Maxing Out the 401k

Two years ago I started a new job that came with a small bump in pay. In the past, I had always let my raises trickle into my checking account without thinking about them much. But, after a year of reading other personal finance blogs, I decided it was finally time to take action and I bumped my 401k contribution up two percentage points. This isn’t the end of the story, though; this simple action led me down a long winding road which lead up to where I am now: contributing over a quarter of my pre-tax income to my 401k.

First, some background: my company matches 401k contributions, but in a needlessly complicated way. They match 100% of the first 3%, 50% of the next 3%, 25% of the final 1%, and nothing for anything above 7%. What it boils down to for me is that if I contribute 7% of my salary, my company match is 4.75%. So it had been sitting there for years while I contributed the “minimum” 7% of my salary.

When I changed jobs though (internally, I still work for the same company) I decided that I would bump that amount up to 9%. For me, that was an increase of about $56 a month, but remember that this is pre-tax dollars so it’s really only about $42 from my actual take-home pay. I still had a nagging PF guru in my head though who was telling me I could do more. I’m lucky enough to live below my means and won’t miss another $100 or so a month, so after a few weeks of back-and-forth I raised my contribution anouther 3% to 12%.

From there, though, I realized how easy it could be to put my nose to the grindstone and try and get up to the maximum contribution of $18000 per year. I made it a sort of game: anytime that I could save myself 1% of my after-tax salary per month, I would raise my 401k contribution by 1%. (Expert personal financiers will note that this nets me a significant tax savings.) The first of my bill cutting measures was to switch from the family cell phone plan that I had been on for years over to a company cell phone that I only have to pay $10 for. (For that low rate I have to accept work emails and calls on my phone, but most of that gets funneled through Google Voice and not my actual cell phone number.) This saved me $40 a month, so I raised my contribution another percentage point.

After that, I realized I had an index fund that was just about the same amount as one of my student loans. At the time the market was stagnant so I decided a better choice of action was to sell it off and pay off the loan. That saved me $60 so I raised my contribution 2% (how you choose to round is up to you).

I chugged along at 15-16% for a few months before I saved up enough to pay off another loan, and raised my contribution accordingly. I had another moment where I decided I wouldn’t miss another $40 and raised it again. I also made some lifestyle changes, like realizing that grass is a complete waste of money and that I could raise my contribution a little more if I let it go brown and put native, drought-tolerant plants in its place. As a bonus, sweet potatoes grow extremely well in my front yard and the greens are edible, too!

Anyway, I finally paid my student loans off in full about a year ago with a bonus, and made a few other lifestyle adjustments that saved me enough money to finally max out my 401k contribution. For example, I bike to work full-time now, which means no fuel costs (even though my car is electric, it still saves some money) and a nice fitness bonus to boot. I work on the side as a freelance writer which doesn’t bring in much money but it helps. I also don’t have cable, and I don’t have Internet access at the house outside of my phone (which I fully realize isn’t everyone’s cup of tea, but it works for me.)

I didn’t quite make it to the maximum contribution amount of $18000 last year (it was around $14,500) but this year I am on track to get to that magical number. Early in the year I didn’t think I would make it because I had to lower my 401k contribution amount temporarily to funnel money into my HSA for laser vision surgery. (Side note: totally worth the expense! Contacts and glasses are terrible.) Luckily there was enough time left in the year for me to catch up and as long as I keep my job I’ll make my goal. Also, don’t forget that the 401k is pre-tax money, and my additional contributions have saved me thousands in taxes in these two years. I’ll have to pay taxes eventually, but this is a pretty good perk for now.

I still have a little ways to go, though. I have a payment on my car (which is mostly covered by the fact that I don’t have to pay for fuel, for anyone worried why I contribute so much to retirement when I still have debt) and I still have mortgage insurance that I should be kicking to the curb in less than a year. But now that I’ve maxed out my 401k, all of that extra money will go right into my pocket! (read: right into a Roth IRA until I max that out too!)

While a lot of my circumstances are very fortunate, like being able to pay off debts and funnel that money into my retirement, or having access to a company cell phone, or getting bonuses, most of these steps are something that anyone else could do as long as they believe in themselves, and aren’t living paycheck to paycheck. As proof, my take-home pay is actually slightly less than what it was when I first started working for this company five years ago even though my net pay is much higher. My mortgage now is more than my rent was then, and I am still able to put a little extra towards principal every month, but I am on a better footing financially than I was back then. This is what has enabled me to keep raising my contribution, all while maintaining the same lifestyle I had when I started this adventure.

If my story has any meaning, though, it’s that you don’t have to go from your company match contribution to the maximum contribution overnight; this whole change took place for me over the course of two years. Additionally, you don’t have to get to the maximum at all but think about at least raising that contribution a little bit if you can. The more you save now, the faster you’ll be free.

