Don’t Get Hung up on a 401 (K) Match If It Ruins Your Finances
If you are in the business of personal finance, then what you are about to read may not be to your liking. In fact, it is difficult even to print. But here’s the thing: It’s not always wise to take full advantage of your employer’s 401 (k) match. It’s like free money. However, you still have to fork out to get it, and if you really can’t afford it, it can cause problems.
First, let me follow through on this disclaimer: if your employer offers a 401 (k) match, you should do your best to take full advantage of it, because it’s a huge return on your savings and you’re nowhere else. don’t get it. more. If you don’t know what an employer is, check out our tutorial. In short, your job gives you money to save for retirement. Sounds cool, right?
And so it is, unless oversaving is ruining your budget. For example, perhaps you save as much as you can to get a complete match, but:
- You cannot pay the minimum credit card payment.
- You are returning rent checks because you don’t have enough money in your account.
- You don’t have a reserve fund.
- You accumulate more credit card debt to pay for living expenses that you cannot afford.
Of course, you need to be sure that you are doing everything you can to meet your basic monetary obligations and take full advantage of the match. By all means, make sure you cut back as much as you can afford on both . And if you cannot afford a complete match, try at least partially to take advantage of it.
With all this in mind, some people are still stretching too much to save money, which can be counterproductive. Depending on your situation, you may need to focus your financial priorities on other areas first. Here’s how it formulated the Y ou Up Need a Budget (YNAB) :
If a person cannot make the required contribution of 401 thousand and keep all accounts and debts up to date – mathematics does not matter. He cannot afford to “buy” the agreed dollar from his employer.
If the same person pours every penny into credit card debt and views the freed up credit card availability as their “emergency fund,” redirecting money to their 401k for the sake of coincidence could create undue risk to their finances.
This does not mean that you should miss a match if you have debts . Even if you have credit card debt, experts recommend that you pay the minimum balance, then take full advantage of your match, and then put in additional funds to pay off a larger amount of the debt.
This is one; not being able to pay your minimum payment is another. And almost all experts agree: first of all, you need to create a reserve fund.
All this suggests that the selection of an employer is a pleasant bonus, and not everyone gets it. Do your best to take full advantage of this – just make sure you have the rest of your budget in order.