I Broke My Own Rule – We’re All In

Breaking the rules can be a good thing. Like our decision to max my 401(k)

Throughout my writing on MwM, I often offer bits of advice that I’ve been able to apply in my own life. Things like taking advantage of a temporary housing situation, cleaning out the closet, or how to thrive as a DINK household. Most of the advice I give out tends to be pretty straight-forward, but I like putting a personal twist on it.

Unfortunately, I also give advice that I don’t always follow very well. I’ve got good intentions – I really do – but sometimes we just drop the ball. Like when I already had to give up on/revise my New Year’s goals, or talking about how to budget, even though we don’t really do that anymore.

This Year’s Best Rule-Breaking

It’s not always a bad thing to not follow advice. I revised my New Year’s goals because I realized that, in addition to me being a bit absent-minded, I wanted to allow for a bit more flexibility.

Budgeting isn’t something we do now, but I used to – and I did follow the 50/30/20 budget pretty well. After a certain point, we just kind of became used to our ‘regular’ spending and put things on auto-pilot, so no more “budgeting” for us. Paula Pant calls this the anti-budget.

By far, though, the best rule we’ve broken is my advice on ninja hacking your 401(k) contributions. If you aren’t familiar with the term, the concept is simple. Any time you receive a raise – and at a few points throughout the year – go in and update your 401(k) contributions.

Doing so, my theory goes, will help you increase your retirement contributions without being painful. Easing into it – by reducing your paychecks just slightly every month or two – should be a nice transition. The hope is that you won’t even notice the missing money, just like a ninja in the night.

But we didn’t do that.

Instead, we looked at our other financial New Year’s goals and realized that we needed to do something a bit more drastic. So we said to hell with ninjas, let’s brute force this.

We upped Kristin’s retirement contributions to max. No easing into this – this is a jump. I’d been slowly increasing my contributions, but hers had stayed pretty constant.

Why We Went All In

Kristin and I have our eyes set on early retirement. Nothing crazy – we aren’t saving 80% of our income like some other finance bloggers – but early by regular standards.

We’re getting a bit of a late start on the aggressive saving, unfortunately. We both had saved some for retirement (more than the company match), but neither of us were maxing our 401(k)’s. In order to retire early, we NEED to be more diligent on saving.

And waiting to inch up our contributions just wasn’t an option at this stage.

We had an extremely expense-heavy 2017. Our spending was probably 2 – 2.5 times our regular annual spending due to our wedding and our house. It honestly was really nice to have some extra cash-flow.

That cash helped us get married without a penny of debt. Of course, we added some with the mortgage, but such is life.

So now to hit our goals we could ease into it, putting an extra 1-2% each month or so until we’re maxing. OR, we could make a decision to just rip off the band-aide and make sure we max Kristin’s 401(k) this year.

And that’s what we chose.

Impact on Take Home Pay

The impact on take-home pay will be semi-significant. Each month we’ll be socking away a few hundred dollars more than we did last year. Monthly it’ll be probably ~$800 less we see coming home each month, minimum.

Doing so should help us build up a nice nest egg this year. We’re shooting for a pretty significant net worth increase – about 25% – and this will be a big help in that.

The nice thing, though, is that since we’re basically living on my income, everything Kristin makes can go into savings. We need to further bulk up our emergency fund now that we’re homeowners, and we’ve got other things we will need to deal with also.

As much as I love being a one-car family, Kristin doesn’t, and at some point we’ll probably need to get another car. Side-note…if anyone has a good smaller crossover SUV they like, let us know. We’ll be in the market at some point…

The lower take-home pay is definitely a driver for me wanting to earn some more money. I make good money at my day job, but being able to save less after tax is definitely going to be noticeable. It’ll also definitely be more difficult to pay down our mortgage as quickly as we want.

One of my goals this year is to be earning an extra $500/month on average. It doesn’t need to be on the side, necessarily, but that’s the logical place. I’ve already got some things in motion on that front, but having this semi-artificial pay decrease feeling definitely should give us some drive to push this harder.

Balancing Today and Tomorrow

This whole thing, though, comes down to an exercise of balancing what we want and need today with what we want for tomorrow. I mean, not LITERALLY tomorrow, but our future.

That’s most of what good financial management is about, after all. It’ll be a bit of a learning curve to deal with slightly less take-home pay for the moment.

