As you become more knowledgeable about your money, eventually you start encountering different information about investments. You start hearing things like, “let your money work for you.” It’s certainly appealing to think of your money making money for you while you are sleeping. That’s truly dreamy, isn’t it? One of the best ways to start this is to invest your money into the stock market. That can be very intimidating! There is tons of information available on how to invest in the stock market, but I have a much easier solution to get your feet wet with investing. As a young adult and/or a beginner to investing, one of the best introductions is a 401k with your employer.
I didn’t start investing with my employer until I was in my late 20s because I didn’t understand what it was. Since I was ignorant to its benefits, all I cared about was having my full check deposited into my bank account. “Give me all my money,” is all I would think every time they would pass the insurance and 401k forms out at work. It wasn’t until I was about 25 or 26, when I was coming off of my parents’ medical insurance, that I asked my mom if I should participate in the 401k program. Although that is when I started, it still took me several years to get more of an understanding of its benefits.
5 Benefits of 401k investing
1- Introduces you to investing: The funds in a 401k account can be invested into a number of different assets including bonds, stocks, and mutual funds. It will be a good introduction into investing as you get more familiar and knowledgeable to invest on your own.
2- Managed by a financial company: Although you may have the option to manage your own investments, this is a great benefit as you familiarize yourself with investing. You have professional investors and advisers that manage your investments for you yearly. They will be more knowledgeable and have a better chance to get you a good return on your investment.
3- Employer match program: Many employers offer a 401k match program as an employee benefit. With this program your employer matches your contribution up to a specified amount. That is additional money from your employer that goes into your retirement account just because you made a contribution.
4- Automatic deductions: This benefit simplifies your contributions by allowing your money to be automatically deferred into your 401k. It is directly sent to your investment plan, and it allows for pre-tax contributions from your payroll.
5- Tax advantages: One of the biggest tax advantages is the ability to contribute to your investment plan and defer that income being taxed until it is distributed at retirement. The idea is that by the time you reach retirement, you will be in a lower tax bracket and be able to keep more of the income.
It is never too soon or too late to start investing and saving for retirement. The earlier you start, the more aggressively you are able to invest which can increase your potential for earnings. Also, the earlier you start having consistent contributions, the more you are able to accumulate for a better retirement fund.