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game plan
game plan
Hi, I’m a little embarrassed to ask this or show my financial situation, but I need some ideas. I am 31 years old and have a stable job. I make $16.25 an hour and my work lets me do 20 hours of OT a week at $22.50 if I want. I just have to request it, but my boss likes me. I have the standard 401k and contribute ~4% (plus employer matches). My objectives with money is to buy a house and save for travel/retirement. I am more of a cautious person and it's mostly because I don't know what I'm doing yet. I have $25k saved so far which is pretty low. I don’t really have a specific question, just want your thoughts on what I should do.
Re: game plan
Hey Al,
It’s awesome you’re making regular contributions to your 401k, especially with the employer matching. That’s a tried and true way to save for retirement.
Think about the numbers this way: you save 8% of your salary (you and employer match) over 45 years of work. Retirement is about 15 years (average life expectancy is 78 years in US, retired at 65, let’s give you an extra 2 years). You can spend 24% of your salary (averaged over lifetime) at retirement (45/15 = 3 * 8%). Presumably you’ve paid off all debt, so your expenses won’t be as high anyway.
With interest and capital gains, it’s conceivable that the 8% of your salary you contributed your first year will grow to 250-300% by the time you retire. Compounding interest is powerful stuff, and that’s why everyone says “save early!”. Thus, you won’t have to live on 24% of your salary per year but a much higher percentage, almost like you never stopped working.
Retirement-wise, keep contributing and you’re in good shape.
Regarding your housing situation, unfortunately, $20k won’t go far in most of the United States. It seems like this is your first house? Check out these FAQs from the US Govenrment’s HUD. Be cautious about adjustable-rate mortgages. When interest rates inevitably go up, you could be paying MUCH more. In fact, that’s what sparked the 2008 financial crisis!
As for working overtime. That’s up to you. If you have the energy and will, go for it. An extra 10 hours a week or so. But make sure to make time to enjoy life now, too. Don’t exhaust yourself now for future retirement. You’ll be too tired to enjoy it.
It’s awesome you’re making regular contributions to your 401k, especially with the employer matching. That’s a tried and true way to save for retirement.
Think about the numbers this way: you save 8% of your salary (you and employer match) over 45 years of work. Retirement is about 15 years (average life expectancy is 78 years in US, retired at 65, let’s give you an extra 2 years). You can spend 24% of your salary (averaged over lifetime) at retirement (45/15 = 3 * 8%). Presumably you’ve paid off all debt, so your expenses won’t be as high anyway.
With interest and capital gains, it’s conceivable that the 8% of your salary you contributed your first year will grow to 250-300% by the time you retire. Compounding interest is powerful stuff, and that’s why everyone says “save early!”. Thus, you won’t have to live on 24% of your salary per year but a much higher percentage, almost like you never stopped working.
Retirement-wise, keep contributing and you’re in good shape.
Regarding your housing situation, unfortunately, $20k won’t go far in most of the United States. It seems like this is your first house? Check out these FAQs from the US Govenrment’s HUD. Be cautious about adjustable-rate mortgages. When interest rates inevitably go up, you could be paying MUCH more. In fact, that’s what sparked the 2008 financial crisis!
As for working overtime. That’s up to you. If you have the energy and will, go for it. An extra 10 hours a week or so. But make sure to make time to enjoy life now, too. Don’t exhaust yourself now for future retirement. You’ll be too tired to enjoy it.
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