4 Steps to Using A 401k Plan to Save

A Real Plan For Retirement Funding – Part 2

How can I begin saving for retirement when it seems I have nothing extra to spare?

The hard part of saving money is doing so when you currently use every dime you have.  You can’t image adding to the expenses you already have nor can you imagine anyone taking more out of your paycheck.  This sounds like a problem with no solution.

So your situation is much different than the one we discussed prior when you have a new job or position and haven’t received the 1st paycheck.  It’s easier to put some things in place using funds you never had in the first place.  While it might seem like there’s no solution, we’ve been in those shoes and we discovered a way to accomplish what seems impossible.  Maybe not impossible, but certainly uncommon.

Become familiar with the rules.
If I haven’t said this already, you need to know how the process works.  Even in any game you play, you need to know the rules so that you know whether you’re winning or losing.  Let’s say you want to begin contributing to the company provided 401k benefits. You need to know what doing so really looks like.  You need to know the benefits as well as your expected contribution. If the benefit matches your contribution for 10% of your annual income, you need to know that.  What the company matches is your money making money; it’s like free money. You need to know what happens if you decide to contribute more or less than the matching amount.  You need to know the rules so that you can plan accordingly.

Decide to contribute.
Once you know how it works.  You weigh the pros, the cons, the limitations and the advantages.  You now know what you gain by participating and even what you stand to lose if you don’t.  You’re now ready to make a decision on whether it’s in your best interest to contribute. If you’re going to save, I think 401k is the best starting place.  It’s not as risky and you receive instant returns.

Invest incrementally.
No one will tell you that you don’t have to contribute the full 10% or that the match doesn’t have to happen all at once.  Based on your financial positions, you might not be able to invest the entire amount at once. So I suggest you start with 1%.  Make a selection of just 1 percent for now. Then at the end of the year or when you’re blessed with an increase or raise, increase your 401k contribution by 1 more percent or a few percentages.  By doing it this way, you’re steadily increasing and in less than 10 years you’ll be at the full match. Of course, if you’re planning and managing your life, your business, it won’t take you 10 years.  You’re much better than that. You’ll finds ways to be a little more aggressive. After awhile it becomes fun watching your money grow. Plan to add to your savings incrementally so that it doesn’t hurt you now, but enables you to still accomplish your goals.

Begin thinking of ways you can manage this benefit.
Once your 401k or future savings begins to accumulate, increase and multiply, you will see other financial options and opportunities arise that you didn’t see or have before.  Let me give you a few examples so you see what I mean.

• Retirement savings.  You could use your 401k savings for retirement.  You can leave it be and use it specifically for retirement.
• Start a Business.  Over just a few years, the savings will be substantial and you might decide to use the money to start the business you’ve always wanted.  I call this reinvesting.
• Forced Saving.  Maybe you have other means available for retirement and you want to use 401k as another way to save that’s dependable and automatic.  401k plans usually provide a great return, but you have to watch out for penalties for early withdrawals. It’s better to be penalized for something you have than not have an option to be penalized for money you don’t have.  Regardless, it does give you a wonderful benefit to borrow against. And it’s practically hassle free.
• You become your own bank.  Let’s say you borrow against your 401k to purchase a car.  The 401k funds secured the loan so you get the title for the vehicle you purchased upfront.  This is truly the way to use your money without making others rich in the process. You’ve just become your own bank.
• The money can become yours sooner.  401k accounts have one more feature that’s important to know.  When you change jobs or terminate employment, the funds become available to you without all the restrictions that a 401k account enforces.  This is the best time to move your funds to an alternative method of savings like an IRA that you manage. This way you can use your funds however and whenever you see fit.  It’s yours to even re-invest. Let me CAUTION you, check the fine print and remember to look out for penalties and tax impacts.

Today is Friday!
If there is one main takeaway it would be this.  You can save for your future goals, like retirement, today regardless of how much you have or how much you make.  Simply knowing that you can and how to do so changes the game for you, your family, your life, your business.

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