Money Musings: If your money is feeling 🤪...
News alert! 📣 We’re all irrational with money. 🤪 Humor me and think through these two scenarios...
Scenario 1: Imagine you are about to buy new AirPods for $125 when you find out that they are on sale for $75 less (a price of $50) in another store 30 minutes away. Do you take the 30 minutes to get the AirPods on sale?
Scenario 2: Imagine that you’re about to buy a new laptop for $1,500. You find out there’s a store that’s 30 minutes away selling the same laptop on sale for $1,425 ($75 less). Do you spend 30 minutes to get the sale?
Studies show most of us would travel for the AirPods but not for the laptop, even though we’d be saving the same exact amount of money. 🤷♀️ One of the reasons this happens is relativity. $75 is a 60% sale on AirPods and only a 5% discount on the laptop. We think, “I’m already spending $1,425, what’s another $75?!”
This way of thinking can get us in trouble, especially this time of year.
Over the weekend, I planned on using the Cyber Monday sales to buy a home office setup. I got a screen, a keyboard, and a mouse - I’m pumped. But even though it was conscious and intentional, I noticed it affect me today. I thought, “Why not buy this other thing I need, too? I already spent $500! What’s another $10?”
If this resonates at all, I feel you!
This only gets more intense when we spend more than we plan (like we often experience during the holidays). It can make us wonder if it’s even worth it to try.
Despite the irrational games our mind plays on us, a dollar is a dollar - and we can only use and spend each dollar we have once.
Whether you’re happy with what you purchased (and didn’t purchase) this weekend or are feeling overwhelmed with the guilt of overspending, we still have one more month left of the year. Even though it’s a challenging month for our wallets, we can get back in the saddle and finish out the year closer to our financial goals.
Who’s with me?! 🎉🎉🎉
Money Move of the Week
As we wrap up the year, it’s a great time to show our retirement accounts some love. 💚Why? A few reasons. First, putting more money into our 401(k) or IRA can reduce our taxable income and put us in a lower tax bracket. We can use this last month of the year to take our contributions up a notch. In order to make it as painless as possible, I recommend increasing contributions by 1% every month so it moves up slowly and steadily. It’s also a great time to get acquainted with some important numbers. Use a couple of retirement calculators to see where you stand and determine how much you want to be contributing. Retirement numbers can be big and daunting. Don’t get discouraged. Our progress is not linear. We can start small and increase from there!
You Gotta See This
Define: TRADITIONAL VS ROTH. I’m frequently asked about the difference between a Traditional and Roth IRA. The biggest difference is the tax treatment. Roths are funded with post-tax dollars and Traditional accounts are funded with pre-tax dollars.
Fun fact: There is no difference between the amount of money you’ll have in a Traditional vs. Roth account if your tax rate is the same when you contribute the money as it is when you take the money out.
Use it in a sentence: “Roth accounts are best for those who believe their tax rate will be higher in retirement because they will be earning more when they reach retirement age than they are now.” 💰