Written By: Jack Crary
Let’s face it, we’ve all had random thoughts of what it might be like to be a millionaire. We dream about the toys we would buy, the mega-house we would own and the vacations we might take. How will we become a millionaire? Will we pick all the right numbers in the Wisconsin Powerball lottery? Doubtful! Will our great, great uncle Hank leave us all his money when he dies? Doubtful! Will an armored truck full of cash tip over in front our house spreading millions of dollars across our lawn? Doubtful! The best chance to become financially stable, maybe even a millionaire, is quite simple. The minute you get a “real” job, whether that is after high school or college, invest in your company’s 401(k) plan. Don’t wait a month, a year or 5 years. Do it immediately! A 401(k) plan is a benefit plan, offered by employers, where an employee can make contributions from their paycheck right into the plan. The contributions go in a 401(k) account and the employee gets to choose the investments it is invested in from the options provided by the plan. In many plans, the employer also makes contributions to an employees account by matching the employees contributions up to a certain percentage. (irs.gov). It certainly won’t be easy to give up some of your hard earned cash, but well worth it. Investing in your employer’s 401(k) plan at a young age will teach you discipline with money and allow your money to grow in ways you can’t even imagine - maybe even making you a millionaire one day!
If you invest in your employer’s 401(k) at a young age, you will learn discipline with money that will help you throughout your life. Imagine you start working at a “real” job at the age of 21, or right out of college, and your employer tells you they offer a 401(k) plan. If you start investing immediately, say somewhere between 5% and 15% of your paycheck, you won’t ever see the money so you won’t miss it. Over the years, the money you set aside builds up and then “BOOM” you have a great pot of money! It takes great discipline to do this. You have to be willing to give up some of life’s other pleasures today for a big sum of money later. For example, let’s say your daily routine includes going to Starbucks everyday for a $5 latte. If you can make your coffee at home and instead invest that $5 every day ($150 month) in your 401(k), you would have $11,000 in 5 years and $800,000 in 50 years (money.usnews.com). That is real money!Secondly, If you invest in your employers 401(k) at a young age, your money will grow in ways that will blow your mind. If you invest at an early age instead of waiting 5, 10 or even 20 years after you start working, the amount of money you have will increase by huge amounts throughout the years compared to if you wait until your 30s or 40s to invest. The blue line shows how Jack started investing $200 per month when he was 25 years old. The green line shows how Jill started investing the same amount 10 years later than Jack and the red line shows how Joey started investing 20 years after Jack. As you can see, Jack ends up with twice as much money as Jill and five times as much money as Joey (money.usnews.com). Why does this happen? There is this thing called “compound interest”. Compound interest happens when the interest you earn on your savings begin to compound itself over the years. It’s like getting interest on the interest (www.americanfundsretirement.retire.americanfunds.com). Also, the money you invest isn’t taxed like regular income. That means that more money stays in your account and can make more money for you throughout the years (www.americanfundsretirement.retire.americanfunds.com). Finally, many companies have 401(k) plans where they will “match” some of the money you invest. That is free money that can grow and grow over the years. The earlier you invest, the earlier your company can start matching and giving you money to invest as well.
Now, for the ultimate question. When you get your first “real” job, are you going to IMMEDIATELY ask your employer for the paperwork to start investing in their 401(K)? Or are the hard, cold facts presented above not convincing enough? Maybe you think it is ridiculous to start planning and think about what kind of money you might have 40 years from now (www.thebalance.com)? Well, let me tell you, it’s never too early to plan for the future. Maybe you are worried the stock market will have some bad years and you will lose all the money you invested (www.thebalance.com)? Fine, you put $200 cash under your mattress every month and I’ll invest in a 401(k) plan and let’s see who ends up with more money in 40 years. Maybe you have other things in life you want to do - travel, buy season tickets to the Milwaukee Brewers, or own a huge house before you’re 30 years old - and investing in a 401(k) will take money away from that? I guess that’s your call and we all have to weigh our decisions in life. Maybe you don’t feel the income you earn will be enough to support a family if you move some of your money to a 401(k)? Remember, if you invest on day 1, you won’t ever know you had it so you won’t miss it. Or maybe you have other reasons? Just think about it.
Works Cited
“9 Charts Showing Why You Should Invest Today.” U.S. News & World Report, U.S. News & World Report, money.usnews.com/investing/investing-101/articles/2018-07-23/9-charts-showing-why-you-should-invest-today.“Benefits of Starting Early.” American Funds, americanfundsretirement.retire.americanfunds.com/planning/plans/benefits-of-starting-early.htm.
“Definitions.” Internal Revenue Service, www.irs.gov/retirement-plans/plan-participant-employee/definitions.
Friedberg, Barbara. “How to Invest at Every Age.” The Balance, The Balance, 23 May 2019, www.thebalance.com/how-to-invest-at-every-age-4148023.
I absolutely loved the title of the article first of all, it really got my attention from the start. I never really knew what a 401k was in much detail and after reading this, I feel like I already know so much more. Its really interesting to see what people do with their money at a young age because many don't think about the long run. Investing in this would be a great decision and also, as you said before, it will teach you some discipline with money. Learning how to manage money and how to work with a budget is so important and doing this will help with that as well as help you in the long run.
ReplyDeleteNowadays, I feel that most working adults have 401k’s and obviously I would agree that they are essential for money down the road when they want to retire. But, I do also believe that some people aren’t able to have a 401k because some people need their job to be able to pay for rent, taxes, food, and any other necessities and the work money they earn is all the money they need to spend on what is necessary. So yes, a 401k is a very good idea because it will make money down the line but it also isn’t the best thing for people who are financially struggling in the now and can’t afford to put money from their paycheck aside for later and should make sure they can live in the now so they still have a later.
