First and foremost, I don’t believe there is a get rich quick scheme out there.
What I do know is… you can be lazy and get rich.
Quick Start guide to the 401(k)
I had someone tell me a story about how they set up a 401k when they started a job, and they never looked at it. For 9 years! They actually forgot about it. How awesome would it be to have that sort of selective ignorance? Long story short, they told me about how when they switched jobs they got a letter in the mail asking them what to do with the money. So this person took the money, paid taxes on it, and put it down on a house.
Not to get into particulars about this person, or the job, or the house: but I am sure Dave Ramsey would have a broken heart if he heard about this.
2 Things are wrong with this:
A home loan, (in my lifetime) has cost about 3-7% interest depending on the economic situation. The stock market has averaged around 10-11% since its inception. The balance doesn’t add up.
PLUS you are switching an asset (something that makes you money) for a liability (something that costs money).
One might argue that a house is an asset, but it isn’t. You break-even at best.
Enough of the rant… on to how to maximize your 401k, by being lazy and getting rich.
1. Be Lazy
Set it and forget it. The most you should check on your 401k is 4 times a year, and that is to reallocate your assets and balance it out. If you want some advice on that, get off the internet and call your broker. When you call your broker, ask him if this portfolio might be right for you.
2. Murphy’s Law
No, I am not talking about a BBC crime drama. I am talking about what can happen will happen. So you need an emergency fund. Once the Credit Cards are maxed out (should have been cut up), the next step people do is borrow from the 401k. This is dangerous for 2 reasons. The first being the payment comes out of your check just like taxes. The second issue is what happens if you lose your job. You may get to transfer the 401k, but now you lose that money and don’t get to pay it back.
3. Know what Vested means
Millennials don’t keep jobs. Most people aren’t fully vested until they reach 3 years of employment. The average employment length for a millennial is 3 years. If you are there for 2 years, and jump ship you could be leaving most, if not all of your vested balance with your employer.
4. Don’t see a raise
You should always get a raise, but don’t let it hit your pocket. Every year when you get a raise, invest more into your 401k. If you can’t afford that methodology, increase by 1% each year. It is very small, but before you know it, you will be saving double.
5. Don’t let an old 401k collect dust
If you have swapped jobs, and you forgot about your 401k, you need to find that bad boy and roll it over. Brokerage firms are always advertising the rollover, and making it out to be a complicated process that they can handle for you no hassle.
I believe the ads scare people away from looking into it, but even if it was only $500, that can mean a lot over the course of a 40-year career.
6. Follow Jim Rohn’s 70-10-10-10
Live on 70% of your income, 10% goes to charity (or church), 10% goes to passive savings (your 401k), and 10% goes to active savings.
I can write about active savings all day long, but the focus is the 10% of passive savings. I tell people this is my “in case fund.” In case I don’t make my muse work for me, I still have 10% saved for retirement. I will work then retire. (the American dream)
If you would like to know more about Jim Rohn and his teaching’s I would suggest this book here.