05/16/2016 07:07 EDT | Updated 05/17/2017 05:12 EDT

What To Do With Your Tax Refund

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Isn't it a great feeling when the government actually puts money back in to your pocket? A rare occurrence -- but once a year Revenue Canada will assess the amount of taxes you paid in the previous year, and if you overpaid, they will return the difference.

When a refund is granted, keep in mind that this money was yours to begin with, not a gift from the government. Nonetheless, it's still great to receive those additional funds. Now that you have that extra cash on hand, let's look at ways to maximize your tax refund and get it working for you.

Start an emergency fund:

An emergency fund is exactly that: money that is kept aside and only spent in an emergency. Very often, people find themselves in a predicament. Financial emergencies such as a broken down car, job loss or a leaky roof can eat a big chunk of your savings, or cause you to go into debt. Why not use that tax refund, or a portion of it as a lump sum into a high-interest savings account for emergency savings fund? Once you have that portion of savings, you can add smaller monthly amounts to increase that emergency fund.

Invest in RRSPs and TFSAs:

Investing in RRSPs and TFSAs are always sound economic investments. You're using your own money as a tax deductible safe guard against impending taxes in the current year. With multiple ways to invest, increasing and diversifying your financial portfolio is a great long-term strategy. Each year, your "Notice of Assessment" will indicate the amount off RRSPs you're permitted to invest. The TFSA cap is set at $5,500 annually.

Pay off your credit card bills:

Credit card bills are consumer debt which is negative debt. If you have outstanding balances I always advise to pay them off quickly. With many credit cards charging up to 20 per cent interest, credit card balances can halt your financial flexibility. Depending on the amount of your tax return, this is a unique opportunity to clear some of that debt and put you on the path to savings.

Improve your home:

Home improvements are a wise investment. They can increase the value of your home and are just plain necessary at times. It's always smart to get in front of costly maintenance beforehand by completing preventative maintenance. Perhaps you've wanted to upgrade that energy draining appliance for a while. By purchasing a higher quality appliance you could save on energy costs down the road. Maybe there's upgrades such as new flooring, a new bathroom or new countertops that's been long awaited. Using your tax refund for upgrading your home can be an added benefit to your financial future.

Entering the stock market:

Many have wondered about dipping their toes in the stock market but have been hesitant to jump in. Having this extra cash on hand might compel you to take the plunge. Individual stocks can be a safe investment if you're willing to hang in there for the long term, and if you have done your homework. Most individual stocks pay dividends, which will extend to ongoing perpetual income. Look at reliable blue chip stocks that have a history of not missing dividend payments. Ensure that you do your research; speak to a financial advisor or someone with knowledge in this area. a little:

As important as it is to be fiscally prudent, it's still important to relax, and reward yourself for being responsible and keeping your books in order. Treat your partner, or the entire family to a special dinner or night on the town. Perhaps you can purchase a new piece of clothing that you wanted for a while. Maybe there's a charity that you're passionate about and have wanted to donate to their cause - now you can.

How you invest your money is a personal choice. The above suggestions are all prudent ways to re-invest your tax return however, there are many more. Depending on the amount of your return, you may prefer to invest in multiple ways. It all boils down to your comfort level and priorities.