Wealthy Habits Now

When you invest with mutual funds, you are purchasing small shares of various companies. Your 401(k) is an example of mutual fund investment. One reason for the popularity of these investments is the diversification. Instead of purchasing shares with one single organization, you can buy of mix of stocks. The general thought is that mutual funds offer less risk than purchasing single stocks because of the diversification (you are not putting all of your eggs in one basket). You should know that although risk is reduced, it is not eliminated. When investing in mutual funds, be consistent. The goal of investing in these funds are not to get rich quickly but to grow wealth over a period of time.

Planning for your retirement requires you to make the best financial decisions possible today. Previous generations of retired individuals relied on company pensions as a primary source of retirement income. Today, as more companies do away with pension programs, the 401(k) plan is the method of choice for many of us to establish our nest egg. Company provided 401(k) plans offer various benefits to help you prepare for your retirement. Here are five reasons why you should contribute to your 401(k) plan.

Many of us have good intentions of saving for the future but we find ourselves taking care of bills and other routine expenses first. As are result, we find ourselves having little to nothing left to put aside for our retirement. When you enroll in a 401(k) program, your deductions are withdrawn automatically with little to no effort on your end. You will be surprised at how quickly the money grows over time. Best of all, money grows in a tax-deferred account so the taxes taken from your paycheck is reduced while you pay yourself.

Most employers will offer a company match to attract talented candidates. The company match is free money which you can use to boost your retirement amount. If your employer is offering .50 cents match for every dollar you save, that is a 50% return on your money! Better yet, a dollar-for-dollar match is 100% percent return on your money. Where else can you get those types of returns on your investment? Do you feel that you are not getting paid what you are worth at your job? I recommend that you contribute at least up to the maximum percentage which will allow you to take full advantage of the company match.

The money in your 401(k) account is set aside for your retirement. But did you know that you can also withdrawal the funds in the case of hardships such as unforeseen medical expenses, funeral costs, and home repair deductibles relating to a casualty loss. If the money is withdrawn before you are 59 years of age, you will be subject to an additional 10% excise tax unless your company allows you to repay the loan through paycheck deductions. In essence, you are paying yourself back with interest from your paycheck. As you pay yourself back, your money is replenished for when you need it. Contact your local benefits administrator for additional information about the details of early withdrawal.

Unlike many pension plans, the money you contribute to your 401(k) plan and the employer match is yours to keep once you leave the company. Most employees will work various jobs throughout their working career. With a 401(k) plan, you simply roll over your funds into the plan offered by your new employer. If you new company does not offer 401(k), you can roll the money over into an IRA. The flexibility offered by your 401(k) account encourages you to continue saving for retirement by allowing you to start where you left off with your new company.

The money in your 401(k) account is not saved but invested. By investing the money, there is a greater likelihood of earning more on your money. Albert Einstein once said, "the most powerful force in the universe is compound interest." Compounding interest allows your money to work harder for you than you can work for your money. With compounding interest, time works in your favor causing your money to grow for you exponentially. Consistency is the absolute key to long term wealth building in your 401(k). Enroll today, the earlier you start to contribute to your 401(k) account, the sooner you begin building your wealth source for your retirement.

If your company offers no 401(k) match should you still enroll?

The match offered by your company is one of the most attractive reasons to enroll in your company's 401(k) plan. But what if your employer is not matching your contributions? A no-match 401(k) plan still remains an attractive way to save for retirement for a few reasons.

One benefit is the automatic deductions from you paycheck. Most of us look at our net pay when reviewing our pay. The automatic, pre-tax 401(k) contributions will allow you to invest painlessly. Most of us pay no attention to our paycheck deductions, we simply adjust our spending to accommodate our net pay.

Some may think that enrolling in mutual funds is a better option if there is no match available, but that theory will not work if you do not actually do it. For those of us who like to put things off, the employer offered 401(k) plan is an easy way to start your investment portfolio. Once you have begun the process of investing through to your company's plan, you can continue to diversify by investing in an IRA account or by purchasing some growth mutual funds. The money in your 401(k) is also a bit more difficult to get to once you start your investment, which makes this method of long-term retirement savings a method of choice.

The moral of the story is that enrolling in a 401(k) plan that offers no match is not such a bad idea, but do not stop there, keep increasing your net worth by investing your money in multiple vehicles for the maximum amount of diversification.

Not yet sold on the benefits of a 410(k)? See for yourself how much money you can have by taking advantage of this terrific benefit. Put your information into a 401(K) calculator to get an estimate of how your wealth can grow!