Gen Y, Your 401k Is Not Enough
Most nights I make it a point to watch Jim Cramer’s Mad Money on CNBC. It is just one of the ways that I manage my financial future. At my first job I invested in that company’s 401k plan more than the minimum employee matching amount. I thought I was doing fine. The employer matching is the easiest free money you will ever make. That is the biggest positive that 401ks have. But the minimum is not enough. With that, simply increasing your contribution amount is not enough either. Yes you should be saving as much as you can for retirement, but the 401k is not the only vessel you need.
The first thing you need to do is open up a Roth IRA or Traditional IRA. Here is the hard part. Only contribute the minimum about to your 401k to apply for the maximum about of your employer matching. Then take the difference and put that into your IRA account. The scary part of this is now you are in charge of your retirement funds. The great news is that you are free to invest anywhere you want in the market and will be paying less fees that you would with your 401k. Yes, you probably don’t notice, but your 401k has fees associated with it. Most don’t notice these fees because when you get your quarterly report from your 401k, they report your total gains or losses including their fees.
Finally, sign up for a high interest savings account, such as ING, to keep the bulk of your savings. There is no reason to gain a fraction of a percent interest with traditional banks. Start building your 3 months’ salary nest egg in a much higher yielding account.
So to recap, get the maximum out of your employer’s 401k matching program, contribute to an IRA, and start saving in a high yield savings account, and start enjoying financial success!
