As I begin the journey of ending my career, I look back at the messages I’ve received throughout my life about money and the idea of saving money. Of course, when I was young I never thought much about saving. After all, I was young and had a lot of time to spare.
It was a plan built on wishes and fantasies. A plan that gave me all kinds of party money and set me on a path to self-destruction. While I had some amazing, if a little crazy, moments, the memories have lasted a lifetime. But those memories did nothing for me when I had an emergency.
I got to a point where I could justify not saving money. After all, with all the debt you had, how could you save a dime? The question should have been how could he not save a penny?
One of the easiest ways to save money and also get a raise is through your workplace pension plan (401K). People don’t because… well, it goes back to my early beliefs that I was young and would worry tomorrow.
Let’s look at a simple example of how this can help. This is just one example using simple financial amounts. During the month you earn $1000. Let’s say you take 20% for taxes. His net salary is $800. That’s all you earn for the month, so saving money is impossible, right? I say. Wrong.
I’m still learning UK pension plans so I’ll use the 401K models I use too. Let’s say your employer will match your contributions up to 5%. So if you put in 2%, they will contribute 2%. If you put 3%, they put 3% and so on up to 5%. So if you contribute to a 401K and only contribute 2% (in this example) you are losing money. You are losing 3% of the money that your employer would contribute.
In the example above, based on a 100-hour work month, your hourly wage was $10. By contributing 2% to a 401K, which her employer matches, her monthly salary grew by $20. An hourly raise of 20 cents. So the hourly wage grew to $10.20. But without taking advantage of the top 5% of employers, the employee loses $30 per month and 30 cents per hour.
Yes, to get this raise you will have to give money from your check that you say you don’t have. 401K contributions are counted on a pre-tax basis. So if you take 5% of your $1,000 monthly check, your taxable income is $950. Then 20% deducted from that amount leaves you with a $760 take home check. A loss of $40. But you are adding $50 to your account and your employer is adding another $50. So for the month, he added $100 to his account, which only cost him $40.
They are simple figures but it is crazy not to use pension plans in your favor. I have heard from people in the UK that the plans are rubbish. The only terrible plan is to have no plan at all. To take advantage of any plan, contribute at least the maximum your employer will match, and look at your plan as well. Many plans offer different investments to grow your money. From simple safe plans like bonds and CDs to riskier investments from international funds.
Just don’t see a plan as garbage. Look at it, invest in it and make plans for your future.
