You work hard year in and out to satisfy customers and grow your own business! You save money for your clients, but do you save money for yourself? There will be a time when you will have to stop working due to health reasons or personal commitments. Are you prepared? If you want to retire rich with little or no financial headaches, you need to contribute to your 401k!
Pay Yourself First
Whether or not you work a 9-5 job or rely on passive income, you should always pay yourself first! This principle forces you to set aside a percentage of your income for savings. Retirement plans including 401k’s take a portion of your pre-tax money and place it in investments.
When you contribute to your 401k, you are paying yourself first and setting aside savings for the future to retire in comfort.
To reach your financial goals, it is always best to have a system that is automatic. You should setup accounts to take 5-15% of your monthly income and put it into a 401k plan. That way, you are forced to discipline yourself as you will have a limited amount to spend after the deduction.
Though this may be hard initially, you will not regret it! Live below your means to enjoy a greater reward and less worries later!
Albert Einstein has been famous for saying that the most powerful force in the universe is compound interest. By contributing to your 401k, you are investing a portion of your income in the market which has been known to return 8% per year on average.
By contributing regularly, you will compound the return on your contributions plus whatever returns you got from investing! In a way, you are “getting interest” on a larger amount of money.
The earlier you start, the better! If you start early, you could become a millionaire well before you retire!
In an effort to ease burdens on government funded pensions, the government has allowed you to contribute to 401k’s and other plans using pre-tax money. Every year, the US government updates figures on the maximum you can contribute to your 401k.
By contributing to your retirement, you are able to reduce your gross income and thereby pay less taxes. Instead of paying the government, allow that money to grow and fund your retirement! The government is more than happy to take your money!
Besides saving on taxes, many companies offer a match of 3-5%. For example, if you contribute 5% of your income, the company will contribute that much. By not contributing, you are throwing free money away!
Easy to Setup
All this is easy to setup! If you work for a company, chances are that the company will have plans available. Simply create an account, login, and adjust your contribution amount!
If you are self-employed or rely on passive income, you can contribute to a self-employment pension plan (SEP) and set this one up at your nearest brokerage!
Don’t pass up these easy opportunities to pay yourself first and retire rich!