885: Front-Loading AND The Benefits of Keeping Your Finances Separate by The Mad Fientist on Tax Optimization
This is optimal finance daily episode eight eighty five frontloading and the benefits of keeping your finances separate both by the mad scientist of mad scientist Dot Com and I'm Dan. I'm your host here on the show very happy Friday to you. Hope you've had a great week weeks so far this is where I read to you from some of the best personal finance blogs on the planet and thank you to our friends at helper and financial. If you're trying to save for retirement or your Kid's college funds it helps to be organized with your finances let Helper and financial coordinate award innate your financial life helper and financial is a fiduciary fee only independent advisor that offers a combination of online tools and personal connection to help clients systematically achieved their goals find out how close you are to achieving your financial goals at helper and financial dot com slash O. F. D. that's H._A.. L. P. E. R. N.. Financial Dot com slash lefty and I've got two posts for you today both of them from the mad scientist so let's get right to it and continue optimizing using your life <unk> frontloading by the mad scientist of mad scientist DOT COM. I wonder what my H._R.. Department thinks of me not only am I probably one of the youngest August employees maxing out every tax advantage to count available. I recently elected to divert nearly my entire paycheck or these accounts since I'll be quitting my job sometime this year I wanna make sure I take advantage of my contribution allowances. Well I still can so. I'm contributing thing as much as possible for the first part of the year. This move got me thinking about whether frontloading your tax advantaged accounts is a good thing to do every year. There are a few reasons. This is likely a good idea stocks go up the S&P five hundred has risen over nine point five percent annually on average since nineteen twenty eight while it hasn't been a steady march higher. The overwhelming trend is upwards so it's reasonable to assume that investing earlier in the year is better than investing later since you're more likely to capture a bigger piece of. That upward movement this is one of the main reasons dollar cost averaging is considered a sub optimal strategy for investing lump sums postponed taxes another benefit of frontloading. Your retirement accounts is that you defer your taxes until later in a year. If the majority of your pretax paycheck goes to tax advantage to counts. There's very little income to tax so you don't have to give the government as much of your money. During the first part of the year contributing to retirement accounts doesn't affect your FICO taxes though so we'll still have to pay the full amount for social security and Medicare each month you'll end up paying the same in taxes by the end of the year but the money you save on taxes early in the year can be invested in your portfolio and can grow for you rather than for the government tax free growth frontloading also shields more of your investment earnings from taxes since you'll get more of your money into tax protected accounts sooner. Leave your job. If you lose your job or decide to quit during the year and you haven't frontloaded you may not be able to Max out your contributions for that year as I've shown previously maxing out your retirement accounts can help you retire years earlier so frontloading helps ensure that you take full advantage of those accounts every year final savings boost. If you're like me and are preparing your last year of full-time employment it may be possible to eliminate all of your federal income taxes during your final year. If you calculate how many months it would take to Max out your retirement accounts plus your standard deduction and then only work work that many months during your final year you could avoid federal income tax altogether employer match one caveat. You should talk to your H._R.. Department before frontloading any accounts that receive an employer match some employers only match a certain in percentage when the employees also contributes the same amount so it's possible frontloading would stop you from obtaining an employer match during the final months of the year which would be bad. I luckily received the same employer contribution whether I personally contribute or not so I don't need to worry about this but you should check before changing your monthly contributions. If you do need to contribute every month to receive the match you could always front-load the bulk of your contributions but leave enough of your allowance to contribute the match percentage for the rest of the year. You'll probably want to also leave a bit of room to account for any raises you may get during the year conclusion the benefits of frontloading compelling so I plan to front-load my retirement accounts from now on Sir and I have another post in just a sec but I thank you again to our friends at halpern financial. If you're like me you could probably be more organized with your finances. Maybe you're saving for retirement or for your kids college funds you want to find and an advisor whose independent fiduciary and fee only because fee based usually means that there's a commission involved helper and financial is all of these which means you can trust your best interest comes first with institutional access helper and financial nanteuil clients benefit from bulk pricing on investments not only that but help earned financial has no association with any bank broker or insurance company which gives them the freedom to select from any investment available to make the right choice for you find out how clues you are to achieving your financial goals at helper and financial dot com slash O. F. D. that's H._a.. L. P. E. R. N.. Financial Dot com slash Oh F._d.. The benefits fits of keeping your finances separate by the mad scientist of the mad scientist DOT COM. I've been in Scotland recently marrying my girlfriend of nearly ten years. We've been there for the last few weeks spending time with her family. She's Scottish as as well as visiting our friends and doing a lot of last minute wedding planning once my family and friends touchdown in the U._k.. For the wedding things got even crazier so I've pretty much been offline since posting my interview with Mr Money Mustache because this is my first post after getting married I I figured I should make it about my wife. Isn't everything about her now. In my Mr Money Mustache interview we learned that he and Mrs M. Both set out together to achieve financial independence and retire early hearing him describe their shared path to financial independence. It seemed like a great. Great situation since both husband and wife working to achieve the same goals and were willing to make the same sacrifices. Our situation is different. She loves her job. My wife isn't Afyon `test. She actually loves her job. And wouldn't you want to stop working even if she had millions of dollars in the bank since she has many decades of wage earning in front of her. It's hard to convince her to make some of the same sacrifices I'm making in my effort to achieve financial independence as quickly as possible doomed marriage no lucky for us we have had separate finances from the very beginning we met when I was studying abroad in Scotland in two thousand to being a typical American. I insisted on paying for everything for our first few dates. She led me pay a few times but then told me that usually people in Scotland split everything fifty fifty since I've never liked spending money and had no intention of trying to impress her by throwing cash around. I was happy to comply things soon became serious between us. I ended up moving back to Scotland after graduating. We bought a house together and all the While we continue to maintain our own separate finances joint account being homeowners and living together. We had many joint expenses that we needed to take care of so we decided to open a joint checking account every month we would each transfer for an equal amount into the joint account to cover our bills and then we were free to use whatever was left over in our personal accounts to do whatever we wanted this worked out great for us and continues to work well to this day happy coexistence since we are both contributing equally to the essentials. It doesn't matter what we each like to do with what's left over she can buy or save as much as she wants and I can save as much towards early retirement as I want and it doesn't cause any fights or disagreements love and marriage and if I while it is probably better to have both people in a marriage on the same path to F I if one partner is not up for it. It's not the end of the world. If you're willing to keep some of your finances separate one person can work to achieve financial independence while the other her can pursue his or her own goals. What works for you? How about you and your loved one? Are you both on the same path to F I or you in a one fantasy family like I am. Do You keep your finances separate or have you found an alternative way to make it work.