A 401(K) in Your Twenties
Your savings goals will be different depending on your age and where you are at in life. However, as you actually begin navigating the “adult” world of finances, you may feel a little lost. It is important to remember that your 401(k) is still an option you want to consider while you are in your twenties.
Your 401(k) Account
There are many ways to get started with a 401(k) account, but you want to see which option has the most benefits. Your paycheck will automatically get money taken out of it, but you may even have your employer match your contributions up to a certain extent! Not all companies are the same, so it is important to understand what contributions your employer offers with their 401(k) plan. When looking at jobs, you want to understand their contributions as well. Some companies have delays, age limits, and more.
What are the Company Contributions?
Since every company has their own protocol when it comes to contributing to an employee’s 401(k), you want to understand different options that you may encounter. Some companies match you 100%. If you make $50,000 a year, and you put in 5% of your income in your 401(k) account, your company will also put in 5%. That means that now your account will have essentially 10% of your income instead of just 5% - that’s basically free money! It is important to remember that some companies match partial percentage so if you put in 5% then your employer may only contribute 2%. However, the earlier you start saving money in a 401(k) the longer you will be receiving free money which can give you the ability to retire sooner or to better enjoy retirement.
Don’t Let Debt Hold You Back
Many Americans hold off on getting a 401(k) account because they are concerned with other aspects of their life like debt. In your twenties you may experience a lot of debt that needs your attention like credit card debt, student loans, your first mortgage, etc. This may make a 401(k) account feel like a backburner in your financial life. However, if you plan a proper budget, then that will not be the case. You will be able to not only work on paying off your debt, but still be responsible with your retirement savings.
It is extremely important to take the time to understand your 401(k) account if offered by your employer. These accounts will give you the ability to get free money for your retirement. If you take the time to properly understand, budget, and contribute, then your future self will look back and be grateful that you made the right decision in the present. Your twenties are stressful, but you can still make the right decisions for your financial situation. Don’t be afraid to ask your employer questions about their 401(k) option if you feel like you don’t understand what they are contributing. They will be able to break it down into understandable terms so that you can easily grasp what you are going to be benefiting from.