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I recently came across a personal finance Instagram account that looked different from all the others I follow.<\/p>\n
There were no motivational Tweets inexplicably shared as Instagram posts.<\/p>\n
There were no \u201c10% average return\u201d projections.<\/p>\n
There weren\u2019t even the obligatory, \u201cStop spending all your money on takeout, you fat cow!\u201d posts.<\/p>\n
(Can you see why personal finance corners of the internet need a makeover? I digress.)<\/em><\/p>\n Often times in an effort to make things simpler and get people excited about investing, we often present half-truths or \u201cThis is true, but only with this very important caveat<\/em>,\u201d statements in pithy, easily shareable ways (because #content, right?).<\/p>\n This account brought up the hard stuff: Inflation risk. Macroeconomic trends. What happens if you take index investing to its logical extreme, wherein everyone becomes a passive index investor, and suddenly the market starts acting crazy because it\u2019s theoretically \u201cprice-insensitive.\u201d (Oddly enough, the Atlantic just wrote a piece about this very topic<\/span><\/a>.)<\/p>\n \u2026when I tell you I spent the entire rest of that Saturday laying on the couch, staring at the ceiling, and questioning everything I believe, I\u2019m not exaggerating.<\/p>\n For starters, I consider myself pretty well-read \u2013 I\u2019ve probably churned through 10-12 personal finance books in the last few years, and spent an equal amount of time listening to podcasts, verifying my strategies using sources like NerdWallet and Investopedia, and simply talking to other personal finance nerds<\/em>.<\/p>\n The idea that some giant, unnoticed macroeconomic trend could blow up my entire plan (or, more specifically, that I\u2019d have to become an economist to understand what to do) utterly freaked me out<\/strong>.<\/p>\n Upon further research, I know it was just the accumulation of all <\/em>the potential worst case scenarios in one spot that sent me over the edge \u2013 that feeling of, \u201cShit, do I know ANYTHING?\u201d But in reality, a lot of the topics broached were still in my realm of awareness already \u2013 they just weren\u2019t the front-and-center focuses of my personal finance knowledge repertoire.<\/p>\n And in full transparency, I, too, get frustrated by some big personal finance accounts who paint half-truths and generalizations as cold, hard facts. The underpinning of that frustration isn\u2019t fair, though, because it assumes that those accounts\u2019 followers aren\u2019t fully competent adults, capable of doing their own research and making decisions for themselves.<\/p>\n My biggest takeaway was this:<\/p>\n You have to focus on what you can control, because you have very little control over market returns and inflation. You can<\/em> control for (a) your own tax liability and the tax \u201cdrag\u201d on your portfolio, and (b) your diversification.<\/p>\n<\/blockquote>\n Of course, the other obvious thing you can control is increasing your save rate. Even if, for some reason, the market has horrifically low returns over the next two decades, you can help offset that pain by keeping your living expenses low (read: reasonable) and saving more of your income. <\/p>\n Because after all, the people who are truly relying on an everlasting 13.3% S&P 500 return (the average annualized rate of return over the last 10 years<\/a>) are those who may not be saving very aggressively in the first place.<\/p>\n This is a huge one. And really, there are only a few major (legal) ways to control how much you\u2019re paying in taxes:<\/p>\n Contributing to a pre-tax 401(k) to defer up to $23,500 per year<\/a><\/p>\n<\/li>\n Contributing to a Roth IRA to get money in an account that\u2019ll never be taxed again, up to $7,000 per year<\/a> (post-tax money, but amazing tax-free growth potential)<\/p>\n I often get asked what the point is of investing in a Roth IRA instead of just going straight to taxable investing, since your contributions are taxed in your marginal tax bracket for both (theoretically) \u2013 the difference over decades can be significant, so it\u2019s definitely worth it to consider maximizing that Roth IRA goodness<\/p>\n<\/li>\n<\/ul>\n<\/li>\n Contributing to other pre-tax accounts that are a little less common but great if you can get them<\/p>\n The HSA<\/a> ($4,300 per year)<\/p>\n<\/li>\n The SEP IRA or Solo 401(k), if you\u2019re self-employed (I think the Solo 401(k) is superior, for reasons I detail here<\/span><\/a>)<\/p>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n Here\u2019s the thing \u2013 you can save thousands of dollars per year<\/strong>, every single year, by leveraging accounts like these. And as they grow, you\u2019re likely to see your savings increase exponentially over time (since the \u201ctax drag\u201d on your investments compounds just like growth does).<\/p>\n Consider this hypothetical:<\/p>\n Hot Girl Heather makes $120,000 per year. She\u2019s probably a corporate big shot or works in medical device sales or has some other, high-paying Hot Girl career.<\/p>\nWhy this knowledge presented this way sent my assumptions into a tailspin<\/h4>\n
How I reasoned my way through some of these big \u201cdoom and gloom\u201d personal finance topics<\/h4>\n
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Controlling your tax liability<\/h4>\n
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