This might be my last financial tip friday segment for a few weeks. As I have mentioned I am leaving for China later today and I am not sure how much time, if any, to blog while I am there. I hope to just provide some photos of our trip, observations, business items, etc.
This post will also sound like a broken record because a couple of the financial tip Friday segments have been devoted to retirement savings here, here, and here. But as I was going through my investment and bank accounts at the end of the month I came across a new Fidelity article discussing how 1 out of 4 people don’t put money into their 401k accounts to at least get the company match.
Most employers that have a 401k plan have some kind of matching contribution. In other words, if you put in 3% they will match 3%. In essence, it is free money. According to the article, people are giving up on average of $1300 a year because they don’t take the match. That is about $100 a month. If you are young and conservatively compound that over 40 years that is over $140,000 or over 20 years over $40,000.
Two things about this: 1) Message to my students: YOU CAN SAVE $100 a month. Just don’t buy STARBUCKS or DUNKIN DONUTS AS MUCH. I mean seriously to get the match they are talking about, the average match all you have to do is save $100 a month of pre-tax income. The vast majority of people can do that. I know my students, who are recent college grads, can do that.
2) People who don’t take the match are giving away FREE MONEY. Are you kidding me? Why the hell wouldn’t you take that deal? It is FREE MONEY for $100 a month and a conservative investment you will have tens of thousands, if not hundreds of thousands, by the time you retire. And you can’t spare $100 a month for that. Buying a new pair of shoes is that important to you. Seriously?
3) In addition to you missing out on that free money the money you invest will also grow into tens, if not hundreds, of thousands of dollars. To my students and to anyone who has access to a 401k plan. There is really NO excuse that you can provide where you cannot save at least $100 a month and get your match. I mean c’mon.
The Bottom Line
If I have said nothing that you believe at least believe this GET THE FREE MONEY! It is free for pete’s sake. WHy wouldn’t you do that? It isn’t hard to find an investment that will make 5% long-term and most will do better. Advice to my students: SIGN-UP for your 401k RIGHT AWAY. No excuses. Don’t wait. There aren’t that many things to buy that are that important. Pack your lunch, don’t buy coffee a few times a week. Take that money, put it in an index fund, or a general fund in your 401k and watch it grow. Get the free money.