Be a DIYer when it comes to Financial Planning

Be a DIYer when it comes to Financial Planning

This blog was intended to be about figuring out what to do with money after earning it. The idea is to work for money now so one day money will work for us. Naturally that can lead to questions about retirement preparation and the infamous 401(k) or 403(b) plans offered in many workplaces.

I am not a financial adviser or an investment professional. All I can do is share my strategy for success.

Many companies offer a 401(k) or 403(b) plan as a benefit to their employees. For those who are familiar with 401(k) plans as being a retirement savings plans, a 403(b) is a similar plan offered to employees of educational institutions and non-profit organizations. Both have the benefit of deferring taxes until withdrawal.

If your company offers the opportunity to invest in a 401(k) or 403(b), ALWAYS ALWAYS ALWAYS take advantage. Many companies match your contributions, usually up to a certain dollar amount or percentage. This is where contributing gets confusing.

  • First, find out the point of maximum company match.
  • Second, contribute! If the match is a percentage of salary, contribute that percentage per paycheck to the account.
  • There are few opportunities for FREE MONEY and this is one of them!

How Do You Calculate the Match?

Let’s use an example to walk through the average company match. Let’s say your company matches 50% ($.50 per $1.00) of the first 6% contributed. If your salary is $52,000 and you get paid bi-weekly, your paychecks are $2,000 (before taxes).

You should set your contributions to be exactly 6% of your salary, or $120 per paycheck. At this level your company will contribute of $60 of their money to your account. So you don’t have to pay taxes on $120 of your income each pay period and your account grows by $180 at the same time.

If 6% seems like too much to contribute at one time, try to ease yourself into it. Start at a point you feel comfortable with, like 3% and try to increase it by 1% each quarter until you reach the max point. Don’t feel pressured to contribute more than the matching level. Alternative options to a 401(k) or 403(b) plan will be presented in future posts.

Related posts:

  1. Help! My 401(k)/403(b) is plummetting!
  2. Left your employer without taking your 401K?