ReplyDeleteI as well really liked the title of this article. I really liked the idea that you kept emphasizing that it's never too early to plan ahead for your future. I enjoyed that you including the idea of someone setting aside a large amount of money in their "mattress", and how you compared it to the 401k plan. The idea that you will save up more by putting a small amount of your paycheck into savings rather than setting aside a large amount every once in a while is a really big mind blowing for me at least. Some people struggle to put aside money but if it's coming from your paycheck, you're right when you said "you never really see that money so it won't be on your mind". I really liked this article I think that it is something most people in high school should read and get a head start on.
ReplyDeleteI think talking about saving and how to save money is very important because a lot of people don't know when to start or how to save their money at all. I also think talking about 401k's was a great place to start because I didn't know what that was and can be connected to your first job. However, what if your employer or company doesn't offer or have a 401k? Would investing in the stock market unrelated to your company have the same outcome?
ReplyDeleteEveryone wants to be rich, or at least financially stable, but some people don’t have the kind of job for it or don’t know how. I like how this option of investing in your company’s 401k you presented is not limited to certain people but available for everyone with a “real job”. Investing is something we hear a lot about, but not many people know, or knew, the real benefits or facts of it, like me. This piece concisely wrapped the concept up to me, and I am glad you wrote it so more high schoolers can benefit and try and work this idea into their plans for the future. Great job!
ReplyDeleteThis was a very informative piece. I agree that saving money and taking money out of your weekly paycheck is really important in financial stability. I have seen what a 401(k) can do when my family members have used it and it really does help with financial stability over time. I really liked how you included the opportunity cost of getting a Starbucks coffee each day and how by just making it at home instead could save you so much money. I fully believe that saving is a really important part to not necessarily be a millionaire but to just have enough money to get you what you need and want without breaking the bank.
ReplyDeleteSee now this is a cool post, most people don't even think about their 401k plans until they're only 15 years from retiring. The little Jack, Jill, and Joey comparison was pretty neat since it actually shows how most people will turn out. It's on point with what actually happens to a lot of people in real life. Friend 1 saves as early as 20 years old, and friend 2 starts saving when he's 31. It's pretty obvious who will make it better in the end. Start thinking people, retirement will be in front of us before we know it.
ReplyDeleteI am fully on board with investing in my 401(k) as soon as I get my first real job. I agree that although you won't be making as much as you possibly can right now but instead you have put all the money away for the future so that you can enjoy life after retirement. I also believe that with the compound interest and if your employer matches the money you invest this is a very simple way to become a millionaire without breaking a sweat. You really sold me when you said that if you invest that 5 dollars a day in just 5 years that money will be up to $11,000 now that's some real money.
ReplyDeleteThis article is so informative and interesting! I also think that is important to save money it is a good idea to take money out of your paychecks to save because it will benefit you in the future. I also really liked the title of this article it was very creative. Before reading this I didn't know anything about a 4O1k, it was interesting to learn about. I think its cool that there is a benefit plan out there like that. Overall, good job with this article!
ReplyDeleteI think that investing and paying yourself first is great way to start your financial confidence. However, how would you tackle your dilemma if your company doesn't provide a 401k? Would you invest in a Roth IRA? Or put money in your savings account, even if the interest rate is barely worth anything? I loved your attitude about starting your 401k immediately as soon as your get you "real job". Although, I feel as if this might not be an option for a vast majority of American citizens as 38.1 million adult are in poverty. according to the census.gov as of 2018. Making a 401k the last thing on their mind. Because taking chunks of money out of a person's paycheck isn't as enticing as simply their own will to put money away. In short, i do agree with you that a 401k is an amazing idea, and everyone should do it if given the chance. But it isn't simply applicable for a majority of Americans that live in poverty or pay check to pay check, or even new graduates paying off their debt.
ReplyDelete-Han Nguyen
DeleteI think that investing in a 401K is a great idea and if people have the opportunity with their job to do it, they should. Like Han said above, there are many families that would benefit from this investing, however don't have the ability to do so as they are in poverty. For these families, it is more about using each piece of your paycheck into your life and not store the chunk of money away. Overall, if one has the opportunity to invest into their companies 401K, they definitely should, however if there are more important necessities than investing, one should stick to that compared to investing.
ReplyDeleteI think that starting as early as you can is the key to any kind of retirement fund, mostly because time is the money maker here. The longer amount of time, the more money you can make. But I also think that finding a balance between investing and spending is important. For example, if you sacrifice a super fun college trip to the Bahamas with all your life-long friends, and put that money in a retirement fund instead. You lost something that money can't buy back, an experience with the people who love and care about you. And even though you invested that money, and will be better off when you're older, you might regret skipping out on the trip your whole life.
ReplyDeleteI completely agree with you that investing in a 401K as soon as you get a job is a great idea. Then again this does vary on what job and what family it is because some families live paycheck to paycheck and need the money that they put aside.
ReplyDeleteThis was a very cool article! I feel that most working adults have 401k’s and in my opinion I think that they are essential for retirement and having money down the road, but I also think that it is super dependent on your current socioeconomic status and what your job offers. I think that income disparity plays a massive role in the determination of opening up a 401k or not, as a lot of times poor families cannot save money.
ReplyDeleteI also feel like this was well written.
DeleteWhile reading the blog the first part of the blog caught me because when I was young if I was a millionaire I dreamed of having all the toys I wanted. Now, that i'm a Senior I haven't thought of working on my 401 plan and investing like $5 a day will help me become a millionaire quicker before or when i'm 50 years old. Also now that i'm 18 I thought of getting lottery tickets as it says on the blog to become a millionaire won't happen because your wasting money on lottery tickets and you have a better chance of getting struck by lighting than winning the lottery because your chances are 1 in a million.
ReplyDelete