Perfect Gets in the Way of Good: Finances Edition

Perfect Gets in the Way of Good: Finances Edition

I’m sure you’re familiar with the phrase “Perfect is the Enemy of Good.” I’m experiencing that in my financial situation here at the end of the year. Last week, I calculated our projected taxes for 2016 (PRO-TIP: Do this earlier than November!) and realized we’re set to owe nearly $7,500! Yikes! (It doesn’t help that I am self-employed and our PFD and Energy Program Rebate are both taxable.)

*Rewind* *Rewind*

(blatant Hamilton reference, yes)

When I started this blog 1.5 years ago, I could not decipher anything on my tax returns. Last year, thanks to this awesome post by Justin at Root of Good and tax strategies of both the Financial Samurai and the Mad Fientist, I was actually able to calculate what we would owe within a few hundred dollars (self-employment gets weird sometimes).

That’s some serious progress in my financial knowledge!

*Back to the Present*

Now, based on Justin’s tax efficiency, we’re clearly doing something wrong (he only paid $150 in taxes for $150,000 and we didn’t make nearly that much this year) and we have 6 weeks to correct it! Here’s where the PERFECT comes into play. In an ideal world, all of these things would happen:

  1. I open and contribute $18,000 to a solo-401k. This will reduce our taxable income significantly and, since we’re in the 15% tax bracket, save us $2,700 in taxes.
  2. We finish maxing out Mr. T’s 401k for the year (we’ve set the automatic contributions to max it out in 12 months, but since we didn’t start that until late in the year… he won’t max out for 2016) further reducing our taxable income and saving us more on taxes.
  3. We max out both of our Roth IRAs for 2016 (neither of which we have started) because we’re pro-Roth IRA for saving for our kids’ futures. (Ideally, we hire them so we can put money in Roth IRAs in their names and have less self-employment income! More tax efficiency!)
  4. We pay down our mortgage because we hate it and having this debt involves more than just the numbers. Based on our quality-adjusted life year calculations, having no mortgage is worth it.

In the real world, none of these things are going to happen in the 6 weeks before year end.

Too many choices leads to stagnation. There is always a way to optimize more than you are currently doing, but don’t focus on that!

Look at Where you Are. Look at Where you Started.

(Are you listening to Hamilton yet? Get on that!) 

Luckily, though we’ve done things “wrong” this year, we’ve also made significant progress on our goals! If we had waited to save before figuring out the most optimal path, we would be much further behind.

  • Our mortgage balance is currently under $60,000! That means we’ve paid off 1/3 of the remaining principle since starting this blog!
  • We’ve increased Mr. T’s contributions so he’ll max out his 401k for the first time in 2017.
  • Our investments have almost doubled since the start of the blog.

We’re moving forward. We’re not doing ALL THE THINGS we want to be doing and we haven’t fully optimized our financial situation yet, but that’s okay.

Celebrate the Good. Take Steps Toward Perfection.

So, we’re going to owe more taxes than anticipated this year. Oh well. We’re figuring it out.

You’re doing good things with your money, too. What are they? What can you celebrate? Don’t let the perfect plan get in the way of having a good plan. 

Next year, we may be adjusting our goals. Maybe we’ll stop prioritizing the Roth IRA because it saves us tax money to put them in a 401k for me instead. Maybe we’ll cut back a bit on aggressively paying off the mortgage to increase our savings. Maybe we’ll start a side hustle so we can start paying our kids. Maybe we’ll only pick one of those things to change.

Surely 2017 won’t be a perfect year either. But we’re doing good things.

The important thing is that we’re moving forward with the good plan before figuring out what the perfect plan would be. Stop waiting for perfect. Take a step toward the good and you’ll get closer to the perfect!

Disclaimer: This post may contain affiliate links which, at no cost to you, helps support Northern Expenditure and keeps our heat on in the winter. Thanks!

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20 Comments

  1. TJ

    Congrats Maggie – what an awesome achievement with doubling your investments over the course of the blog!

