Tax refunds can represent a substantial windfall so its worth giving careful consideration as to how you use the cash.  Its tempting to splash out with a big spend at the local shopping centre.  But it may be worth taking a deep breath and thinking about how this windfall may better prepare you for the year ahead.

Here are five ways to use your tax refund:

1  Contribute towards your mortgage

Making extra lump-sum payments can greatly reduce the life of your mortgage.  Paying $2,000 towards a $300,000 mortgage could reduce the amount of interest you will eventually pay by $6,000.  And if you have a redraw facility, the money will still be available should you need it.

2  Make a super contribution

By making a personal non-concessional contribution to your superannuation fund, you may be eligible for the Governments co-contribution scheme for low to middle income earners.  If you earn less than $31,920, the Government will match your personal after tax super contributions up to a maximum of $1,000.  The co-contribution gradually reduces the higher your income, phasing out completely for those earning more than $61,920.

3  Establish a high-interest savings account

You dont need much to get started as an investor.  Online savings accounts can offer a better rate of interest than standard bank accounts and provide the flexibility to add to your nest egg.  Lets say you deposit your $2,000 into an online savings account paying 4.5 per cent interest per annum: if you continue to add just $5 a day, youd end up with about $3,950 after 12 months.

4  Save for major expenses

Your tax refund could come in handy to cover any upcoming expenses, such as home renovations or school fees.  Its also worth establishing an emergency fund to cover unexpected costs.

5  Treat yourself to a holiday

Getting away for a holiday can be an ideal way to reward yourself and your family for all your hard work over the past year.