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Special to The Miami Herald

What would you do if you got a check in the mail for $2,800? According to the Internal Revenue Service, that is the average tax refund amount this year.

While it may be tempting to blow the whole sum on a fancy vacation or high-tech toys, financial advisors say it’s best to have a plan.

“The biggest mistake people make when they get an unexpected amount of money is go to Best Buy and buy a 60-inch flat screen TV, then out to dinner, then for a weekend in the Keys,” said Andrew Wilson, South Florida regional director for Merrill Edge, a subsidiary of Bank of America. “They dip into it a little at a time until it’s gone.”

Sit down and think about what is important to you.

“The biggest mistake consumers make is not having a plan,” Wilson said.

Most people will blow found money on a consumer-oriented purchase that won’t add value to their net worth, said Cathy Pareto, a certified financial planner with Cathy Pareto and Associates in Miami.

According to a study by the American Institute of Certified Public Accountants, a third of people who get a tax refund fritter it away on day-to-day purchases.

To help mitigate that impulse, if you get a chunk of unexpected money, put it aside for at least two weeks as a “cooling off” period to let you think, said Elaine King Fuentes, a Miami certified financial planner and author of Family and Money Matters.

During that time, sit down with your family and figure out what’s the biggest drain on your budget, Fuentes said. Then carve up the money into pieces: pay down debts, invest, splurge.

“Think about the buckets that are important to you,” Wilson said.

Pay down debt

If you have credit card bills or student loans, make a deposit to your mental well-being by paying down some debt, Wilson said.

“The No. 1 one factor to think about is the Achilles heel of most people — credit card debt — people just slogging along, paying 14 percent interest on what they buy,” Pareto said. If you’re carrying a lot of debt, then choosing to invest the money likely won’t offset that high interest, she said.

“You need to pay down that debt. Do away with the things that are sucking down your wealth, rather than trying to add to your wealth,” Pareto said.

Invest for retirement

Paint a picture of what your retirement looks like, Wilson said. “Are you close to hitting your goal? If not, what do you need to do?” he said.

If you have paid down your debt, give yourself a gift and fund an IRA for yourself for this year, Pareto said.

Depending on your situation, you could make a tax-deductible contribution to a traditional IRA and enjoy tax-deferred growth, or invest in a Roth IRA for tax-free earnings.

If your company offers a company match for its 401K, invest at least enough to get the match.

Set up an

emergency fund

Most people don’t have proper reserves, Pareto said.

The rule of thumb is three to six months of your salary, but if you have a fluctuating salary, such as a commission-based sales person, you should have more. It depends on your situation, Pareto said.

Do something frivolous

If you’ve taken care of your debt and retirement buckets, then treat yourself, but do it responsibly, Pareto said.

“Instead of a $3,000 vacation, take 10 percent, or $300, and do a weekend away or splurge on a dinner that you might not do otherwise,” Pareto said. “You don’t have to completely sacrifice. You want to provide some movement to improve your financial position, but you can have a little fun too.”

We all work really hard, Wilson said.

“It’s OK to splurge,” Wilson said. “Pay yourself first then have a little fun.”

Just don’t buy something that costs more than your refund, and that will get you into debt, said Fuentes, a proponent of living beneath your means.

Invest in an energy-efficient appliance

Buy a new energy efficient air-conditioning system or hot water heater to save on your electricity bill over time, Wilson said. Some energy-efficient home items, such as solar panels or a solar hot water heater, also can qualify for rebates. Check www.energystar.gov or with your county government office.

Save for college for your kids

If you have not started saving for higher education, open a 529 plan for your kids, which allows for your savings to grow tax free for college costs, Pareto said.

“Then have the grandparents contribute to it or add to it incrementally with $50 a month, or whatever you can afford,” she said.

Be charitable

If you have a little extra, “put it back in the universe and do some good with it,” Pareto said. “Find a charity or cause near and dear to your heart,” she said. “A lot of people live paycheck to paycheck, but it’s nice to pay it forward.”

Take a course

Take a professional development course to make yourself more valuable to an employer and more marketable if you’re looking for a job. “These courses are not terribly expensive and it can possibly get you a pay raise,” Pareto said.

Take a financial planning class at your local community college, hire a financial planner to help you with finances or invest in books or a class to teach your family the value of money, Fuentes said.

“These kinds of things tend to appreciate in value in the future,” she said.

Enrich your life

Enroll in meditation classes or a family yoga workshop, Fuentes said.

“A clear and relaxed mind keeps the body healthy, and this can help you reduce your health care costs in the long run,” she said. “You need to take care of your health and well-being, because you can’t buy that.”

Plan for a lower refund next year

If you’re consistently getting high refunds, you’re withholding too much money, Pareto said. Consult your tax advisor to see if you should adjust the withholding on your W-4 form with your employer.

If you count on a tax refund to get you out of a financial bind, take a different approach to saving, Fuentes said. If you’re not a disciplined saver, set up a direct deposit of your paycheck and have part going to savings.

While a tax refund may seem like found money, “it is still an interest-free loan that you’ve given to the government and they’re returning to you,” Wilson said. “When you file your taxes, the optimum situation is you owing nothing and getting nothing back.”

Read more Personal Finance stories from the Miami Herald

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