Day 10: Contribute To Your 401k

On January 10, 2012 in 31 Days to Better Finances, Savings by notrustfund

The best time to start saving for retirement is today.  The earlier you can begin saving for retirement the longer your money has to grow and the less you need to invest overall to reach you retirement saving goals.

Contributing to your company 401k is one of the easiest and best ways to save money for the long term.  There are three things that make investing in your 401k the best place to start saving for your retirement: contributions to your 401k are taken out of your paycheck pre-tax, are often matched by your employer, and are automated.

For 2012, you can contribute up to $17,000 a year in your 401k.  If you maxed out your 401k, you would save around $1,400 a month or $700 a pay check if you are paid semi-monthly.  But here is where things get exciting.  You contribute to your 401k with pretax dollars so saving $1,400 a month only feels like around $980 in your after tax paycheck assuming a 30% tax rate. $490 if you are paid semi-monthly

When thinking about how much to contribute to your 401k, start with at least enough to get the company match if your company has one.  If your 5% contribution results in a 5% match from your company, that is 100% return on your investment right there.

Finally, because your 401k contribution is taken out of your paycheck each month, it is automated and requires you to do nothing after you sign up.  This makes saving easy as you should quickly learn to live on your post-401k contribution paycheck after you pay yourself first.

If you are just starting out, try to contribute enough to your 401k to get the full company match.  If you already contribute but are not yet maxing it out, increase your contribution by 1% for a month or two.  Once  you get used to that amount, push yourself to increase your contribution by another percent.  Soon you will be on your way to your retirement dreams.

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Day 1: Know Your Monthly Income

Day 2: Add Up Your Debt

Day 3: Calculate Your Net Worth

Day 4: Track Your Expenses

Day 5: Buy A Coffee Maker

Day 6: One Month of No Eating Out

Day 7: Start or Increase Your Emergency Fund

Day 8: Move to a High Yield Savings Account

Day 9: Create A Debt Repayment Plan

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One Response to Day 10: Contribute To Your 401k

  1. Jackie says:

    I just looked a my final 2011 paycheck and was depressed with the difference between the gross and net. However, I am maxing out my 401k, so at least I know that at some point a portion of that is coming back to me! I’m a big fan of the automatic deduction. Takes away the temptation to do something else with the cash.

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