Hi, PF!
I (32m) have just been hired at a company that has a 401k plan, and (just as the title states) they will match up to 4.5% provided I put away at least 6%. I'm trying to decide if I should put away the max amount they would let me select, which is 12%. I would still only get 4.5% from them, but here's the factors on why I would think I should deposit as much as possible:
1) At this point, I have absolutely no previous savings. I feel like I need to get serious about this NOW, and aggressively start saving.
2) This job pays significantly better than my previous employment with amazing healthcare benefits and other perks. I went from $28,500 at my last job, which after taxes and $800 a year being deposited to an HSA netted me about $800 a paycheck (biweekly pay). I now make $44,000 a year, still have a plan to deposit $800 into an HSA this year, and so far my first couple of paychecks seem to have me bringing home about $1,300 a paycheck (again biweekly pay).
3) I have zero plans to increase my quality of life, so the way I see it is that I'm making around $1,000 a month now of disposable income that I want to use wisely and not waste on fickle wants. I'm even looking at more things to lower my amount of money necessity expenses, e.g., cheaper cellphone plan, different car with lower monthly payments, etc. So if I'm depositing a bigger chunk of my new monthly disposable income, isn't that the right decision to put it in my 401k?
I just want to make sure that there's a solid reason to go above what gets me the highest matched percent through my company, and that the extra amount I'm considering depositing wouldn't be more wisely invested elsewhere.
Thanks for the input!
EDIT
Firstly, thank so much to everyone that has responded! It is much appreciated. A couple clarifications on my original post, because I wrote it up during a break time during training and there was no way I was gonna be able to respond on mobile to the best of my abilities.
1st Clarification: The company is not limiting my ability to deposit at an absolute maximum of 12%. There is just an Easy Signup on the company login that gives us these options: 6%, 8%, 10%, or 12%. There is an area to do more customized options; which includes higher deposited amounts; but I'm just getting started, still going through training, and trying to get a grasp on all of the information that's being thrown at me. So I wanted to pick one of the easier 4 available options to get started so I at least have SOMETHING started. I figured anything was better than nothing.
2nd Clarification: Anyone who commented on paying off my car, it is a leased vehicle. The contract on it runs out in March 2020, at which point I will NOT be leasing another vehicle ever again. I've seen at what a poor investment leasing a vehicle essentially is. To justify my decision a little on leasing my vehicle, it's an electric car which I believe is a poor decision to purchase at the moment due to their overall cost and sharp depreciation value. After this lease, I'm going to find a used gas vehicle that I can pay off quickly so I'm no longer making any kind of car payment.
I think I've decided on how I will go about my investment path based on the many insightful comments that everyone has provided:
1) Set my 401k investment to 8%. I'll get the 4.5% match with my company, and I'll even be saving just a little more to stay slightly on the aggressive side of saving.
2) I have to get an emergency fund of at least 6 months more funded, because as it stands I would only have 1 month worth of savings I could survive on and I'm not comfortable with that little of a buffer.
3) With my 401k investments totaling 12.5% being saved, I will put another 7.5% towards being saved in a Roth IRA so I have a total of 20% of my income being saved as I saw recommended.
4) With the remaining disposable income after everything else is squared away, I'm going to go full bore into eliminating all of my debt. This is actually only the remainder of school loans that I have from attending college a second time, and should take me less than a year to eliminate. At which point I will be completely debt free and able to take what used to be loan payments and use them to save even more.
Many thanks to all the PF'ers that gave me their input, and I feel like I finally have a solid path to financial freedom for the first time in my life! I can't overstate my appreciation for the advice.
Submitted February 25, 2019 at 11:02AM by BangHerInBangor https://ift.tt/2H2o5Dn