  2. As hard as it was to keep on my feet in 2106 (and SURPRISE I am sick again!) we closed the book on two major financial things this year and a few minor ones too. And all the minor things add up, so it matters. As always, #1GoodMoneyThing makes a difference.

    • MaggieBanks

      I love that movement you’ve started. Celebrating is always better than beating yourself up.

  3. It’s definitely an iterative process. With each year you get better with tax and savings strategies. Perfection is of course a myth and just as you start to understand one topic like taxes laws change or you get new revenue sources.

    • MaggieBanks

      Right. Definitely. And I’ve made major progress in my understanding of it all, so we’re still moving forward!

  4. “We haven’t fully optimized and that’s OK” – love that line! You are moving in a great direction and you know SO much more than you did before. I sometimes think back to where we may have ended up if we had intentionally made big changes and at least moved forward (without worrying about perfection!)

    • MaggieBanks

      Yes – intentional, big changes without worrying about perfection! Every year we’ll get a bit better. 🙂

  5. Thanks – I really needed this today! Have been feeling discouraged financially (not to mention politically, today). Great pickmeup reminder.

    • MaggieBanks

      Oi. If this helped you process this election, I’m glad. Because it didn’t me and I didn’t even share it yesterday because nothing made sense in the world. But we need to look at how far we’ve come with everything. 🙂

  6. Nice loopholes on getting your taxes down a bit. We ran into a similar tax man issue our first year working. I had myself as single, Mrs. SSC had herself as single, and we were getting taxed at rate A, single person, with our income. Come tax time, the IRS, was like, whoa, whoa, whoa, you’re a household both making 6 figures, you’re in the upper tax bracket, cough it up folks!

    Seriously, it was almost $8k we had to write a check for. What a pisser. Afterward, we both claimed 0 dependents and had an additional $300/mo taken out of our checks for tax. Usually each year we are right at zero owed or a little $1k or so refund. So much tax….

    • MaggieBanks

      Yeah… we really didn’t optimize at all this year. We let feels get in the way. 🙂 Next year we’ll be a bit better!

  7. The real problem with perfectionism, IMO, is that for most of us who practice it, it’s a moving target. So we can never be satisfied because we keep raising the bar higher and higher. Once we recognize that can we be happy with good? I’ll have to answer my own question in another 6 months. We’re undergoing such a huge paradigm shift with no longer getting pay checks. I may need to redefine good for myself.

    Awesome job on the mortgage. You must feel incredible seeing that balance drop.

    • MaggieBanks

      More Hamilton references! “I have never been satisfied. I will never be satisfied!”

  8. Britt

    Maggie, I have a confession…I’ve never seen/listened/read Hamilton. I have no idea what it’s about. But you have inspired me to change that ASAP!

    I love this post. I am currently waffling between maxing out IRAs or our HSA for the year with some cash I’ve been sitting on. On one hand, if it’s in our IRAs it’s locked up and can’t be touched, but on the other we are hoping for #2 in 2017 and our deductible went up to $4500. So we might need some of that money for medical expenses. I like the idea of protecting it from ourselves, but not at the cost of being stressed while I (the income earner) go on maternity leave and have mega medical bills. But, I know we could get creative and tighten our belts a bit and try to save that money on top of this cash. Ugh, the dilemma! I’ve been mulling it over for months.

    Your thoughts remind me that either action is a great one, so I shouldn’t beat myself up if we go the HSA route. It still guarantees we’re using tax protected dollars, should we need to use part of the money for bills!

    • MaggieBanks

      I would go the HSA route in your situation as well. If that feels the best to you right now, move forward with with it! You’re doing good things!

  9. All goals will need tweaking. I think it sounds like you are doing pretty good. I think we will meet our Roth goals, but we never had the mister start contributing more to his 403(b) and we didn’t add a single extra to our mortgage payoff. I’m looking at 2017 and trying to decide what will be more realistic.

  10. A little late on reading this post, but I. Love. Hamilton. And love the references! My current mantra when I’m feeling down on myself is, “Look around, look around, how lucky we are to be alive right now.” 🙂

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