So my absolute favorite blogger on the whole internet wrote an entire post about my personal financial rebellion. Mr. Money Mustache published my “case study” after I sent him an email a few months back thanking him for the impact that he’s had on my life. (you should read it)
It got me thinking about extreme modesty as a liability as well as an asset. Which is certainly a difficult topic to write about while still staying modest…
Character Flaws
As far as character flaws go, modesty doesn’t come up too often. Most Americans don’t have a problem flaunting their successes every chance they get. But I would argue that the small percentage of citizens that are too modest, tend to be the most successful.
Consider a bus-boy who has figured out how to clear dishes 1.3X faster by putting in a little extra work each day. Since he’s an especially ambitious bus-boy, he’s clearly going to use his quicker method that takes a little more work.
But how should he let his boss know? The average Joe might pull his boss aside and tell him about the future productivity savings he will expect. But an individual suffering from uncommon modesty might go about it a different way.
He’d just put in the extra work until his results became blatantly obvious. No early congratulations, just putting his nose to the grindstone until his handwork became apparent to everyone involved.
What’s the point?
The point is that modesty forces us to use our actions instead of our words to demonstrate our worth.
I started spending and saving my cash more intelligently back in January, but I didn’t tell anyone in the real world or on the internet. I didn’t talk about how I was going to increase my savings, because I hadn’t done it yet.
I finally emailed MMM once I saw cold hard results on the graph of my net worth. There’s no bragging in my email. It’s simply demonstrating the actual results of some real-life hard work.
The comments were incredibly encouraging. There were people from all over the internet congratulating me without actually knowing who I was. It was a modest individual’s dream!
If I haven’t mentioned it before, I really do credit MMM with launching me on my journey towards financial independence. I’m not their yet, and I don’t claim to be. But with a healthy does of modesty and hard work, I might just get there.
Hi, I’ve really enjoyed reading your blog. Especially this post and the related one on Mr. Money Mustache (which I discovered through your post and also enjoyed reading).
In your quest for financial independence, you mentioned starting a vanguard IRA. I’m interested if you chose a Roth or traditional IRA? It seems like your situation would be ideal for a Roth IRA.
Looking forward to what you’ll write next.
-Will
Hi Will,
I appreciate the kind words. To answer your question, I chose a Roth IRA since I’m just starting my career and I’m in the 25% tax bracket. However, I may add a smaller traditional IRA at some point over the next few years. This seems like an appropriate hedge in case tax rates fall once I retire. What do you think?
That’s an interesting question. So many of the factors in determining whether a Roth or traditional is the best choice are very difficult to predict. For instance, does your current state of residence charge an income tax? Is there a chance you would retire in a state which has different income tax policy (for instance growing up in Massachusetts and retiring in New Hampshire). Depending on the situation there, it could become very clear since state income tax could be a large role. Or alternatively, have you considered that while you may currently file singly, at retirement it could be married filing jointly, which has a different structure (easier to get into higher brackets assuming both partners work similarly).
Overall I would say yes, starting a traditional IRA would be a wonderful idea, but possibly not for the reasons you think. Certainly it can function as a hedge against tax rate fluctuation, but I would say the most important reason for also having a traditional IRA would be current tax planning. For instance, as your salary increases, you will eventually reach the limit for certain tax credits and also enter a new tax bracket. You could use a traditional IRA contribution to modify this and remain eligible for a longer period of time.
Hopefully your salary will increase to the point where you are forced to use a traditional IRA or some employer retirement plan and generally in those cases your retirement income will be such that it would make sense to max out contributions to the Roth IRA while you can. I’m sorry I couldn’t give a more straightforward answer to your question.
On another topic, as you appear to be keeping very detailed track of your finances, and you are also familiar with the time value of money, do you intend to alter your tax withholding? If you are getting a refund at the end of the year, consider the time value of that money had you set your withholding such that you only gave exactly what you owed and not more instead of not having that money available for up to a year. With the amount of insight you have into your finances and spending habits, it would hopefully not be a long shot to also determine your tax burden more precisely as well. Anyways, just something to think about.
If there are ever any topics on investing relative to your IRA you’re interested in hearing about, I would be happy to post on them in depth. Have a good one.
-Will
Hmm, that’s a great point about using a traditional IRA to reduce your taxable income. A lot of this is relatively new to me. At this point I don’t know where I’d retire, or if I’ll be married or not… but I suppose that will become clearer with time. It’s certainly a good thing to keep in mind.
Speaking of tax withholding, I currently have a draft post about a few topics that I know I need to research some more in 2013. Tax withholding is one of them. Like you said, I do like to keep track of my finances pretty closely, so I’m able to accurately predict how much I will owe.