5 Tips For Managing Your 401k

managing your 401k

5 Tips You Need For Managing Your 401kmanaging your 401k

The Reason For Managing Your 401k

Ever had a “bad day at the office”? You are not alone on that one; we’ve all had days like that.

How many times during one of those”bad days at the office” have your thoughts drifted towards that final day when you will be able to leave the work force and officially retire? If you have been in the workforce a long time, day dreaming about retirement is more common than you know. (But, if you are just starting your career and you are already day dreaming, you may want to change professions). Regardless of what career stage you are in though, the real question is whether or not you will have enough money to retire when you want to. You can do a lot of things without money but retiring is not one of those things. So at the point in time that you become physically and mentally ready to retire, unless you are financially ready, it will be tough to make a go of it. What will it take to get financially ready? Well you can start by learning the importance of managing your 401k today without delay.

Make A Commitment To Managing Your 401k

If you want to accumulate enough money to hit retirement on your own terms, you will need to make a commitment to managing your 401k. That commitment is the promise you make to yourself that you will do whatever it takes to maximize your financial and investment opportunities. Even if that means changing your financial habits for the express purpose of finding extra money to invest. Before you commit make sure you accept the fact that building your retirement nest egg will take a long-term commitment. Think about it, you could spend 20 or more years in retirement. That means that your retirement years could come close to the amount of time you spend in your working years.

So are you ready? Are you ready to adjust your financial habits if necessary in order to commit to funding your retirement? Are you ready to make retirement planning a financial priority? Can you commit to making 401k plan investing a financial habit? If so, then you are ready to commit to your personal financial future.

How To Manage Your 401k

Okay, so you completely get it…investing in your 401k plan today can provide you a solid financial future at retirement. Based on that understanding you truly want to invest money in your 401k plan. You know it’s the right financial move.

So understanding the value of 401k plan investing is not the problem; finding the money to invest is the problem, right? You can never seem to afford it. After you pay your rent or mortgage, cell phone and utility bills then make your car payment, there is never any money left over. Fear not, you are not alone. Finding extra money to invest is a common financial dilemma for a lot of people. So how can you afford your 401k? What do others do?

managing your 401kTip #1 – It’s My Financial Future

Skip The “Stuff”

Once someone understands the true value of long-term retirement investing, they use their money in different ways. When they receive extra money from a bonus, raise or tax refund they invest that money instead of buying “stuff”. You were living without that extra money before you received your bonus, raise or tax refund, right? So why do your spending habits have to change after you receive that extra money? Too stringent for you? Okay, then use a portion of your new money to splurge a bit on yourself and use the rest to make your 401k contribution. Try it, you may surprise yourself.

Unfortunately, it is so easy to convince ourselves that when we get extra money from a bonus or raise we owe it to ourselves to spend it on ourselves. That may be true but does spending on yourself have to be on material things? Why can’t you spend on your financial future?

Tip #2 – Invest In You

Paying yourself first means that before one dime of your pay check gets applied to any other bill or expense, you contribute money to your 401k plan. Of course you should not ignore your bills just so you can contribute to your 401k plan but if you just squeeze a small amount out for your 401k contribution you will not even notice that missing money. Try it.

Some employers make this step very easy be offering automatic 401k investing. This is the perfect way for you to keep your hands off of your money so that you do not spend it before investing it.

Tip #3 – Learn To Live On Less

Want extra money to invest? Waiting around for a raise could be futile. The better way to find extra money for your 401k contribution is to live on less than you make. Can you do that? Can you spend less than your pay check? Have you ever tried to?

Living from pay check to pay check can be habit-forming. We spend as much as we make because we are in the habit of doing so. Try reversing that habit. Make it a habit to have some extra money from every pay check by changing how you spend. Maybe you can skip your coffee on the go for one week and then invest that amount. Or cut back on lunches out, brown bag it for one week and then invest that amount. See how easy it can be to change a few simple spending habits. Give it a try.

Tip #4 – Your Contributions Do Add Up

Avoid the financial trap of feeling that you cannot make a 401k contribution because you can only afford to invest a small dollar amount. Your 401k contributions do not have to be large amounts  for you to reach your long-term financial goal. Small contributions can produce positive results also. Small amounts do add up, it just takes a bit longer that’s all.

Tip #5 – Take Full Advantage Of Compounding

Many investors misunderstand the power of compounding. And it can be so helpful in growing your 401k balance with little effort on your part. The beauty of compounding is that growth comes from growth. The higher your 401k account balance is, the greater the effect compounding has. And the longer your money is in the market the more valuable compounding becomes. Compounding has so much power over investments because of the time value of money. Do not miss your chance to catch the power…start investing as soon as you possible can (even if it’s just a small amount).

Your Ah-Ha Moment

Managing your 401k investing is not complicated; we as investors just make it that way. We confuse ourselves when we are faced with an unknown. When we have to make decisions on financial issues that we really do not understand we either quit or make poor decisions.

Unfortunately, the one skill that is rarely taught in schools and the work place is the skill of money management. We never seem to comprehend that money really does not grow on trees. The more money we spend, the less we have leftover for investing…that’s so easy to understand except a lot of times we miss that point. We fail to realize that the way we manage our money is a habit. Do you need an ah-ha moment? Here it is. Habits can be changed. Start small though so you do not scare yourself. You will be more likely to stick with a new habit if you start small and ease into it. If you are new to investing, start with the basics and learn as you go along. But at least start. If you want to retire someday with financial freedom and security, then make a commitment to you and your financial future.


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