Many of us, as a result of where we work, are fortunate enough to have a 401(k) plan. For those of you who aren’t sure if you have one or don’t know what one is, a 401(k) is a retirement plan which allows you to save for your own retirement. The purpose of this article definitely isn’t to give you advice or specific information about your 401(k). For that, you need to talk to an investment professional, the person at your company who administers the plan, or someone else who you trust. Instead, we just want to look at a few general tips for you to keep in mind as you prepare for your financial future. Thinking the right way now will make your retirement much m ore comfortable.
First of all, pay yourself first. Your future is very important. You need to be saving for it. Just as you pay you rent or mortgage, your phone bill and your car insurance at the beginning of each month before you figure out what to do with the rest of your money, be sure to do the same thing with your retirement plan. Have a specific amount deducted from your paycheck every month at the beginning of every month. By doing it this way, you won’t even miss the money. Also, since the money is deducted before taxes are calculated, taking advantage of your account makes very good sense.
Second, be aware of any matching programs that your company has and take full advantage of them. Many companies will match a portion of the contributions that you make to your 401(k). This is free money and you should take it. The more they will offer you, the better. It may even be possible to negotiate a matching program as part of the terms of your employment. If you don’t necessarily need more money now, you might be further ahead by negotiating more 401(k) matching funds instead of a small raise. It will pay off more in the future than the little bit of extra money will matter now.
Third, once the money is in your 401(k) think long and hard before you touch it. It is there for your future, so think long and hard before you use it now. In some cases it might make sense to take some of the money out of your account to use for a purpose that will give you high returns, but for the most part, the cost, taxes and penalties associated with taking money out of the account will be too high to make it worthwhile. Instead look at the wide variety of loans that are available and see if one will work better for you.
This should give you a few things to think about. Be sure to consult a professional if you need more advice.