Photo: I recently started an Instagram like all the cool kids are doing. I do some photography on the side as a hobby, so I’ll pull images from there from time to time. This is one of my favorites that I took at a ruined jetty on Palm Beach.

Keeping Up with the Florida Joneses

South Florida is a great place to live, but there are two things here that most other places don’t have that take some adjustment: an extremely long, hot summer and a wealth of wealthy people. It’s sometimes difficult to stick to a minimal lifestyle and, at the same time, be surrounded by people who don’t just keep up with the Joneses, but have blown them out of the water in every way possible.

For example, a few of the historic neighborhoods around where I live have “home tours” every year, where a handful of homeowners open their homes up and invite the rest of the neighbors to come through and see how they’ve improved their old homes and tended their (often expansive) gardens. I go to these so I can meet the neighbors, get style ideas for my own house, enjoy some frosty beverages in the block party-like atmosphere, and genenerally make myself feel completely inadequate as a homeowner.

I don’t necessarily feel like this is a bad thing, however, as long as I remind myself that most of these people are either much more well-off than I am or are swimming in debt. Since I don’t want to go into debt just to have a nice back yard, and I don’t try to spend money to keep up the appearance of a wealthy lifestyle (have you seen my car?) when I could instead use that money to retire early, the opulence rolls off of me like rain on a freshly-waxed car.

It would be nice to have a perfectly manacured back yard with palm trees providing shade everywhere, but not at the expense of everything else. After all, I can appreciate the engineering and style that’s in a $100k Mercedes while, at the same time, not have any desire to get rid of my old beater car. It suits me, but there are some times that I have to focus more on my long-term goals than short-term pleasantries.

So, A Lot Has Happened Recently

Yep. I know it’s cliché for a blogger to say “sorry for not posting so much!” but really… it’s been hectic lately. Let’s run down the list!

First, I got a new job. Same company but a different location, new boss, mo’ money, etc. It’s much more interesting than what I was previously doing, and it came with some other perks as well. I’ve been spending a lot of time transitioning to my new office and my new role. I also work longer hours but it’s offset with “flex time” so I’m pretty happy there too.

The only downside is that since the new job is in the city, I wasn’t too comfortable riding my motorcycle to work every day. When I commuted 50 miles a day into desolate, swampy south-central Florida it wasn’t a big deal because there wasn’t ever any traffic and about 95% of the drive was on divided highways. The new job is a much shorter commute but it’s stop-and-go traffic through some congested roads. That’s not good for motorcycle safety. So I bought a car.

And, since I’ve mentioned it before, I didn’t get a new car. Although I did think about it! I was in the Honda dealership about to buy a Fit when a particular manufacturing detail caught my eye and caused me to abandon my pursuits. Let’s just say that I’m worried that Honda is going to have the same problems that Volkswagen has in North America, but that’s a topic for another post. Hint: it has nothing to do with diesel.

So I bought a Mercedes. And not just any Mercedes: A 31-year-old turbo diesel. I picked it up for about what my down payment would have been on the Honda, but it did take me about three weeks’ worth of work to get it running again. It had been sitting unloved for about four years, so almost every day when I came home from work I’d open the hood and twist bolts until the sun set. I’ll be writing a little bit more about this soon, since I’m a big proponent of buying antique cars as a way to save money.

And yes, I do have my Volkswagen still, but it seems to have decided that now would be a really good time to blow out its rear main seal. I’ll have to drop the engine to fix that but sometimes old cars take some coaxing to get back on the road. I’m not particularly upset about it because I know it comes with the territory of owning an older car. Plus, I don’t consider the Beetle reliable transportation; it’s a fun project that keeps my engineering brain sharp that I could sell at any time for essentially the amount of money I have in it. It’s win-win for me!

Oh, and I did sell my Yamaha motorcycle, so that went to offset the cost of the Mercedes a little bit. I got it essentially for free when I bought my house, so I’m chalking that up as a win too.

Speaking of the house, though, I started doing some repairs to my detached garage… which quickly turned in to more work than I was expecting. So that’s been going on too.

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This was what was holding up my roof. Sort of. You come across things like this when your house was built in the 40s and you live in a really wet area with lots of termites.

Let’s sum up. New job, still writing for a few blogs on the side, mowing a few lawns in the neighborhood on the other side, new old car that needed fixing to I could get to work without fearing for my life, old old car needing major repairs, garage in shambles. Oh yeah: my first priority regardless of all of my projects is generally to get to the beach and surf if the waves are up. And the past three weeks we got epic surf from Hurricane Joaquin. And I do not use the word epic lightly.

It was like this for three weeks. That’s unheard of for South Florida, especially since we’re still in the rainy season. And my bike got stolen too. Aww! So there’s been a lot on my plate, but I’m back now!

Photo: Not your grandmother’s car, but close.