Tomorrow will officially mark my one year anniversary at my new job which means that besides having been in this roller coaster of a stressful job for a whole year, I am now eligible for company 401(k) matching. The big question is "should I go for it?" The company matches up to 4% if I contribute 5% which is probably the only way I'm going to get any more money out of this company given everything that has gone on lately.
According to Dave Ramsey I am better off putting all of my financial resources towards paying off my debt in as short amount a time as possible. And I can really understand why that advice makes sense. However, I have not been able to contribute to a retirement plan for almost 4 years: three because of constant pay cuts at my last job that sent me re-arranging my finances ever couple months to stay above water and the last year because I wasn't yet eligible to participate. If I stick to my current debt pay-off plan it will be another 5 years before I'll be debt-free and that doesn't take into account all the "what-ifs" that could happen in that amount of time... like me or S losing a job or starting a family.
So that makes almost a decade of no retirement savings which I think even Dave Ramsey would say is too long to put off planning for retirement. Perhaps I need to look at my debt in terms of "good" debt vs. "bad" debt: http://money.cnn.com/magazines/moneymag/money101/lesson9/index2.htm. My "good" debt is my student loan, it's the bulk of my debt but it's at a really low interest rate and it helped me get the jobs that will eventually pay it off. My "bad" debt includes my credit cards with their high interest rates and my car loan even though the interest rate on that is low.
I should be able to pay off the "bad" debt within the next two years. That seems like an amount of time to continue putting off saving for retirement that I can feel comfortable with.
What would you do? Push off saving until all debt is paid? Start saving now regardless of debt? Or split the difference and pay off the "bad" debt before saving?
Unless your debt is at very high rates, I think you should contribute to the 401K. Your match sounds like 80% (you put in 5% and they put in 4%.) That's better than ours. We get a 50% match (we contribute 6% and they kick in 3%.) You have to put in less than we do, and your employer gives you more. Jealous! (just kidding...) but it sounds like something too good to pass up.
ReplyDeleteThanks for the advice... only a portion of my debt(the credit cards) is at high interest rates and I should have all of that paid off by the end of the year. I think once I am over that hurdle I will invest in my 401(k) as well as contribute more to my savings account.
ReplyDeleteAn 80% return on your money is better than any loan's interest rate, right? BUT Debt is debt and any debt is in need of immediate attention. I think it may be worth thinking about espeically since your debt payoff plan is 5 years.
ReplyDeleteBut, honestly, the best thing you can do is project EVERYTHING out on a Google Doc or Excel sheet. For each month, calculate how much your payments are (including 1/12th of the APR multiplied by the expected balance at the time) for BOTH scenarios. It took us HOURS to do one projection, but then we had it as our debt savings/tracking resource. Then, we did it for different scenarios like selling the car. Seeing the projected "D-day" change was enough motivation for us to make a decision. If you see truth in the numbers, then that's the way to go...even if it takes you 10 hours to make the calculations and set up the sheet.
My plan is to start contributing again after I pay off the "bad" debt. I can't stand the thought of not contributing to my future, so for me, it's personal preference. Regardless, I know that my student loans will be paid off because of the changes I've made to my lifestyle, and I will still be making extra payments each month, so that makes it ok for me. I think a lot of debt payoff is doing what makes you most comfortable, so go with your gut! And remember, you can always change your mind!
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