Have you ever heard about immediate gratification? I am sure we all have and we see and feel that every day. We are human beings and we want to enjoy life and sometimes we can not wait and want things now. How about forced saving, have you heard about that? Buying a house can be an example of that and by paying toward your mortgage is a way than can help to save since the habit of saving is a hard one for most of us. I can go over for a long time with other situations when we find ways to save indirectly because it is a tough step doing it consistent.
So, when it comes in contributing in a 401K it becomes even tougher for us since it is something we don’t see it right away. We, advisor often hear the phrase: I can not afford to contribute to my 401K. There are a lot of reason that contribute to that fact but I guess the main one is because we see saving for retirement like something that is very, veryfar and we can catch up sometimes later in life. But let me show you some reasons why you should contribute at a 401K.
At least up to the match. Some companies will contribute a certain percentage of your salary but they might require you to match that percentage in order for them to put the money in your retirement account (401K). Not in all cases they will require you to do that but if they do, it would be highly recommended not to leave that free money on the table. Pretty simple right? On top of that it is up to you if you want to add more. Review your contributions every year and raise 1% each year if you can do it.
Dollar cost average. Contribute regularly monthly, biweekly or however you prefer to your 401K. It will buy shares on sale when market is down and less when is up. No one knows what the market will be doing tomorrow so there is no such thing as the best day to buy. We should time in the market, and time the market.
Think about your retirement. Let’s be honest: this is the main and the simple reason! As far as I know we get only older. Recent data shows that a person changes jobs 10-12 times in her/his career. That means that we are responsible to keep track and make sure we have a plan when we retire. It is rare nowadays to hear someone being 35+ years in the same company. Pension plans are almost disappearing so what remains is us being smart and planning for our future.