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.)
(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:
- 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.
- 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.
- 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!)
- 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!