Step Two - Take the Free Money

Step Two - Take the Free Money

Are you one of those lucky people who has an employer?

Does that employer offer a retirement plan with matching?

If yes, step two is to milk your employer for all that free money they are giving away. Naturally, this doesn't work for everyone. However, if you are one of those lucky ducks who has this available to them, the rest of us are sitting over here wanting to punch you for letting that free money get away.

If this doesn't apply to you, skip on down to step three.

Wait- what's this? "Matching"?

Some companies literally bribe you to contribute to a retirement plan. For example, an employer might have a matching program that is "100% of the first 6%" - let's go through what this means.

Let's say you make $50,000 per year, gross. Gross means before taxes and deductions. 6% of this would be $3,000, so if you stick that into your 401(k), your employer would come up with an extra $3,000 for you. You'd have $6,000 sitting in your 401(k) now, and your employer gave you $53,000 total that year.

However, if you only put $1000 in, your employer would only match $1000, and there would still be $2000 of free money that you didn't take.

Why should I do this before paying off debt?
It's literally free money. Your debt's interest rate would have to be very high to outdo a 100% instant guaranteed return on an investment.

Well then why should I build an emergency fund before taking the free money?
Because this is free money that goes into your retirement account: something you can't touch (without penalty) until you are 59.5.

You may occasionally hear about people draining their 401(k) to pay for an emergency. This comes at a lofty price: a penalty, plus taxes. 401(k)s make awful emergency funds.
(Unless it's a Roth, but we're not going there right now. Even so I am generally against the idea of using a Roth as an E-fund.)

If you have an emergency, it'll pain you to see your money locked up in money-jail when you're having a crisis and need that money RIGHT MEOW.

If I can't touch it until then, why should I even bother saving? I've got things I want to do with the money now.
You will probably want to eat when you are too old to work.

Social Security may still be around, or it may not, but even if it is, it was never meant to fully sustain you.

The best time to start saving for retirement is right now. Why? The miracle of compound interest. More on that later.

Once you've taken the free money, move on to Step Three: Get out of Debt

Does your employer give matching? Do you take the match? Tell me your experiences in the comments!

Everything I write on this website is my personal opinion. I'm not an adviser, and I'm not YOUR adviser, and I encourage you to consult with as many sources as possible before you take any action.


  1. I suppose this implies that I should contribute only the 3% my company matches into my 401(k) until I pay off my car/school loans. I think I've been envisioning diagrams where the longer you invest something is more important than the amount you start with so I've been putting 10% in my 401(k) just to jumpstart it I guess and feel like I'm accomplishing something at least while I incur interest in my car... hmm. I'm enjoying the blog so far though

    1. Hi Alissa! Thanks for coming by my blog!
      Compound interest works both ways: it gives a boost to your investments over time, but it also makes you pay extra on debts the longer you hold them! There are pros and cons to investing while you still have some debts, and whether it's a smart thing to do depends on these four factors: interest rates of the debts, interest rates of the investment, how risky the investment is, and how it will affect your taxes. When you borrow money to invest (which you essentially do when you choose to invest rather than pay off a debt), this is called leveraging. I could write a whole other post just about this question, which seems to come up a lot!

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