make money work
As I begin the journey of finishing my career, I look back on the messages I have received throughout my life about money and the idea of saving money. Of course, when I was young I never gave much thought to saving. After all, I was young and had a lot of time to save.
It was a plan built on wishes and fantasies. A plan that gave me all kinds of money for the party and set me on a path to self-destruction. While I had some amazing, if slightly crazy moments, the memories have lasted a lifetime. But those memories did nothing for me when I had an emergency.
I got to a point where I could justify not saving money. After all, with all the debts he had, how could he save a penny? The question should have been how could you not save a penny?
One of the easiest ways to save money and also get a raise is through your 401K pension plan. People don’t do it because… well, it goes back to my early beliefs that I was young and I’ll worry about that tomorrow.
Let’s look at a simple example of how this can help. This is just one example using simple financial amounts. During the month you earn $1000. Let’s say 20% is taken for taxes. His take-home pay is $800. That’s all you earn in the month, so saving money is impossible, right? I say. Mistaken.
I’m still learning UK pension plans so I’ll use the 401K templates I use too. Let’s say your employer will match your contributions by up to 5%. So if you put in 2%, they will contribute 2%. If you put 3%, they put 3% and so on up to 5%. So if you contribute to a 401K and only contribute 2% (in this example) you are losing money. You are losing 3% of the money that your employer would contribute.
In the example above, based on a 100-hour work month, your hourly wage was $10. By contributing 2% to a 401K, which her employer matches, her monthly salary grew by $20. An hourly raise of 20 cents. So the hourly wage grew to $10.20. But without taking advantage of the employer’s top 5%, the employee loses $30 per month and 30 cents per hour.
Yes, to get this raise you will have to give money from your paycheck that you say you don’t have. 401K contributions are counted on a pre-tax basis. So if you take 5% of your $1,000 monthly check, your taxable income is $950. Then, 20% deducted from that amount leaves you with a take-home check for $760. A loss of $40. But you are adding $50 to your account, and your employer is adding another $50. So for the month, he added $100 to his account, which only cost him $40.
They are simple figures but it is crazy not to use pension plans in your favor. I have heard from people in the UK that the plans are rubbish. The only horrible plan is to have no plan. To take advantage of any plan, contribute at least the maximum your employer will match, and look at your plan, too. Many plans offer different investments to grow your money. From simple safe plans like bonds and CDs to riskier investments from international funds.
Just don’t view a plan as crap. Look at it, invest in it and make plans for your future.