Master Your 401(k): How Much Do We Need to Contribute?
Want to maximize your 401(k) this year? Learn how you two can quickly and easily figure out how much you need to invest for your 401(k) contributions!
This month we’ve been cleaning our (financial) house as we prepare for this next year.
One of the big changes we did was switching over to a high deductible health plan that was offered at my husband’s company.
We also looked at his 401(k) to make sure we’re getting the most from it. It’s a big component of our portfolio and from time to time, it pays to review things.
Whether you have a 401(k), 403(b), or TSP, taking some time this week to review it can be rewarding now and when the time comes to retire. You want to your hard earned money to work as hard as you do.
Maximizing Your 401(k)
Last week, we had another one of our Marriage and Money Workshops. It was a blast!
Chris Costello, blooom co-founder and certified financial planner, discussed with me how to master and maximize your 401(k) benefits.
During the workshop, we discussed:
the big advantages with 401(k)s (and what to watch out for!)
why human resources is not where you want to get advice on your 401(k) investments
how much to contribute in your 401(k)s so you are giving yourselves a leg up on your entire financial picture
If you want to catch the entire workshop, you can watch it below.
Today we’re focusing on one of the most common questions I get with 401(k)s – how much to contribute?
Figuring Out Your 401(k) Contributions
Chris explained that as a fiduciary his company is legally and ethically obligated to put their clients’ needs first.
As a financial planner, they would have to look at your whole situation, not just investments, to make sure they are giving you advice that will serve you best.
Prioritizing Your Money
Of course, since Chris and I have no idea of your unique circumstances, we went over some key guidelines that can help you two figure out some potential smart money moves.
First off, check to see if your company offers a match for your contributions. While many companies do, it’s not a given and they each have their own rules for how much they’ll chip in.
If they do offer a match, put in what you can do to get it. Company matches are basically free money.
Next, look at your debts. Do you have any credit card debt, car loans, or student loans?
If so, get rid of credit card debt as fast as humanly possible. Contribute just enough to get a match and then nothing else. Everything else should be attacking those debts.
Same with car loans and most student loans. Chris feels very strongly about dumping debt so you can have more options and less stress.
We know from personal experience how paying off your debt faster can be a psychological and financial win. And once you don’t have those credit card or car payments, you can use that money for investing or whatever other goals you have.
[By the way, if your company does not offer a match, skip the 401(k) and focus on attacking your debt.]
If you already have knocked out your high-interest debts, make sure you have some other financial keeping accounts ready, like an emergency fund and the right insurance coverage.
The idea is should something come up, you’re not tempted to touch your 401(k) to cover expenses. You’ll also have bills covered while you to find a solution that works for you long-term rather than make a hasty decision you regret later.
With those priorities taken care, you can comfortably contribute more towards your 401(k).
Elle Martinez helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second..