My first real job out of college
I was an analyst for an investment company which was funny because the main thing I needed was money.
Because I was broke!
I was 6 months out of college and had financed a new car, without negotiating the price, and I had 4-years of student loan debt.
I was renting an apartment and no one told me about other adult costs—car insurance, health insurance, monthly parking, gas, oil changes, and the unforgiving cycle of credit card payments.
I was a college educated, single, working professional, yet my check was barely enough to make it each month.
This is unfortunately how many women start their adult lives and the opportunity to change does not come without something or someone who forces you to break-up with bad habits.
My manager at the time was that someone.
She was older, single, smart and had a great career. She also knew how to be candid and direct with her words.
She pushed me forward
Just before the end of our annual benefit enrollment period, she found out that I was not planning to invest in the company’s 401k plan.
She pulled me aside and said,
“Look, I know you think you maybe doing the right thing, but preparing for your future is serious. You need to find a way to put at least 3% of each paycheck into the company’s 401K. Each year, the company will match your contribution with another 3%, and at least 6% of your income will be for your future.”
Clearly she didn’t understand my financial problems.
And clearly it didn’t matter because she knew two things that I didn’t:
- Using the power of my income today to change my future
- The gift of compounding interest over time
Against all of my emotions, doubts and fears, I took her advice and to this day, it is one of the best things I have ever done for myself.
Getting Past Stuck – Finding Money to Invest
If you are like I was and feel you don’t have any money to invest for the future, you have to immediately eliminate wasteful spending.
What is wasteful spending?
- Eating out – breakfast, brunch, lunch and dinner
- Drinks or coffee with friends
- Hair salon visits
- Nail salon visits
- Spa visits
- Shopping for shoes, clothes, the latest tech gadgets, and other material items
- Weekend trips and getaways
- Movies, concerts, other entertainment, sporting events
- Giving money to significant others, family or friends
- Monthly subscriptions (gym, shopping clubs, etc.)
Basically, if you do not have any savings or retirement, anything that you spend money on beyond your basic and minimal needs, can be labeled as wasteful. Ouch!
Consider the following:
While wealth generally increases with age, a wealth gap persists across the life cycles of women and men.
- Millennial women have a median wealth of zero
- Women ages 35-49 have a median wealth of $1,000 (only 4% as much as men ages 35-49)
Source: Asset Funders Network – Women and Wealth, 2015
Remember, median is the point at which 50% of a population is doing better and 50% is doing worse.
If you were to make a list of the names of 20 women that you know from work, college, church or from your neighborhood, between the ages of 35-49, 10 of them would have a median wealth of $1000 or more, and the other 10 would have a wealth of $1000 or less.
Wow. That’s sobering.
I know these numbers are hard to believe especially with the popularity of social media and our quick assumptions that everyone is living fabulous!
Yet study after study proves that we overspend, under save and are not prepared for life after work.
Let’s Turn it Around
I had to better. We all have to do better.
One way to turn your financial future around is to use your company’s retirement benefits to help prepare for the future.
Here are my 4 financial benefits of your 401K that you must use:
1. Take hold of your company’s matching contribution
Most employer’s will make matching contributions for an employee who contributes into the 401(k) plan. The employer usually makes the match annually or during each pay cycle.
Let’s say Kim makes $50,000/year and is paid twice a month. She decides to put 5% of each paycheck into her company’s 401k, which is about $208 per month. Because her company offers her a 5% match, they also put $208 a month into her 401k.
Over a year, Kim sees an additional $2500 added to her retirement account! Cha-ching!!
If you don’t get anything else from this article, do at least this one thing. This leads to a huge increase in your contributions and earnings.
2. Leverage convenient payroll deductions
Another benefit of using your company’s 401K is the built-in automatic saving feature.
Let’s be honest–our tendency is SPEND first, SAVE, last. Doing it the right way takes discipline which is why having it done for you is a great benefit.
Once you decide to jump into your company’s 401K, your contribution happens automatically. As long as you are enrolled in the plan, there is nothing extra you have to do.
3. Take the Tax Savings
Traditional 401k plans offer what is called Pre-tax contributions which means you do not pay federal or state taxes on your 401K contributions. This means a reduction on what you owe to the IRS each year. That’s a reason to cut a flip!
Most companies now also offer a Roth 401k option. If you elect this type of account (which is a good decision!), you save taxes when you withdraw your funds out but not when you put money in.
4. Use Annual Automatic Savings Boost
Once you are in the rhythm of investing and watching your earnings grow, the next natural thing is to want to do even more.
I became very protective of my first 401K because I had never saved that much money before! The feeling was amazing and you will want to seize the momentum.
If your company offers it, sign up for an automatic increase in your yearly contribution. Remember Kim in our example above?
Kim can go to her 401k plan administrator website and select an automatic feature which increases her 5% contribution up by 1%, 2%, 3%, etc. each year, or over a specified timeframe.
This is smart because as your pay increases, this is a convenient way to invest more of your earnings.
If your company does not offer the automatic increase in contribution, just log in on a significant day each year (your birthday, job or marriage anniversary, etc.) and increase your contribution by at least 1%.
You won’t even feel the change but over time it will make a huge difference to your earnings potential.
Well there you have it! My list of 401k benefits every woman should use to change her financial future.
By the way, check out my post on Starting an Emergency Fund, which is important to have when, not if, things get a little rough. Remember, your 401k is a long-term investment and making early withdrawals will result in penalties, fees, and loss of earnings.
Now, go change your financial future!