Karsten Jeske at the Early Retirement Now blog wrote When to Worry, When to Wing It: Withdrawal Rate Case Studies back in 2021. It looked into what really makes a difference in safe withdrawals in retirement. Does the withdrawal frequency matter? What if withdrawals fluctuate? What if you need long-term care? It’s a great post worth reading or re-reading.
I’ve been thinking along this line more broadly. We face all types of choices and decisions in personal finance. Which decisions should we be more careful of and which decisions can we “wing it”?
This distinction is important because if you give equal attention to every decision, either you’ll get bogged down by months of research on everything or you’ll make a casual decision that sets you back a huge sum. You should prioritize your mental energy for things that really require it.
Is It One-Time or Recurring?
A big category in the blogging world is food. People share how to make all types of dishes and pastries. These are good candidates for winging it because you don’t make something just one time. You’ll have plenty of opportunities to fine-tune and improve.
You need a good recipe, not necessarily the best one, although everyone says their recipe is the best, which is subjective anyway. This good recipe works. That good recipe works too. If you start using one recipe, you’re not bound to use it forever. Even if a recipe totally doesn’t work for you, you ruin only one attempt. You have hundreds of attempts ahead of you. You just use a different recipe next time.
You don’t have to do it “right” the first time if it’s a recurring task. It’s not a big deal to wing it.
Can You Do Both?
Many choices aren’t all-or-nothing. You can split and do both.
I browsed some pages of the book The Food Lab by Kenji López-Alt at Costco one day. The author experimented with different ways to boil eggs. He tried starting in cold water in one pot and starting in boiling water in another pot. He boiled eggs for one minute, two minutes, three minutes, … He cut each egg open to see which way he liked better.
The author’s point wasn’t that you should just go with his recommendation on how to boil eggs. You may prefer a different degree of softness, you live at a different elevation, the power from your stove is different, and you have different cookware. The point is that you can experiment with multiple ways simultaneously to find what works best for you.
If the choice isn’t either-or, you can split and do both. This is especially helpful when results are uncertain. You reduce your risk by having several irons in the fire.
What If You Decide to Switch?
If it’s one-time and you can’t do both, what does it take if you decide to switch when you realize you should’ve done it differently?
Many financial decisions can be reversed easily. If you decide to go with Bank A and you realize later you should’ve used Bank B, you can open a new account with Bank B and transfer everything from Bank A. Maybe you could’ve earned a little more interest if you went with Bank B in the beginning but you don’t lose any of your deposit principal by switching.
You can wing it if you see that it won’t cost much to switch when you know better.
When to Be Careful
You should be careful when a choice is one-time, all-or-nothing, and it’s impossible or costly to switch.
I’ve been working on a home construction project this year. Most decisions I had to make for this project were of this type: one-time, all-or-nothing, and it’s costly to switch.
Should I add insulation between the interior walls for sound-dampening purposes? This is the only time I’m doing it because I don’t have another home to build in the foreseeable future. It’ll be difficult to add insulation later if I don’t do it now. Doing it half-and-half doesn’t really help. Does it really work to reduce noise? The contractor doing it says it works but is that asking a barber whether I need a haircut? I’ll lose 100% of what I spend on materials and labor if I can’t tell the difference with or without insulation in the interior walls.
Things that require a physical change are more difficult because they’re often one-time, all-or-nothing, and costly to switch.
So, when you face a choice or decision, ask whether it’s like cooking or construction. Is it one-time or recurring? Can you split and do both? What if you decide to switch? These answers tell you whether you can wing it or you must be careful in making that decision.
Personal Finance Decisions
Let’s look at some frequently asked questions in personal finance from this angle.
Should I use a high-yield savings account or a money market fund for my short-term savings?
Wing it. It isn’t either-or. If you’re using a high-yield savings account now, you can put a small amount in a money market fund and see how it works. If you move from one to another and you don’t like it, you can always move back.
Should I use Vanguard, Fidelity, or Schwab for my IRA?
Wing it. Pick one as a start. Have a second account elsewhere if you’re curious. Let your own experience guide you.
Which tax software should I use? Online or download? Is Deluxe enough or do I need Premier?
Wing it. You’ll use something every year. It isn’t difficult to switch. Use one this year and a different one next year. It’s not that expensive to buy two in the same year. You’ll see which one you like better.
Should I buy whole life, variable universal life, or term life insurance?
Be careful. You’ll lose a large sum if you buy into whole life or variable universal life insurance and you realize you don’t want it.
Should I contribute to a pre-tax Traditional account or a Roth account?
Wing it. I chuckled when I read in a book written by a financial advisor that one should seek the expert counsel of a financial advisor on this question. It’s complex if you must choose one and stick to that choice for the rest of your life but that’s not the case. Nothing stops you from splitting and doing both. If you start with Traditional and you realize you should go with Roth (or vice versa), you can change it next month. Money in a Traditional account can be converted to a Roth account. So choose one or both and adapt as you go.
Should I invest in a mutual fund like VTSAX or an ETF like VTI? What about Fidelity’s zero-expense-ratio funds?
Wing it. Try both if you’d like to see how they work. You can switch if you prefer one over another.
Which job offer should I take?
Be careful. You can’t take both jobs at the same time. If you go with one, by the time you realize it’s the wrong one, the other opportunity may not be waiting for you anymore. Being in the right place at the right time can make a huge difference in one’s career and financial success.
I’m retired. How much can I withdraw from my portfolio, 3%, 3.5%, or 4%?
Wing it but not too wildly. Spending is a fundamental driver of financial success in retirement. It’s difficult to determine what will work if you must follow the same path for the rest of your life, but you don’t have to. You’re allowed to adjust and adapt. Just don’t do 8% unless you’re Dave Ramsey.
When should I claim Social Security?
Be careful. You only have one year to change your mind once you claim. If you claimed early, you must wait until your Full Retirement Age to suspend. If you claim late, you can only go back six months. Use the Open Social Security calculator. Use another calculator for a second opinion.
Should I buy a home or rent?
Be careful. You can’t buy half and rent half. You can’t buy 10% of a home this year and another 10% next year. It’s costly to switch between owning and renting. Not buying at the right time or buying at the wrong time can cost you hundreds of thousands of dollars.
Should I invest or pay extra toward my mortgage?
Wing it. You can do both. You can start or stop at any time.
Should I convert from my Traditional account to Roth? How much?
Be careful if you’re thinking of converting a substantial amount because you can’t undo a Roth conversion. Wing it if you’ll convert every year. You don’t need to map out your conversions for the next 30 years and follow a table rigidly. Start low and adjust as you see fit.
Can I retire?
Some people have the option to go part-time or regain employment after a break. Be careful if you don’t have that option.
Not all financial decisions require equal attention from us. Spend more energy on decisions that are one-time, all-or-nothing, and difficult to switch. Ongoing decisions don’t need to be optimized upfront. Start with something, split, experiment, and adapt as you go.
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