A Taxing Situation – My Biggest Financial Regret

Over the course of my financial life, I’ve made some pretty silly mistakes. I’ve financed the purchase of brand new cars. I’ve purchased goods and services that I never really used. But, my biggest regret – by a long shot – is that fact that I failed to aggressively fund my 403(b) retirement account from the ages of 21 to 31.

For the past two years, I have been fully-funding my 403(b) account.

By doing so –

I reduce my taxable income. Instead of sending tax payments to Uncle Sam, I send contributions to my retirement account. Depending on what your effective tax rate is, the savings can be quite substantial.

I increase my chances of retiring with wealth and dignity. There are no guarantees, but I plan to contribute as much as I can, as often as I can, for as long as I can. I hope to save enough money to retire and enjoy spending time with my friends and family.

I really wish that I would have contributed more during my first decade as an ‘adult’. But, I can’t go back and change the past – and perhaps the fact that I was slack then is the primary motivation for being aggressive now.

If you have questions about effective tax rates,consider reading this article I wrote about the subject.

This article is part of March’s Money Blog Network Series on Taxes.

11 thoughts on “A Taxing Situation – My Biggest Financial Regret

  1. Most people make mistakes with their finances when they are young. The main reason is that parents don’t know enough about money to keep their kids from making the same mistakes. The best thing you could do for your child is get your financial life in order before they hit the age where they start to make money. That way you can coach them to do the right things with their finances.

  2. My biggest regret is that I waited so long to get interested in finances. I basically wasted my 20s being stupid, and could have made HUGE gains in that decade had I found sites like yours 10 years ago.

  3. The 401K is a BIG SCAM and a total waste of time.

    I dont put a DIME into my 401K. I would much rather have that money IN MY HANDS to give me more buying and investment power.

    I put my earnings into investment opportunities as they come along. I keep my eyes open for good deals on things of value such as cars, motorcycles, cool sports equiptment, etc. BUT I only buy things when I get a FANTASTIC DEAL on them.

    When you go to someone’s house, if you see something that is just sitting in their garage, let them know you have a pile of CASH and you are interested in buying it… Within a week, they will call you up with an offer. Tell them you’ll buy but it for 1/2 of whatever they say… Wait another week, they’ll call you again and say OK. All you have to do is let them know you HAVE THE CASH. They’ll think about it and give in because everyone is so cash poor these days.

    Next, have fun with the item, clean it up, use it for a while, then SELL it online for Triple what you paid for it.

    Life is too short to sock money away. You need to take your earnings and use them to ACTIVLY MAKE MONEY TODAY.

    It’s much better to have a pile of LIQUID CASH available to take advantage of deals as they come along than to have everything Tied up in 401k, House, Stocks, CDs, etc.

    If you want to win the game of life, be the ONLY GUY IN THE ROOM with a pile of CASH. You’ll win the deal when everyone else is trying to put the “financing” together.

  4. I’m having trouble deciding how much I should put in my 401K versus full-funding a Roth IRA. My company doesn’t match our contributions but they contribute 6%/year to our 401K through profit sharing. It’s hard to know which is better.

  5. As someone in my early 20s, it is kinda nice to hear things like this, that I will be in better financial shape sooner than my peers. Its hard to remind myself of that though when all my friends have tons of new clothes and cool gadets. I am currently fully funding my Roth IRA and contributing 7% of my pre-tax salary to my 401(k) (with a 4% match). Combined this is about 26% of my income, not including my short term savings. I choose to fund my IRA first now because I am in the lowest tax bracket I will (hopefully) ever be in, since I just entered in to the working world last July.

    It is hard to keep up the pace sometimes, but the rewards are worth it. In just 16 days (!!) I will close on a house and be a homeowner at 23, I have an emergency fund, a retirment fund, and some fun money. I work harder than my friends, and I will reap the benefits sooner. Now I just have to keep telling myself that and stick with it!

  6. Reducing your taxable income is huge, especially early in your career. I recently wrote all about the benefit of funding a pre-tax 401K vs. a Roth 401K, just for that very reason.

  7. I tend to agree with #5… The tax benefit of the 401k/403b is not as good as they would have you believe it is.

    Consider this: If you max out a 401k for 30 years ($15500) at 8%, your 401k will be worth roughly $2 million, over the course of 30 years, you will save about $140,000 in taxes at 30% tax rate (15500×0.3×30=139,500). So when you take your money out of your 401k, say you are taking out $100k/year, you will pay 30k/year in taxes! In less than 5 years, you will pay more taxes than you saved over the course of 30 years! I would seriously consider a Roth IRA and/or Roth 401k, especially if you are young enough to watch it grow for a couple of decades! Check out the calculator here:

    To Your Wealth,


  8. @Brianne
    I would max out your ROTH first and then invest in the 401(k) if you have money left over that you want to be saved for retirement. Your company’s profit sharing will go in whether you invest in it or not!

  9. Great post. I think most would have liked to start earlier. But starting at 31 is no slouch. You’ve got at least 30 years to accumulate. At the max level that will be an amazing “pile of cash” as that idiot commentor said.

  10. Ahem … multiplication is commutative. What that means is if you apply a compounding factor to the total sum, you must also apply the same factor to the taxes saved. One year of saved taxes 30 years into the future is not 15.5K x 30% — instead, it is 15.5K x 30% x 1.08 ^ 30. Now do this for all the years:

    Taxes not paid * Growth ^ 30
    Taxes not paid * Growth ^ 29

    Taxes not paid * Growth ^ 2
    Taxes not paid * Growth ^ 1

    Add it up and you find — HEY, it matches up the exact percentage as if you had deducted the 30% off the original amounts because that’s what commutative means! You can take off X% before Y years of growth or you can take X% after T0 years of growth — you will get the same value.

    As for the other idea of having a pile of cash to buy other people’s crap … err, possessions — ok, whatever floats your boat. BTW, would you like to buy some plastic orange boxes? I think they’re worth $2000 but I guess I’m willing to accept half price for them if you can pay me in cash.

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