Stop Ignoring The Financial Forest

Get the heck out of the trees! You heard me. I’m talking to you recent financial independence convert. I see you raking around in the weeds. Hasn’t anyone told you that perfect is the enemy of good? This holds not only for tasks and relationships, but also for saving and earning. Your focus is all wrong. Your laser vision has honed in on absurdly small details and at the expense of the big picture. Stop ignoring the financial forest. It has an important story to tell above and beyond the trees.

Are you listening?

I know this sounds like a bunch of metaphoric mumbo jumbo, but there is a lesson to be had here. The excruciating detail of personal finance can be dizzying and lead to hours if not months of unneeded struggle and headaches. In reality, however, the tools needed to make the financial freedom journey are fairly basic. Fill your toolkit with the most important, there is always time for the details later.

Here are some examples of where I think people get needlessly derailed by paying too much attention to the trees and missing the financial forest as a whole.

Roth vs Traditional

Should you invest in a Roth or a traditional? The answer is yes. Yes, you should sock away as much money as possible in tax-deferred vehicles. The decision that is going to win the financial game is not which account you put the money in, it is that you are deferring tax in the first place. Roth, traditional, who cares?

I’m not trying to be flippant. The point is that the financial forest is much more important than the trees here. None of us are fortune tellers. Who can predict how the government is going to change tax law? Who can predict what tax bracket they will be in at what age?

You can’t. Nor should you cause yourself undo stress trying to figure it out.

Put as much money away in 401k, IRAs, HSA, or whatever vehicle you can get your hands on. I guarantee, if you do this, you will come out ahead in the end.

Mortgage Arbitrage

Pay off the house or invest? The answer is yes. Do either or. Again, the key point is to save as much money as possible and then use that money to make more.

If you pay off the mortgage faster, you won’t have to cough up monthly payments. Guess what you can do with that extra money? Invest! Put it to work for you.

If you continue to pay off the mortgage turtle style and invest the extra money you make every month in an S&P 500 index then guess what. You will be making extra money, that will compound, that you can eventually use to pay off the mortgage or keep investing.

The financial forest is all encompassing. It whispers its age old wisdom. Can you hear it?

Save. Invest. Pay down debt. Be responsible.

It doesn’t care in which order you accomplish these tasks, as long as you do them!

Frugality Faux Pas

Nothing drives me more crazy than reading blog posts about ways to save five dollars a month with frugality hacks. I’m sorry. It’s just not my cup of tea. You could spend all the hours in the day figuring ways to save a dollar here or there. And that would be great. But I think there are many other higher value targets.

Forget saving on knick-knacks and spend your time optimizing the bigger purchases.

Buy a used car!

House hack!

Live in a low cost of living area!

Sell your children! (Ok, that’s a joke!)

The financial forest dictates that you spend your time frugalizing the bigger purchases and costs. You can haggle at the dime store if you want. But I think you are wasting your time.

Final Thoughts

At the beginning of this grand voyage, it is easy to get caught up in the little decisions. And while I do believe in the aggregation of incremental gains, your time is valuable. See the financial forest from the trees and spend your time optimizing the high-value decisions. Which job you take, where you live, and what type of car you drive can all have a big impact on your finances.

Whether you go Roth or traditional, in my opinion, is something that should be debated amongst the academics.