The answer to this is simple...make more money so you can set aside more money! Ok, maybe that isn’t simple. The White House increased our savings capacity to give us an extra $500 to claim on our taxes this year with our 401k contributions; however, for some, this increase feels pointless because the limit seems unattainably high.
$1,541.67 per month. That’s what you need to set aside every month to reach the new 2018 max contribution for your 401k of $18,500. If you think that’s a heck of a lot of money that is difficult to spare, you’re not alone. In fact, according to Vanguard, less than 10% of people making $100,000 or less actually reach this goal. But we’ve got tricks to help you get the most out of your 401k benefit.
So maybe maxing out our 401k may not be possible this year, but don’t let that stop you from saving. Your money can be working for you literally while you sleep. Here are a few pointers to get you going in the right (and more practical) direction this year.
Set aside something! Starting is the hard part. Once you start, the battle is half won. Keep in mind that you are contributing pre-tax, so if you put in the $1,000, you may only feel an $800 drop in income (depending on your tax bracket).
Max out your employer match
Most employers offer a matching program as an incentive. Find out if you have one and take advantage of it. Whether they give you 100% on 3% of your income, 50% on 5% of your income, or any other deal, max it out. Why? It’s free money!
Increase your current 401k deferral
If you are already contributing, increase how much you put aside by 2% or 5% or $100 and then move things in your budget to meet your new income level. Trust me, it will be worth it! You may surprise yourself how doable it is. Plus, you can always scale it back down if it was too much too soon.
Get more aggressive
Know where your money is. Check out where you are investing. Do some research about those funds on Morningstar.com. Find out about hidden fund expense fees that may be eating your lunch. Talk to an investment advisor. Do whatever it takes to make wise decisions that will actually make you money this year instead of letting your money sit in a fund that isn’t yielding results!
Here’s to 2018! Let’s save more to make more...am I right?