It's finally here. With only a few days left before the deadline, (hopefully) most of us have already filed our taxes, which means we are just waiting for that sweet refund to show up in our mailbox or bank account. The IRS has already paid out 73 million tax refunds, averaging $2,831 apiece, according to the latest IRS statistics. That's up 1.5 percent from the same period last year.
A recent National Retail Federation survey found that approximately one in 10 taxpayers plans to use their refund to invest in a major purchase, and nearly 15 percent will splurge on a vacation.
And though it does sound super fun to go out and buy yourself a Celine Luggage Tote (I literally check out women on the street carrying this purse), there are a couple more practical things you should do with your return that will help you in the long run. Here are a few ideas.
It is probably best to talk to a professional about this one, but know that investing can take many forms. You can invest in the stock market, using tools like mutual funds and ETFs, or you could increase your 401(k) contributions at work and cover the difference with your tax refund.
2. Pay off your debt
According to January 2014 Federal Reserve statistics, the average U.S. household owes $15,270 in credit card debt and $32,258 in student loans, in addition to the car loan that most Americans have. If you are carrying debt, especially high interest credit card debt, you should consider taking a part of your refund and paying down that debt. Paying more than your minimum payment goes a long way to eliminating debt more quickly.
3. Put it towards retirement (yes, already)
Putting the money toward your traditional IRA or a Roth IRA retirement account may be the wise way to go.
4. Make a home improvement
Homeowners (yes, they exist) can use the extra money to redo the kitchen or put on that addition they've been considering. This should add equity to the value of your home over time.
5. Put the money towards hiring an accountant for next year
If you found yourself totally overwhelmed with your taxes this year and almost had a breakdown because you thought you made a mistake, maybe it's time to hire some help for next year.
6. Give your emergency fund a boost
Saving helps you create a cushion that will protect you from relying on your credit cards for unexpected expenses. Putting away your refund may give you the savings head start that you need. And if you don't have an emergency fund, start one now.
7. Do treat yourself (a little)
Teresa Dentino, CEO and Founder of The Financial 411, says a splurge can be an important part of your investment strategy, and an incentive to keep on track with your financial goals. Don’t blow the entire thing — but a little treat can be a reminder of your hard work.