Thankfully we’ve cut out (or cut down) some of our regular expenses. We don’t pay for cable anymore. Eventually we’ll switch our phone service (well, I’ll switch to Google Fi) to save some money there, as well.

It’s an ongoing balance to figure out how much we want to save versus spend. On one hand we never want to deprive ourselves. However on the other, we want to make sure we don’t screw our future selves, either.

Sometimes you make the rules, sometimes you break them. Sometimes you even do both.

My rule of easing into 401(k) maxing is great if you’re young, but when you’ve got a shortened timeline…well, as they say – drastic times calls for drastic measures.

I don’t know how our early retirement plans will shake out. Maybe we’ll be out of the workforce by 50, maybe not.

But there’s one thing I know for sure.

If we don’t save diligently, there’s absolutely no hope in hitting our goals.

Question:

Do you max out your retirement accounts?

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17 Comments

    1. Yeah, doing 1099 work solely can definitely make it more difficult to take care of retirement accounts I’d imagine. It’s a more conscious effort to max out your accounts!

  1. I do! It reduces my taxes by so much that’s it’s really a no brainer for me.
    Without the tax benefit, I am not sure I would have started as early as I did.

    1. For sure, that’s kind of the point we’re almost at, too. I am thinking that instead of reducing it though, we’ll hold constant and earn more to help our taxable investments. Maybe that’ll be the inspiration we need?? 🙂

  2. Oop I’m feeling guilty here. We’re in the debt payoff phase of our journey, so we don’t max out retirement. However, I put $200/mo into a Roth IRA (not much, but it’s something) and the hubs contributes up to his max employer match for his 401k. Not bad by all standards, but not ideal!

    Once we get rid of our debt we’ll be in a much better position to slam moolah on investments.

  3. We maxed our retirement accounts our last few working years. Actually, Mr. Groovy did it for a longer period; I ninja hacked at first before I was willing to go all in.

    I really like your brute force/rip the band-aid off approach. And I like that you’re breaking your own rules. Isn’t the point of financial independence to do what you want? Too often people fee like once they say something, it’s written in stone. Our rules are written in clay. They’re bendable.

  4. We have been maxing both our retirement accounts for years. If you do it early enough, you won’t have to contribute as much later in life, depending on retirement goals of course.

    Back when we were DINK’s, we always lived as though we only had one salary and it sounds like you are on the path. If implemented, you will watch your net worth compound fantastically for years to come. In the earlier years, we were able to grow our net worth 50-100% per year with this strategy.

    1. Yeah, I wish we’d been a bit further ahead compared to what we are, but that’s alright. We’ll get there eventually! 🙂

      Our NW is such that I think we’re past the 50% annual growth mark (which is good I suppose) but we’ll still be making some pretty significant strides, particularly if the market behaves.

  5. Love this post! My husband and I have been together for 6 years but we didn’t start sharing finances until we got married this year. My question to you is – do you suggest pooling savings accounts? What are the pros and cons you foresee of doing that?

    1. We do most of it. We each have a little ‘fun money’ account ($100/month) that we use to spend on whatever we want without judgement. Totally unnecessary but it still gives us that sense of freedom.

      My thoughts on the whole ‘split or shared?’ thing is this…we got married to become a single unit. It doesn’t make sense to me to marry someone who wasn’t wanting to work toward similar goals. Shared accounts will result in simplicity, and hopefully some greater collaboration versus having everything split.

      That being said, only do what each of you are comfortable with. I know married folks who have everything totally split due to personal preference. Maybe it was working out fine and it’s just easier to not combine stuff. Maybe they’ve got different goals or drastically different incomes. Every situation is unique. I personally value the simplicity and power of combined finances.

  6. Your approach reminds me of a quote. To paraphrase: aim for the moon, even if you fail you’ll land among the stars.

    I am currently paying of debt, so I am not maxing out my 401k. I am struggling with the idea of saving for a house aggressively, or maxing out my 401k once all the debt is paid off. My situation would be similar to yours in that maxing out the account would be a major now-money pay cut for me. At the same time, I know it would be great for compounding purposes.

    Be sure to publish an update in a few months! Let us know if automating your 401k to the max works for this long term goal. It would be extremely helpful to hear how you handle the situation.

    1. It’s a constant battle to weigh the ‘now’ vs ‘later’ monetary needs. But I know I can’t take a retirement loan, so I prioritize later as much as I can, without making ‘now’ suck. 🙂 I’ll post an update for sure, if nothing else then at least at the end of the year to see how we did!

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