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Have You considered your Return On HassLe?
I've spent my career as a CPA advising hundreds of multi-millionaires. But no matter how these folks have created wealth, they all have one thing in common.
These successful people don't only think in terms of ROI (Return on Investment) but also ROH (Return on Hassle).
Return on Hassle is the amount of money you will save or earn divided by the time, money, and brain damage that it takes to get there.
Sahil Bloom's excellent new book, 5 Types of Wealth, explores what it really means to be wealthy—beyond just money. I'm honored that my Return on Hassle concept made it into the book, showing the importance of reducing stress, not just maximizing dollars.
As your net worth continues to grow — along with your tax burden — you are able to spend more on minimizing brain damage to drive savings. There are plenty of low ROH activities that I've seen on a consistent basis throughout my career.
5 Low-ROH Activities:
- Attempting to perfect your withholding
Everyone hates to "give the government an interest-free loan.” Folks spend time and energy trying to optimize and perfect their withholding, and it can be a dynamic calculation. As interest rates creep up, getting it right becomes more important, but I default to have more withheld rather than less.
The opportunity cost of being over-withheld is low, and it helps me sleep at night. Under-withholding can be a pain. You pay interest to the government for money you (hopefully) have in your bank, and you get hit with a surprise bogey at the end of the tax year. What a drag!
- Capped Upside Opportuntities
There are several examples of opportunities for tax optimization that have capped upside out there: IRA & Backdoor Roth IRA (limited to $7k/$8k for 50+ annual deduction or rollover), HSA (limited to $8,500 annually for a family and requires a high deductible health plan), and Series I Savings Bond (limited to $10k annually and has a time based lockup).
These savings vehicles will compound over time, and if you save your whole life they are a great path to wealth. However, they all require management and systems to remain compliant. And a mis-step can be costly.
Uncapped opportunities, like defined benefit plans, Solo 401k's, and Real Estate depreciation, might cost the same hassle or maintenance but could have a much larger impact on your overall financial picture.
- Complex Business Structures
Lots of new businesses struggle with this concept. It's important to select the right business structure early. Doing so can save you millions over the lifespan of your business.
On the other hand, over-complicating your business leads to a ton of paperwork and accounts to maintain for the rest of your days. Many entrepreneurs spend excessive time researching the "perfect" way to structure their business(es), which often becomes a form of procrastination rather than progress.
- Social Security Timing and Medicare Premiums
In my experience, the people who worry about this aren’t the ones who need to. It’s best to just take the money when you need it.
If you’re looking for another idea, take social security early. You can use this pension stream to finance a rental property or vacation home.
- Direct Real Estate Rentals
Nobody loves real estate more than I do, but it takes time and effort to operate. You can grow wealth and defer a ton of tax, but it can be a major hassle! Vanguard doesn't call you in the middle of the night to send you a dividend check.
You can invest in passive deals through private syndications and public stocks REITs. You lose some tax benefits, but you get the upside and exposure of real estate without ever having to unclog a toilet.
The same goes for other side hustles and opportunities that have complex operations. You better make sure the juice is worth the squeeze!
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UPCOMING WEBINAR
Your Mid-Year Tax Strategy Session
Join us for a free webinar on Tuesday, June 2nd at 2pm CST where we'll help you evaluate your current position and optimize your tax planning for the remainder of the year.
I'll also be taking questions about the latest on the "One Big Beautiful Bill" making its way through Congress.
Can’t attend live? Register and we’ll send you the recording!
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These are only some of the ways people spend too much time majoring in the minors of personal finance. By the time you’ve looped in professionals to help you navigate all of these “opportunities”, the cost can outpace the lifetime value.
If you find yourself knee-deep in any of these activities, it may be a good idea to take a step back and focus on finding better ways to earn.
Until next time,
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Mitchell Baldridge, CPA, CFP® |
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