What to do with income tax money?

It’s just around the corner, possibly a large income tax refund. So what to do with ALL that money? Many times people already have plans on what to spend it on before even knowing the amount they will get. 

We know through science that people tend to spend money easier when they have no connection to it. What I mean is that if someone gave you money, there is a high probability that you will spend it guilt free. The same thing happens to people when they receive an income tax refund. Now is it always just blown on things that aren’t needed….no, but ask yourself if it is absolutely necessary to make that purchase and if there is doubt, chances are that it’s an impulse buy. 

One thing that I always recommend is to set aside some portion of it to invest for a financial goal. This becomes especially true for families that typically receive a substantial amount. More often than not when people think of saving for retirement, they don’t know where the money will come from or they say they can’t save because there isn’t any money. If you are living check to check at the present time, or can’t commit to saving each check, I always tell people to invest their income tax refund. My opinion is to invest into an IRA and if possible, the entire contribution limit which is currently $5,500 per year. This will eliminate the need to worry how you will fund your retirement since retirement planning isn’t on top of your mind in your younger years. Starting early can make a significant difference in how much you have in retirement. 

Every person has a different situation so it’s important to speak with a financial planner/advisor to create a plan for the money.

For more financial topics, please follow our blog. For information on working with us, please visit www.medinaadvising.com

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