By Casey Mysliwy
MoneyMix Assistant Editor
It's tempting to blow your tax refund on an impromptu shopping spree or the latest tech gadget, but don't drop those dollars just yet. Before you spend your refund, think about where that money would really be best used.
Put 50% of your refund toward paying off debt.
ditch your debt
Before you even think about splurging, consider any debt you owe. Aim to put 50% of your tax refund toward paying off debt. Apply it to your mortgage principal, make a larger-than-usual monthly credit card payment, or pay off part of a student loan. It might not be the most glamorous use for your refund, but you'll be one step closer to getting out of debt. Every bit helps.
Another option: Nail down any big-ticket items coming up on the horizon. A tax return can supply a nice chunk of cash to pay for that expensive dental work you've been putting off, overdue car repairs, or a semester's worth of college textbooks. You even could use your refund as part of a down payment on a new car.
Saving money for the long term is another smart decision. Sock away some cash in a mutual fund. When you withdraw it later, you'll be seeing even more dollar signs. You also can stash part of your refund in an emergency fund or IRA (individual retirement account) at the credit union. Down the road when you need that money most, you'll be glad you decided to save it.
add equity to your home
Ready for that new addition to your house? Or maybe you just need to pour that smooth new driveway. Consider spending your extra cash on something that is less likely to depreciate over time: your home. Tackle repairs you've been meaning to get around to, or make over your yard with new landscaping. Using your tax refund as a base, you could even take out a small home equity loan to cover projects you need done now—not next year. You'll be adding equity to your home, and making it a more comfortable, attractive place to live. You'll also be making it more appealing to a future buyer.
You didn't think we'd completely rule out having a little fun, did you? If you can afford it after you've covered your other financial bases, put some of your refund toward a trip you've been dying to take, a round of golf at that club with the steep fees, or an afternoon at that amusement park with the awesome nosebleed-inducing roller coaster.
Your refund also could help you accomplish personal goals. Sign up for a gym membership, enroll in a class to learn a new skill, or invest in some tools to make your hobby more rewarding. You even could donate to a good cause—with a receipt, you can take the charitable deduction if you itemize deductions on your next tax return.
However you choose to use your tax return, think about it first, look at your options, and make the best financial decision you can. Otherwise, you'll pay for it later.