Life is full of choices, and while many of the choices we face on a daily basis may be relatively simple to make, this isn’t always the case. There are some choices that will significantly impact your financial status, and even your ability to one day reach your financial goals, and we tend to consider these choices with a greater degree of deliberation than almost any others. While we may think that all financial decisions need careful thought and analysis, some don’t.
In more situations than you may realize we tend to complicate what could be relatively simple decisions. Since they affect our short-term or long-term finances, it’s easy to waste a lot of time pondering, rather than actually deciding. If you find yourself overthinking decisions that impact your wallet, here are 3 money related choices that don’t need any debate.
1. Debt Payment Techniques
People who are thinking about paying down debt often get hung up on what method to use, such as the debt snowball vs avalanche. While which will be the fastest or save you the most in interest will depend greatly on your particular level and blend of debt, the important part is to start.
The debt snowball method has you start with your smallest debts, paying off balances from smallest to largest, and as each is paid off, adding that monthly payment into the payoff effort of the next smallest debt. The debt avalanche method has you tackle your balance with the highest interest first, then work your way down. Each method will have its particular benefits and drawbacks, but when it comes down to it, time spent thinking about paying off debt is far better utilized actually paying it off, no matter how it’s done.
2. Which Fund Is Best
The stock market is a gamble at the best of times, so when it comes to putting your money on the table, you should do all you can to beat the house. Rather than betting on individual companies, leverage larger funds to ensure your money grows along with the economy, and not according to a single ticker. The most well-performing funds are often index funds, but there isn’t a great deal of difference from one to another.
Funds that mirror the greater performance of the market, like QQQ, SWTSX, IWVB, and more, are often a source of incredible returns when compared to individual companies. Since they are often created as a smaller representative of broad-based market indices such as the S&P 500, the Wilshire 500, and the Russell 3000, they often perform in alignment to the general economy. Just remember not to toil over the final choice too much; toss a dart and pick one.
3. Retirement Accounts
The debate between Roth accounts or traditional employer-provided 401(k) accounts is a longstanding one, but when you step back and look at the big picture, there is really only one major difference: tax now, or tax later. Some people will spend months arguing and debating with themselves over which account to open, based on what they feel the tax rate will be in the future.
There are, of course, some other nuanced factors that play a role in the financial muscle of the account. Each one will have limitations on income, contributions, and withdrawals, however, there is also nothing that prevents you from opening one of each. This can help you to maximize your contributions while minimizing and diversifying your overall tax obligation.
Some Choices Just Don’t Need Any Debate
Your money isn’t something to take lightly, but you also need to remember not to waste too much time thinking about what you’ll do with your money and start putting it to work. No decision you are going to make will ever be perfect or foolproof, so don’t expect that result from financial choices, either.
Even though these choices may have far-reaching effects on your financial future, they can also be decided by the flip of a coin. Your time and mental real estate are also valuable resources, so in the same spirit as your money, don’t waste them if you don’t have to.