Employer 401k Match: Step 7 on the Path to Financial Independence
Does your employer offer a 401k match with contribution program and do you contribute enough to get the full match? I hope if you are reading this you understand the importance of saving for retirement so I’ll skip that. What is more important here is saving for retirement with someone else’s money. The 401k match is essentially your employer giving you free money for retirement as long as you save too.
Personal finance is like sex and religion: nearly everyone has something to say but will generally avoid discussing it. Our society has made discussing your finances with anyone else taboo. We’ve spent years associating our self-worth with our net-worth to the point that people feel like personal finance is a competition. You try ‘Keeping up with the Jones’ because deep down you don’t want to get too far behind in the race you perceive to be life. That race can be lonely because personal finance is lonely.
I wish I had a “back in my day college was the same price as a night at the movies, and I could work 4 hours a week at my part-time job to cover the tuition” type of college savings story to share here. Unfortunately I am a millennial, and college was already very expensive by the time I got there. I also voluntarily chose to attend a private university instead of one of the state schools I was offered scholarships for, and I’m sure that didn’t help.
Despite all of that, I found an unusual way to save a lot of money on my college expenses. I was able to convince my school of choice to give me a free MBA before I even took my first class. My college savings story is one I don’t hear enough about.
Did you already set up a budget you track and stick to? If not that is ok. I’ll help you build a simple budget to get you started on the path to financial independence. you update each month to track how you are spending your money?
If you do that is perfect and you are on your way to understanding your finances. If you don’t have a budget that is fine too since we’ll be working below to build one. I honestly don’t expect every person outside of the finance or accounting profession to have a budget they keep up with. Everyone needs to set up a budget but so few people have one they manage to despite the advantages.
Do you already have a personal income statement you update each month or quarter? If you do that is perfect and you are on your way to understanding your finances. If you don’t have a personal income statement that is fine too since we’ll be working below to build one.
I honestly don’t expect many people outside of the finance or accounting profession to have a personal income statement they keep up with. Why would most people? Its a little odd. I’m a numbers nerd though, so odd is my game.
Eventually in your personal finance journey you get to a point where you are functionally on auto-pilot until you reach your “financial independence number” or FIRE Number. Your FIRE Number is the investment balance at which, theoretically, you could withdraw from to maintain your current lifestyle for longer than you plan to remain alive without depleting the account. That was a really morbid way of putting that… sorry. It’s basically the amount of investments you need to be self-sustaining for the rest of your life.
The first step in any journey is getting a thorough understanding of where you are right now so that you can plot a course to your ultimate destination. Personal finance is no different in that we need to first assess our current financial situation, good or bad, and create a plan to get us from here to financial independence. You need to get all of your financial transactions in one place.
In other words: “What should I do with my money and when, please”. I’m sure this is the same question most people are asking themselves. Everyone has money and needs to put it to use but there is no real unified plan. There is no personal finance flow chart to walk down for each stage in our life. Or is there?