When you’re going through an uncertain economy, you might be tempted to actually loosen up rather than tighten down. When it comes to your retirement account, that usually means cutting down your contributions or actually stopping them altogether. One of the current debates in the finance community online is whether or not it’s a good idea to actually increase your retirement contribution when everything looks bleak.
Our thoughts? Yes, you should absolutely think about increasing your contribution if you can get away with it. Why? That’s more money that’s going to be protected for a rainy day. You may not realize this, but you can indeed borrow from most retirement accounts. Of course, it’s a loan and there are fees for doing this, but it can be a lot better than trying to figure out an alternative solution.
Let’s look at things from another perspective, shall we? When you are contributing to a retirement account, you’re contributing for the future. You’re trying to build up your future nest egg to the point where it can support you. This is primarily done not just through the amount of money given to the fund, but the time that the fund is allowed to grow. The principle of time value of money rings true here — the longer you just let your money compound and grow, it’s going to be easier to actually see results. It’s when you start withdrawing money or changing the rate that the money flows in that problems tend to arise.
In order to really amok sure that you’re going to be able to increase your contributions, you’ll want to look at the overall financial picture you have of your life. Yes, this is going to be challenging for some, especially if you really don’t want to see how bad your financial blueprint has become. You will need to eventually overcome this, because there’s no time like the present to actually develop the skills that you will need in order to truly get the high end financial lifestyle that you want. There are a lot of people that started in debt and built up a rather nice life simply through patience, persistence, and consistency.
It’s the same points that can make your life come alive too. If you aren’t getting a full picture of where you stand right here, right now, you need to make sure that you correct this problem right away. Knowing what’s coming in as well as going out of your home is definitely a smart idea. You don’t want to be one of those people that could have had a great life if you would have just made a few different decisions. The best part of life is that it’s never too late to start over.
Now, if you can carve out space in your budget to contribute more, you will still want to do some more checking. After all, what if you don’t have a very good emergency fund? This can mess with your contributions as well. It’s better to increase your max when you have all of your other bases covered. Otherwise you’re just going to end up being in the same position that you were a few days, weeks, or months before. Financial emergencies can strike at any moment, but it’s the type of emergency that really makes all of the difference. If you’re getting your emergency fund in a row and you have enough expenses to cover you at least a few months, it might make sense to increase your retirement contributions to the maximum. This is even more the case if your employer is still offering 401(k) matching procedures. This is something that’s fading out as the market becomes more and more uncertain, but that doesn’t mean that you can’t find it. If you are lucky enough to still have an employer that is more than happy to match a percentage of your contribution, why wouldn’t you want to reach the maximum? Even if you had to make some sacrifices to get to your goal, it’s basically free money that you would be hard pressed to find elsewhere so freely given.
Now is definitely the time to start looking around at your options. Don’t let anyone tell you that the uncertain economy means that you have to tighten down. It’s all about looking at your financial portrait — not someone else’s. Looking at the lives of others isn’t necessary going to help you get any closer to your goals, so why not just stick to your goals and take action when you can? That’s the best way to go, if you ask us!