The Austin Financial Coach at Capital Budget Strategies, LLC, Austin’s best Financial Coach, advises clients to get to know their employer’s retirement plan, usually called a 401(k) in for-profit companies and a 403(b) for non-profits and government agencies. (The names relate to the US tax code sections that created these programs).
Here is how it works: You select either a specific amount or a percent of your paycheck (called a “contribution”) that will be placed into your 401(k) account each paycheck. The money you invest is subtracted from your taxable income, so you pay less taxes. For example, if you make $3,500 a month and contribute $350 into your 401(k), you will be taxed on an income of only $3,150.
Your 401(k) or 403(b) is an account in which you hold your choice of investments, based on your employer’s plan. Usually, a variety of investments are available.
Most employers will “match” your contribution up to a certain percentage of your income, usually between 3-6%. Suppose your employer matches up to 4% of your income and you earn $3,500 a month. That means if you contribute between $1 – $140, your employer will match that contribution. If you contribute $140 (6% of income), your employer will add an additional $140, for a total of a $280 contribution into your retirement account.
In the technical financial world, we call an employee match “free money.” Therefore, always try to contribute enough to receive the maximum employer match each pay period.
And remember, the earlier you start in your career making contributions, the more match you will receive and more “compounding” will occur. Even if you can only afford 1% of your income right now, do it!
If you have questions about your employer’s retirement plan, or you would like to organize your finances, determine your new worth, set up a plan for long-term expenses, build a personalized monthly budget, discuss school loans, create an emergency fun and build a Snowball Credit Card Repayment Plan, contact our Austin Money Coach.
For only $149, we will conduct a one-on-one Zoom Video Conference with you to create a financial plan. The cost includes a follow-up session at the 1, 3 or 6-month mark to track your progress.
Just like a 401(k), the sooner you contact Capital Budget Strategies, LLC, the better off you will be!
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