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You, Your Money, and a 401(k)

You, Your Money, and a 401(k)

August 04, 2022

What do you think about money? How was money treated while you were growing up? Did you grow up with too little, too much, or not enough? How do you approach money now?

Money is personal: what it means to you and how you use it.

I grew up observing how money was hard earned and hard to keep. I was raised by a single-parent mother in southwestern Virginia. Shortly after my mother earned her college degree, she took a management job. She told me about the 401(k) her employer offered. It was something new and she had a lot of questions. Moreover, as the sole provider to three children, she had bills to pay and couldn’t imagine putting her money into something that could lose money. She chose not to participate in the 401(k).

Often, I consider how saving $20 per pay period in the 1990s may have impacted my mother’s financial situation in 2022. If I could go back in time, this is what I would share with my mother:

Contribute a minimum of what your employer will match to your employer’s retirement plan. Perhaps you’ve heard people say, Don’t leave free money on the table! Such an expression is often related to 401(k) plans. What does it mean?

Consider this hypothetical example: you earn $40,000 per year and your employer offers a 401(k). Your employer matches 100% of 2% of your salary. 2% of your salary is $800 per year ($40,000 x 0.02 = $800) or, if paid every 2 weeks, $30.77 per pay period ($800/26 = $30.769). This money goes into your 401(k). You receive an additional $800 from your employer because you’ve contributed what your employer will match. You now have $1600 in your 401(k). The free money on the table in this example is the $800 match.

Start today. Yesterday is gone. Today, you have new information. Make the decision to act. Reach out to your employer’s Human Resources Department or reference your benefit package for details about the 401(k) available to you. Look for information about the employer match and employer vesting schedule.

A vesting schedule informs you about how long you are required to work for your employer to keep the employer match. You are 100% vested in your own contributions to your 401(k), but your employer may require that you work for the company for a specific length of time to keep the match. Once that length of time has passed, you are 100% vested in the employer’s match contributions. Should you choose to leave your employer after you have fulfilled the vesting period, all the money in your 401(k) is yours.

Life experiences inform who we are and choose to become. The conversation with my mother about a 401(k) was one of many money experiences that informed and inspired me to pursue a career in financial planning.

How will your money experiences inform and inspire you?

Wendolyn Forbes is a CERTIFIED FINANCIAL PLANNER™.  For more information about Wendolyn’s financial services practice, please visit her website at www.wtf-asn.com.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

Originally published in the August 2022 issue of Positively Haywood by Vicinitus. https://www.vicinitus.com/