If there is any single idea that will benefit you ~ this is it. Pay yourself first.
photo © 2005 Tracy O | more info (via: Wylio)
OK, let’s be clear. Paying yourself first does not mean taking money out of your income and putting it aside for a new plasma TV, luxury car, boat, watch, the latest and greatest cell phone or some other gadget, gismo or toy. Paying yourself first means putting money aside for yourself so that you may have the freedom to choose not to work for money at some point in your life.
The best way to save money is to contribute to your 401k ~ especially if your company will match any of your contribution! First, your contribution is not taxed when you put it in; and, second, if your employer matches any portion of your contribution, you just got a huge bonus. If you put in $1,000 over the year and your employer matches your contribution $1 for $1 you not only saved $1,000, you just made $1,000! I will do that all day long.
There are any number of excuses why you may not choose to do this. “Well, I do not plan to be with this company long. It is just the only thing I could get right now.” “I would rather have the money in my pocket to spend the way I want.” “I need all that money to live on.”
Face it… these are all just excuses. The truth is it does not matter if you do not plan to be with the company a long time. If you leave your present employer, the 401k plan account may be transferable to your next employer or you can do a 401k rollover to ira (individual retirement account) or you can do a 401k rollover to roth ira. In the case of the 401k rollover to roth ira ~ be sure you understand the tax issues before you do it.
If you are of the mindset that “I would rather have the money in my pocket to spend the way I want.” You may want to be honest with yourself and ask if what you want is something you really need. Most likely it is not.
If you are in the camp that says “I need all that money to live on.” Perhaps that is true – today. Here again the answer may be taking an honest look at the way you spend money and determine what you really need. All too often I have found myself spending money needlessly. All I need to do is be willing to be open and honest with myself.
Pay yourself first
Would you like a gentle reminder, just a little nudge, to focus on what’s important to YOU – keeping your 401k on track? It’s free, and it’s the kind of thing that will save you time (no more buzzing in the back of your head that you’ve overlooked something) and uncertainty (Am I making the right choice?!).
These reminders are infrequent – you may not hear from us for several weeks or even months. Why? We allow the market to tell us when changes need to be made, using a method that takes all the noise out of decisions. Reminders only come when there has been a significant change which requires a reallocation of YOUR portfolio.