Let's be realistic, how much do you know about a 401k? Or for that matter, if you contribute to your 401k do you know where your money is going? Dave recommends this when planning for retirement.
1. Do not invest in your retirement unless it will take longer than 18 months to get yourself out of debt. (Obviously it will take us much longer...)
2. If your company offers a match, take it! It's free money.
3. Do not put your money into things you do not understand.
I had a 401k at my last job and I needed to do a rollover into my current company 401k. I began my 401k at my current job in July of 2010. When I opened my 401k I was not asked what I wanted to invest in... it defaulted to a Money Market fund getting on average a .66% return. If inflation is about 4% a year than I am losing money in this fund.
After listening and reading Dave's chapters on "Mice and Mutual Funds" in Financial Peace, I decided to find out about what I could invest in. With my rollover, 2010 contributions and my company match I have $5,000 to work with. Although Dave says the beginner with less than $10,000 should probably do Growth Funds... I am young enough to invest and not touch the money for about 35 years. So I decided to put 25% into American Mutual Funds, 25% into Foreign Funds, 25% into small company funds, and 25% into balanced funds. Totally diversified with an average rate of return over 10 years of about 6%.
What is a 403b? My husband has a 403b at his company which is the same as a 401k except it is for nonprofit companies like hospitals, schools and churches. His company also matches at 4% after 1 year of employment. Currently he is only investing 1% until July (his 1 year anniversary) and then he will start contributing the full 4%.
When I came home feeling excited, intelligent and grown up yesterday, I talked to him about the mutual funds I invested in and he started to get interested in where his money might be invested. :)
The best part is that I can't wait for my first statement to come in so I can see how my money is doing. This is so exciting! If you are really interested in investing your money, you MUST have some knowledge about what to look for in these funds. I recommend Dave's book as always.
Today's Lesson: Know and understand where your money is going!
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