401k: Not Just A Bunch of Numbers and a Letter Anymore

I’m one of the lucky ones whose employer makes matching contributions to a 401k. For that reason alone, I contributed enough money to get that company match when I hired on, but only just enough to get that match. Free money, right?

In the past few years I’ve been promoted and have gotten a few modest (cost-of-living) raises as well, but I’ve never increased my 401k contribution. I had a “set it and forget it” mindset, though, and it never occurred to me to contribute more to it even though I make a little more money now. If I wasn’t getting more company match, then anything that I added above that was money that would go into nothingness, and that I wouldn’t ever get to enjoy it.

I was falling prey to a common fallacy with retirement and financial independence: it’s so far away I’ll never get there.

Recently, though, with my adventure into a simpler way of living I’ve realized that minimalism is a route to financial independence. For me, retirement isn’t 62 or 65, it’s more in the 42 to 45 range. That’s only about 15 years away! I can easily remember what I was doing 15 years ago: I was about to start high school. Really puts this time frame into perspective! At least, I don’t feel like high school was that long ago…

Anyway, this made me realize one thing, in bold neon letters: I need to step up my saving game!

Of course, I was doing this somewhat indirectly. I don’t buy stuff just for stuff’s sake anymore. I sold a ton of my junk and I don’t order non-consumable things on Amazon with reckless abandon like I once did. However, this is all after-tax saving, and the more I looked into it the more I realized there was more I could be doing for myself.

So I increased my 401k contribution a few percentage points. Even though my company won’t match my contributions above the amount I was already making, the tax shelter that the 401k provides is kind of like getting free money anyway. Even though I’ll have to pay taxes when I make withdrawals (one day!), my tax-free earnings can grow unfettered until then.

I started off with a 2% increase above what I was already contributing. This amounts to well under $100 for me per paycheck which won’t hurt me at all, and will account for well over $1000 per year at my current pay rate. I’ll look to increase this even more in the near future in order to increase my savings percentage and progress with my goal of becoming financially independent. Right now my savings rate is about 20% but with some more lifestyle changes hopefully I will be able to increase this even further.

Photo courtesy of Wikimedia Commons

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