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Fun or frugal... plan your refund purchases

Monday marked the last day that most people could files their taxes.

Assuming you've met the deadline and you'll be getting money back, what are you going to do with your return?

Whether you save it, invest it or spend it, University of Minnesota Extension educator Rosemary Heins said there is one thing you should do before cashing that check.

"The best way to use the money is to have a plan for figuring out where the money is needed the most," she said.

That means having an actual plan put in writing, Heins said. This doesn't have to be anything formal and it shouldn't be intimidating.

"A spending plan is just jotting down how you're going to use the resources you have. ... Actually write (it) down," she said. "When it's looking at you in the face, it becomes more real."

Heins suggested creating a plan with three separate sections:

• short-term goals will outline how you want allocate funds in the next one to six months;

• medium-term goals should look at the next one to two years and

• long-term goals go beyond that.

By actually setting down your goals on paper, Heins said it should be easier to decide what to do with your tax refund.

Heins also suggested prioritizing your goals based on what is most important to you.

"For some people it might be having that piece of mind that a part bill is paid off or that they've saved money for a rainy day fund or retirement," Heins said. "There is not a recipe; there are many recipes. I think it really does belong within the person themselves."

However, Heins did give four suggestions. First, pay off any outstanding bills. Pay off the ones with the highest interest rates first.

Second, start putting aside money for emergency situations, such as medical expenses, car repair or a layoff from work.

Lisa MacRae, customer service representative at White Rock Bank, said that there are two main options that people can use to save their money for the medium-term.

Savings accounts allow people to be able to withdraw money whenever they need it, she said.

"You have access to it on a daily basis so you can deposit or withdraw," MacRae said, but added that savings accounts generally have lower interest rates.

For people who don't need to have access to their money in the near future, certificates of deposit are another option. CDs are timed deposit accounts that have specific maturity dates and generally have higher interest rates than savings accounts, MacRae said.

At White Rock Bank, they are they are available with terms from three months all the way up to three years.

"If you've got the ability to get a savings account, I'd recommend that, MacRae said. "But if you have the ability not to touch (your money) I'd recommend a CD."

Third, start saving up for long-term goals, such as buying a house or for retirement.

Finally, once emergency and long-term funds are in place, you can start saving for special purchases, such as vacations, home renovations or a new car, Heins said.

"I'm really promoting that you think through and hopefully take care of the needs rather than the wants," she said.

But, Heins added, there's nothing necessarily wrong with going on a shopping spree with that tax return check, either.

"Blowing it is a want," she said. "As long as they've thought it through, that's fine. There's nothing wrong with having fun."

Sarah Gorvin
Sarah Gorvin has been with the Republican Eagle for two years and covers education, business and crime and courts. She graduated from the University of Minnesota-Twin Cities in 2010 with a  journalism degree.