Want to Become a 401(K) Millionaire? More and More People Are Doing It.

401(K) Millionaire

Becoming a 401(K) millionaire is possible. It’s not necessarily easy. However, more and more people are succeeding.

What is a 401(K) Millionaire?

If you’ve never heard of the time before then you might wonder exactly what it means to be a 401(K) millionaire. It isn’t complicated. In fact, it’s exactly as the name suggests. A 401(K) millionaire is someone who has at least $1 million in their retirement account.

The Number of 401(K) Millionaires Is on the Rise

According to CNBC, the number of 401(K) millionaires increased by 35% in the first quarter of 2019 (as compared to the previous year). The main reason for this is because of the large number of baby boomers who are hitting that seven figure mark. The average 401(K) millionaire is 60 years old.

How to Become a 401(K) Millionaire

If you want to become a 401(K) millionaire then you have to get a grip on your money immediately. The younger you are when you start setting that money aside, the more likely it is you’ll reach that seven figure retirement target. That said, here are some key tips that anyone can use to increase their 401(k) savings.

Max Out Your Contributions

The most important thing that you can do is to contribute as much as you’re allowed to contribute to your 401(k). Your allowed employee contribution amount changes from year to year. In 2019, you can contribute $19,000.

However, if you’re over the age of 50, then you’re allowed to contribute a little bit more so that you can “catch up.” In 2019, you’re allowed to contribute $6000 extra.

Remember that the numbers tend to increase every year so always check what the latest possibilities are.

Moreover, make sure that you’re maximizing employer contributions. Take advantage of any options you have at work for your employer to contribute up to the maximum amount. In 2019, the maximum employer contribution is $37,000. Go talk to HR today.

Make Smart Investments

When investing your money, it’s important to consider your age and how long it will be before you retire. If you’re young, then invest in equity-based mutual funds. They offer higher risk but bigger reward. Hang on through the ups and downs.

However, as you get older and approach retirement age, it’s time to switch to more conservative investments. That’s when you want to put more money into cash and bonds.

One smart option is to invest your 401(k) money into a target-date fund. You set the target retirement date. Then professionals manage your investments for you with that goal in mind. They’ll follow the same rules as above (riskier investments early on and more conservative ones later) so that you don’t have to worry about the details so much.

Don’t Count Yourself Out

You don’t have to be rich in order to become a 401(K) millionaire. Although it’s best if you start young, don’t count yourself out if you’re older. Even if you don’t reach that seven figure target, aiming to do so can help you maximize your retirement income.

Know What You Need to Save To Become a Retired Millionaire

Use a millionaire calculator in order to get a realistic picture of what it would take for you to have $1 million or more at retirement. You’ll enter:

  • Current age
  • Target retirement age
  • Amount currently invested
  • Savings per month
  • Expected rate of return
  • Expected inflation rate

This gives you your expected savings at retirement. However, you can play around with the “savings per month” number until your expected savings reaches $1 million. Then you know how much you need to save to reach that million mark. While this doesn’t specifically determine your 401(k) amount, it gives you a good idea of how much other savings you’ll have to add to your 401(k) to become a millionaire at retirement.

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Investment Strategies For Recent College Grads

Investment strategies for recent college grads.

Investment strategies for recent college grads.

Investment strategies should be one of your top priorities upon graduating college.

For those preparing to graduate from college this month, this post is for you.

If you have been following us, you may have read last week’s post regarding financial mistakes to avoid upon leaving your past four years of sanctuary. This week, we would like to discuss wise investment strategies for you as you (hopefully) begin interviewing more and potentially accepting promising job offers.

If you did not study finance or economics in your undergrad and you have never consulted with a financial planner, investing may seem like a foreign concept to you.

In addition to what we discussed last week, here are some ways you can set yourself up for a promising financial future:

Create a personal spending budget.

By not having a budget for yourself, you are more likely to spend more than you make each month as you begin to see an increase in your bank account thanks to your new job. However, holding yourself accountable will prevent any slip –ups as well as promoting positive spending and saving habits for your future. When everyone tells you to start now, they really are not kidding.

Set up your Individual Retirement Account (IRA).

If you’re lucky enough to land a job that offers a 401K, be sure to always add to it to help increase its value, even if your employer matches. The more you add in now, the better for your future. If you are among the many who do not receive this as a benefit with their place of employment, open an IRA now. A summary of what to look for in a retirement savings account includes:

  • First, there are two types: the Traditional and the Roth. Contributions to Traditional IRAs are tax deductible, but withdrawals during retirement are taxed. Roth IRAs are not tax deductible, but withdrawals are generally tax-free. In other terms, you avoid taxes when you put money in to Traditional IRAs, and you avoid taxes when you take money out in Roth IRAs during retirement.
  • No-fee IRA’s. Some charge you for simply holding an account with them known as a “custodial fee.” You will want to ask your institution if they charge any fees for hosting the IRA.
  • Additional charges. Another question you will want to ask your custodian is whether or not they charge any kind of transaction fee. These are typically charged when you go through a financial adviser to purchase your mutual fund. Be sure to also inquire about other fees that may be associated like contract charges.

It’s often recommended for those starting out their investment portfolio with limited funds to begin with a Traditional IRA. A concern is that individual tax fees for Traditional IRAs could be higher but is not guaranteed. You will want to weigh out all your options with both in order to determine what is best for you.

Ignore Get-Rich-Quick Schemes.

If something seems extremely complicated, it probably is. As a newbie to the world of investing follow the K.I.S.S. rule (“Keep It Simple Stupid”). Choose one source and keep it simple. Over time, you can grow your net worth, but it will be hard to accomplish if you don’t understand what’s happening to your money.

