Summer is here, and with that comes along beach season! Maybe by now (or not!) you’ve gotten in shape to have some fun in the sun, but what can you do to get your 401(k) looking fit and chiseled, too? Here’s three exercises to do right now this summer:
- Make a budget to fit in 401(k) savings! A budget is an excellent way to get a handle on your money and to make room for 401(k) savings. There are many budgeting methods out there, but I use percentage budgeting. Here’s how I budget: First, housing is the biggest expense so spend no more than 35% on rent, utilities and insurance. Second, tuck away up to 15% for retirement savings. Third, the remaining 50% is yours to save and spend, such as towards paying down debt, more savings, entertainment, clothing and car expenses. My budgeting philosophy is “as long as you can pay your bills and pay for your retirement first” then the rest is up to you on how you want to spend/save it. Cut out excesses, such as buying coffee in the morning, eating out for lunch at work every day, and paying expensive gym memberships and too much for your cable bill. Constantly look to slim down theses costs in your budget for increased retirement savings!
- Contribute at least your employer match! Even if you can’t get to up to 15% saving for retirement, at least contribute up to your employer’s match! Not all employers offer this benefit, but if they do then it’s free money to you. Even better, let’s say you make $47,000 your entire career from age 22 to 65, and your employer offers a 100% match on the first 4% of eligible pay, you would retire with $1,700,000 even if you just contribute 4% of your pay and invest in the stock market! So save young, take some risk and contribute up to the match!
- Choose between the traditional or Roth. Make sure that you are saving in the right 401(k) account. There are two options, the traditional and the Roth. As a rule of thumb, the traditional is best for those who started investing later in life and for those who want the tax savings today! Whereas a Roth is excellent for young investors who want to have a tax free retirement! If you find yourself in the traditional and wanting to convert to a Roth, then work with a tax/financial professional to do a Roth conversion.
With these 3 exercises in place, you’ll get your 401(k) in tip top shape for the summer, helping you to save for the future, build your wealth and get ready for retirement!
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Stay tuned! To get this blog started, I’ll be taking inspiration from my upcoming book, From Millennial to Millionaire: DIY 401(k) – 5 Do-It-Yourself Steps for the Digital Generation to Design and Manage their 401(k), to write blog posts. My new book should be available in eBook and paperback on Amazon by summer 2017.