contribute today, the government gives you back the taxes you paid on that money. Since you’ll have to pay taxes on the money when you take it out, you only really get the full benefit of the account if you toss those current-day taxes right back in to let them compound for the 35 years you probably have until you retire.

So if “doing money by the book” is your jam, you should get plenty of happiness out of sending your money right back where it belongs, in an Official Sense. Hit up that RRSP, 401k or Traditional IRA and watch your retirement savings grow, my friend.

The “Awww”: Send some to charity

This is by no means necessary, but if you’re suddenly flush with tax-return cash, one of the ways you can put it to good use is to send a bit of it to causes you care about.

Personally speaking, this became a lot easier for me when I sat down to define, in very clear terms, which causes that actually included. For a long time, I felt like I didn’t have a charity “thing.” I’d hop on any fundraising bandwagon, donate to just about anything that caught my eye, but nothing ever really stuck.

Until dogs.

These days, I know exactly which causes I will get involved in, from offering my time, to my cupcakes, to (some of) my tax return dollars. That kind of clarity has been hugely helpful in terms of making giving a consistent part of my budget, and an inconsistent delight when extra cash comes my way.

If you know there’s a cause that holds a special place in your heart? Sharing the tax-season love is a good way to spend that return, and earn yourself a major happiness boost in the process. Plus, if you’re in Canada, your donations over $20 will snag you a sweet tax receipt, and you can claim them on next year’s return!

What a great and heartwarming vicious cycle.

The “Yes!”: Accelerate your progress towards a goal

If I’m being perfectly honest – and why wouldn’t I, after all that I’ve admitted about doing wrong with my emergency fund, my car insurance and my credit cards – I haven’t deposited a single cent of my tax refund into my RRSP. Ever.

And yes, I got the bulk of my tax returns for the past few years thanks to my RRSP contributions.

For two years, my tax return was 100% dedicated to helping me top up and accelerate my house downpayment savings account, which was a huge help as I tried to save $16,000 in just over a year. (Lol wut.) This year, my return was a bit more divided, but some of it still went towards helping me hit a big financial goal: I used some of my refund to top up my emergency fund.

If you have an aggressive savings goal, consider this a free pass to send your tax return directly to your goal’s dedicated savings account.

Related: The Case for Having Multiple Savings Accounts

If anyone calls you out on not doing the back-into-your-tax-deferred-accounts thing with it, here’s your response.

“I’m giving myself a bit of wiggle room so that I can hit my goal, on my timeline, without even thinking about raiding my retirement savings to help me get there. Because that would be way worse.

If they’re enough of a nerd to be scolding you about how you handle your retirement accounts, they’ll totally concede, because withdrawing from a tax-deferred account comes with a tax bill you would not believe.

The “Treat Yo’self”: Spend a portion of it, guilt-free

Even before I had done the work to outline what my goals were, or when I wanted to achieve them by, I was pretty good with handling my tax return. I’d usually put about 90% of it back into some kind of financial goal, even if I didn’t have much direction for it.

But notice how I said 90%, not 100%?

Yeah. Let’s talk about that other 10%.

When I first started filing my own taxes using SimpleTax, I was rocking a decidedly new-grad salary, and with that, I had oodles and oodles of tuition tax credits to claim. Could I have saved them for higher-earning years and gotten more tax back?

Probably, yeah. I’m no tax expert.

Did I claim as many as I could, and get literal thousands of dollars back when I filed my taxes?

Oh heck yeah I did.

My tax return that first year ended up being more than I took home in a month by a sizeable margin. I was pretty chill about it considering, but even 10% of that amount of money seemed like the height of luxury.

So after I had filed away 90% of my tax-season windfall, I spent the rest of that money like it was going out of style.

And I would encourage anyone to do the same.

If you’re saving the bulk of your tax return, and you’re living well within your means regardless of your salary, and you think a few hundred dollars could finally get you that insert-thing-you’ve-wanted-forever-here? Go get it. Or do it, or see it, or eat it, or whatever the thing you want to spend money on is.

I don’t even think I have to explain to you how that’ll score you a happiness boost, right?

So let’s recap: If you’re looking for a way to handle your tax return that will give you a big happiness boost, you’ve got a huge range of options, and some of them will be a better fit for you than others. You could play it by the book, give some of it away, use it to top up your goals, or spend a chunk of it guilt-free.

And those are only four of them! I’d love to hear how else you guys are considering using your refund this year, or which uses have been particularly happiness-inducing in the past!

PS. To get that return in the first place, you need to file your taxes. If you’re in Canada, I seriously can’t say enough good things about Simpletax, which is how I’ve filed for the past seven years.