Tax refunds are due to be paid out in the next few months and it can be tempting to treat it as free money to be spent at will.

But there are smart ways you could put that money to work for you.

Lisa Dudson, a financial adviser at Acumen, says the first priorities should be paying off high interest bearing debt like credits cards, store cards or hire purchases.

But if you don't have any debt like that and your mortgage is under control there are some other options.

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Pay some off the mortgage
Paying a couple of thousand dollars off the mortgage could mean you cut the time it takes to pay off your mortgage by a couple of months or years depending on its size.

Think about what you could be doing with your money if it wasn't going out the door on a mortgage every month.

Get free KiwiSaver money
Check how much you have contributed to KiwiSaver since July 1 last year and if it isn't over $1043 yet top up your account to get the government's full contribution of $521.

You have until June 30 to top it up and get the full credit.

Dudson doesn't recommend putting in more than the $1043 a year unless you are saving for a house because once the money goes into the account you won't have access to it until retirement unless you meet strict criteria for financial hardship.

Invest it in a fund
For as little as $100 a month you could start investing in an investment fund.

Many of the banks and businesses that manage KiwiSaver funds also offer similar funds where you can also invest your money.

Unlike KiwiSaver you can take this money out before retirement.

Investing in an education fund for your children could allow them to go through university without getting a student loan. Photo/Martin Sykes.
Investing in an education fund for your children could allow them to go through university without getting a student loan. Photo/Martin Sykes.

Educate the kids

Put it into an education fund for the kids.

It's something lots of people want to do but never have the spare cash for.

Now could be the time to get it started with as little as $100 a month.

Put it towards a holiday or big ticket item
If you were planning to put a holiday on the plastic or the mortgage your tax refund could be used instead to start you saving towards that break rather than using debt to fund it.

That way you won't be paying for the holiday months after you have come back.

Use your refund to pay for a holiday with cash rather than putting it on the credit card. Photo/Rob Rickman.
Use your refund to pay for a holiday with cash rather than putting it on the credit card. Photo/Rob Rickman.

Have a splurge

Dudson said the decision on what to do with the money should be based on what is good for you.

"If you have been working really hard and saving really hard and a treat is going to make you feel really good then it's ok to spend it."