Don’t be afraid to purchase used items first.

The goal and purpose of growing your investment portfolio is to decrease debt. As a college graduate, you will already have loans unfortunately accumulated on your shoulders upon stepping foot off that campus for the last time as a student. So, buy used items and live below your means. You will work your way to having those nicer items much faster by choosing to spend less now.

Know your assets.

In this previous post, we discussed what comprises of an asset and what does not. In summary, an asset is something that puts money in your pocket; not removes it. Consider this as you make big purchases over the next few years.

Choose the right savings account.

If you are already excellent at saving money, that’s awesome! But, did you know you can make it a little more worth your while? Have your savings pay you back by choosing the right type of account to increase your investment will waive some worries for you in the future. Some to consider are:

  • Online Savings Account: Earning potential is higher.
  • Money Market Deposit Accounts: Despite minimum balance requirements and monthly fees, the interest paid is typically higher than that of traditional savings accounts.
  • Certificates of Deposit (CDs): Another opportunity for higher interest rates paid, but limitations do apply for withdrawals.
  • Automatic Savings Plans: Can help you obtain lower banking fees.

As always, and with any choices you make, be sure to do your research and ask a lot of questions to see what fits you best.

Invest in an emergency fund.

This may not seem important, but with the economy so up and down, you will want to be prepared for the worst. I’ve heard of several stories of companies going under or downsizing, leaving individuals back on a job hunt in an increasingly competitive market. In fact, the company I did my undergraduate internship with closed down several offices, leaving no opportunities for me upon graduating. I watched co-workers one by one receive the unfortunate talk. There is also the possibility of being fired, which I have also heard of from individuals who seemingly held a strong position in their occupation. It happens, and you need to be prepared. The recommended strategy is to save six months of savings to keep you afloat in case of an emergency.

Invest in higher payments to your student loans.

Only paying the minimum on your student loans will keep them hanging over your head longer, and thus, keeping more debt in your life longer. The average time it takes for a college grads pay off student loan debt is 21 years. It doesn’t have to be this way though.


 

Make your future better and financially more stable through these tactics and tips.

Do you already have an investment strategy in place for when you graduate?

 

 

Financial Mistakes to Avoid As A Recent College Grad

Mistakes are unavoidable, but you should be especially careful when it comes to your finances.

Mistakes to avoid financially as a recent college grad

Mistakes to avoid financially as a recent college grad

As you prepare to graduate college, you also prepare for the “real world.” You’ve spent the last four years obtaining as much knowledge as possible in your field, making memories, applying for jobs, and writing and rewriting your resume. Graduates beware, though; student loans are the second highest form of personal debt, according to this New York Daily News article. And with college debts increasing, it will be more important than ever to have a smart financial strategy in place and avoid as many mistakes as possible.

By taking a step ahead of your peers in choosing wise investments, you can create healthy habits for your personal finances for years to come and avoid future debt issues.

Financial mistakes can be easy to make, but there are ways you can avoid them.

  • Having no credit. Everyone talks about saving money, and we are no different. Unfortunately, all this talk about savings has college graduates a little hesitant on taking out loans or credit cards in fear of creating an overwhelming debt. Plus, not to mention, college already creates those financial obligations, and it is increasingly harder for those under 21 to sign up for a credit card with no existing income. So, what’s a newbie to do? Build your credit history slowly and regularly by opening accounts and your own credit cards as you are able and paying them off by or before the due dates as well as routinely.
    • Why this is important: When you want to make big, future purchases, like a house, you will have a hard time being approved for a loan without a co-signer or at all. When I was still in college, I bought my first car with cash from money I had saved from my summer job. Not long after graduating, I needed to purchase a new vehicle, which proved to be a challenge due to my lack of credit. Over the years, I have been able to develop a favorable credit score through paying off a credit card, paying off that new (used) vehicle I finally was able to obtain and maintaining my bills.
  • Not having a plan. Having a limited or non-existent financial plan is one of the biggest mistakes recent college grads make. As a college student studying and working tirelessly toward that degree, you are lucky if you have two pennies to rub together as you battle the choice of groceries or rent. When you say “yes” to that first job out of school, though, it can be easy to fall into poor spending patterns very quickly. To avoid this, cut back on going out to eat by spending more time enhancing your cooking skills and spreading out your personal purchases instead of buying everything for your new apartment at once. Additionally, focus on always paying bills first at the beginning of every month so you know how much is available in the bank the remaining weeks.
    • Why this is important: Money adds up quickly, and developing these positive habits ahead of time can save you not only hundreds but possibly thousands per year.
  • Waiting to save and worrying about finances later. Consider consulting with or finding a financial mentor to help you along this new journey. Waiting to save or even failing to worry about beginning to pay off your student loan debt can cause inconveniences and hindrances in your future. Knowing where to invest savings is also tricky, but a certified financial specialist can help you. You could try to contact old friends from college with a finance degree who may be willing to provide some advice at no charge as they begin their careers.
    • Why this is important: The sooner you start working toward chipping away those student loan bills, the better your overall financial situation. If you were to plug your debt numbers into this student loan calculator tool, you may be appalled at the time frame it will take you to pay it all off (with interest) with a low monthly payment. Plus, creating a savings account will help to keep you out of potential sticky situations with money. And if you start investing now, you could be sitting pretty with a nice retirement fund.

By thinking about your future now, you can avoid these common financial mistakes recent college grads make, while building yourself a nice, comfortable financial safety net.