Last week I wrote a short list of things I do to save money. Several readers responded with some additional tips which I will eventually compile and list because there were some great ideas. However, the response that surprised me the most was an email from a woman indicating that she could not afford to contribute to her 401k.
She went onto explain her situation and I responded privately in email, however, I want to break this down for everyone (I am going to try not to sound like my father).
First point: EVERYONE can afford to contribute something to their 401k or retirement IRA account.
Before you roll your eyes, look at this:
If your employer doesn't offer a 401K:
If you are 22 years old and you toss $3 per day into an IRA, by the time you are 65 years old your account would be worth $271,315.26 (based on modest 7% compounded interest). That is just by throwing this money into an IRA. Just call your bank and ask them about it. You can probably even set it up to deduct straight from your bank if you aren't disciplined enough to write a check.
If your company does offer 401k:
First, good. This is a nice benefit and there is a pretty good chance that they contribute money to it. Let say they add 50%. This means that for every $1 you put in, they will GIVE YOU $0.50. By doing the math again using the same terms as above (7% interest, from age 22 to 65), you will now have $406,972.90.
Some people call this the "retire on a cup of coffee" approach because if you skipped the morning Starbucks you could do this. I think that's pretty accurate. Maybe for you it's not Starbucks but it's the Big Mac at McDonald's. Perhaps you can take the train instead of driving. There are tons of ways to save this small amount of money.
I have an idea. Why not keep a diary for 30 days where you list every single thing you buy. At the end of 30 days, choose what you are going to cut out of the budget and contribute that - at least you are on your way.
If you want to play around with the numbers a little bit, here is a decent calculator that is pretty straightforward.
Good luck and set a date to start!
-Jay
She went onto explain her situation and I responded privately in email, however, I want to break this down for everyone (I am going to try not to sound like my father).
First point: EVERYONE can afford to contribute something to their 401k or retirement IRA account.
Before you roll your eyes, look at this:
If your employer doesn't offer a 401K:
If you are 22 years old and you toss $3 per day into an IRA, by the time you are 65 years old your account would be worth $271,315.26 (based on modest 7% compounded interest). That is just by throwing this money into an IRA. Just call your bank and ask them about it. You can probably even set it up to deduct straight from your bank if you aren't disciplined enough to write a check.
If your company does offer 401k:
First, good. This is a nice benefit and there is a pretty good chance that they contribute money to it. Let say they add 50%. This means that for every $1 you put in, they will GIVE YOU $0.50. By doing the math again using the same terms as above (7% interest, from age 22 to 65), you will now have $406,972.90.
Some people call this the "retire on a cup of coffee" approach because if you skipped the morning Starbucks you could do this. I think that's pretty accurate. Maybe for you it's not Starbucks but it's the Big Mac at McDonald's. Perhaps you can take the train instead of driving. There are tons of ways to save this small amount of money.
I have an idea. Why not keep a diary for 30 days where you list every single thing you buy. At the end of 30 days, choose what you are going to cut out of the budget and contribute that - at least you are on your way.
If you want to play around with the numbers a little bit, here is a decent calculator that is pretty straightforward.
Good luck and set a date to start!
-Jay
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