From 2013, what should you do with found money? Pay off Debt is a good way to start.
Found Money: Windfall or Savings?
Simple Savings Routine
Some people have a very good equation at tax time:
- Put moneys into RRSP up to Limit
- Take Tax Rebate from this saving and apply to mortgage as overpayment
- Repeat method each year
An excellent Savings routine, and if you can do this a good way to build up your RRSP and pay down your mortgage.
Let’s Go On Vacation
Other folks I know view Tax rebate moneys as “found money” and feel that since it hasn’t been planned for, it can be spent however they wish and they typically use it towards a family vacation. Surprisingly, I don’t think this is a bad thing, if the family vacation is just that and not an excuse to spend more money on vacation and go farther into debt. Vacation and rest is important, as long as it is well planned (financially).
I Hate Tax Rebates
Another group of folks I know, despise getting a tax rebate, because that means the government has had your money for the year, when you could have had it instead, and they make sure their employer takes off as little tax as possible, while ensuring they don’t owe money to the government come April 30th either.
I like this concept as well, and usually try to make sure I pay as little tax as I can.
At the end of it NOT owing money to the CRA is a good thing.
So what if I “find” money (say it falls off the back of a truck, or a relative gives me some)?
If you go with the RRSP routine, it becomes a savings windfall:
- Money goes to RRSP and creates a tax rebate
- Tax Rebate moneys goes onto Mortgage or into a savings vehicle if Mortgage is paid off.
I like that idea a great deal.
What do you do with found money?
I’d put it straight into savings or invest in market index funds. Nothing fancy!
Being a natural ditherer, if I had found money I would:
Pay the entire amount against the debt. If there was any extra left, I’d:
a. put some of it in a TFSA, if room
b. put some of it in a RRSP, if room
c. put some of it on the mortgage
d. give some of it to someone or something else that could also do with a boost
d. arrange some kind of treat for the family, from a tub of ice cream on up
It’s wishy washy, but I would relax more knowing that I had at least tried to cover all the bases.