One detail I did not cover in the previous ‘leftover’ about investing was the tax question in the context of IRAs. Should I opt to save my money pre-tax or post-tax?
I initially struggled with this question. If felt important because money, you know? But the more I looked at the question, the more I started to feel the right answer was never going to involved a complex calculation. There are, after all, too many unpredictable variables that will influence tax rates four decades from now. Crunching the numbers just did not seem possible – or time efficient – to help split the hairs over this decision.
I decided on the following process – I simply ask myself if I can afford to pay the tax now. If the answer is yes, I usually opt to pay now in the form of a Roth IRA (or 401k, etc). If I cannot, I do the pre-tax deduction. My logic is very simple – having money when I need it will matter more than accumulating a few extra dollars when I do not. So, if I don’t need it in the moment, I just pay the tax so I’ll have less tax to worry about paying later (when I might not be able to afford it).
The best part of my approach is how it simplifies the process and keeps my mind free to focus on other things (like this taxing blog). So although I acknowledge how sitting down and thinking through all of these tax implications down to the third decimal place might turn out to be valuable someday, I prefer to spend the time I have today for other activities.
Footnotes / MMM
0. Who is this…Mr. Money Mustache?
My prior leftover opened with a reference to the Mr. Money Mustache blog. But who (or what) is MMM?
The MMM blog, in general, is an informal resource for personal finance. There are a lot of other similar sites out there with similar information. I like MMM due to his combination of directness, humor, and transparency.
A friend who is almost ready to retire early himself introduced me to the blog. He said his first thought when he read MMM was that I’d created an alter ego and started writing my own secret blog. Well…
The big misunderstanding about MMM is that it is focused on investing and saving. This is undoubtedly an important aspect of his writing. But the most value he brings to his readers comes from his relentless effort to cut down on personal expenses. In a certain way, his blog is more about living a green, sustainable lifestyle than it is about the Vanguard Total Stock Market Index fund. In the initial years of his ‘early’ retirement, the blog’s focus has shifted to emphasize these concerns with regular posts about energy conservation, designing green cities, or highlighting alternatives to oil-guzzling car travel.
