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Add Your First 1% to Your 401(k)

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Many of my fellow bloggers and I have become concerned about how low the rate of savings has been for Americans in general.  To see a list of all of the articles in the 1% More Movement, check out the article at this link.

Since November is traditionally the time when corporate employees make elections for all other benefits, including health insurance, life insurance, and other employee benefits, now is a good time to also consider increasing your 401(k) contributions.

For my article, I’m focusing on the employee who hasn’t been participating in a 401(k) plan at all.

Your First 1% in Your 401(k)

If you haven’t been putting anything at all into your 401(k) plan at all, putting that first 1% into the 401(k) plan can be a little scary.  But you need to know that this is a monumental action.  Getting started with savings is the most important step you can take – and it’s only scary for a little while.  Keep reading, you’ll see how putting aside that first 1% can be relatively painless, and after a while, it gets to be fun watching your account increase in value.

For our example, let’s say you make $30,000 annually and your employer matches 401(k) contributions as follows:

100% of the first 2% of contributions

50% of the next 2% of contributions

25% of the next 2% of contributions

Your net paycheck today, when you’re not making any 401(k) contributions, is $884.82 – this is after taxes and insurance premiums have been deducted.  When you make the decision to contribute 1% of your income to your 401(k), you will be putting aside $11.54 every paycheck (assuming you’re paid 26 times a year).  The end result is that your paycheck will only go down by $5.91, to approximately $878.91 – the total amount you’ll “lose” from your take-home pay over the course of the year is $153.66.

Since your employer matches 100% of your first 2% in contributions, for this first 1% contribution you’re making, you’ll actually have a total of $23.08 in your account every two weeks when you get paid.  At the end of the year, a total of $600.08 will be set aside for you, and all you had to do was learn how to get by on $12.80 less per month!  I think you’ll agree that this is doable, right?

Now get out there and do it!  Add 1% to your 401(k) plan right away, it will definitely pay off in the long run, and you’ll never miss it.

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