The Magic 401k & What Holds You Back?

magic 401kA couple of weeks ago, my friend was over checking out our new house. I still can’t believe we bought a house and it was nice for her to finally see it, it has been a few months now.

Of course I was able to direct our conversations to money, I can’t help myself sometimes. Would I be a good friend if I didn’t at least offer my help if it was needed? No. My friend has always been bad with money and the better I get, the harder it is to see her struggle.

She is a 30 year old single mom with 2 kids and always seems to be working or exhausted from working. I worry about her because being a single mom with 2 kids is hard enough without even throwing money into it.

I let her know that if she ever needed any help with budgeting or getting started saving money, I’m her girl. She giggled and acted like I was joking. I reassured her that I wasn’t and I would love to help her out because that’s what I do.

She mentioned that she would be okay because she has a 401k at work and her company puts money in there. Obviously that doesn’t have anything to do with her current financial situation, but I wanted to know more about this magic 401k.

Me: So how much are you contributing to your 401k?

Friend: Oh, nothing.

Me: So your company just puts money in there for you?

Friend: Yep, there’s already almost a thousand dollars in there.

*She’s been working there for like 5 years.

Me: Oh, that’s not very good. Do they offer a match?

Friend: I think so, like up to 5 or 10 percent…I think…maybe.

Me: That’s cool, 401k matches are free money. They can help you save faster and you won’t have to save as much.

Friend: But there isn’t anything for them to match.

Me: Yeah, that’s kinda the problem.

Friend: That’s okay.

Me: I don’t know about that. Have you ever thought of starting to contribute to your 401k and take advantage of the match?

Friend: Oh, I can’t afford that I don’t make enough money.

Me: You can always start small, that’s what we did.

Friend: Like how?

Me: Well, you could get started by contributing 1%, you won’t even notice it. Then you can slowly increase it over time.

Friend: 1 percent! How much is that out of $1,000? Oh no, that’s like $100…I can’t do that.

Me: Uh, it’s only $10, $100 would be 10%.

Friend: That’s not that bad, I could probably do that.

Me: You gotta start somewhere. All you have to do is let your HR people know you would like to contribute 1% to your 401k and that’s enough to get you started.

Friend: Yeah, but I don’t know anything about all that investing and retirement stuff.

Me: I don’t either really, but you don’t have to know everything to get started.

Friend: Maybe I’ll just bring all the paperwork to you and you can figure it out.

Me: Okay, but I don’t know very much.

Friend: You know more than I do.

So could this be another reason why people aren’t saving for retirement? They just aren’t really sure what to do. It’s sad, but it really makes sense. Fear of the unknown.

Maybe this is also the reason people don’t work on their credit, budgeting and other financial matters, they just don’t know what to do.

I’m sure time is also a factor, because if you don’t know what to do, it can sometimes take a good deal of time to learn. So lack of information and time.

Of course there are other factors like not caring and not wanting to change, but that’s a whole other issue.

What held (or still holds) you back from improving your finances?


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About Jen Perkins

Likes: saving money, being debt free (aside from our house), zombies, travel, getting money, blogging and dogs. Dislikes: debt, being broke, bunnies, wasting money, not having enough money to travel the world and paying interest. Facebook  ♥  Twitter  ♥  Google+  ♥  RSS


The Magic 401k & What Holds You Back? — 20 Comments

  1. Actually, my wife can only make changes to her benefits package (including 401k) during the open enrollment period. So we have 60 days to guess what the next year is going to be like financially to determine how much we can afford to save. And since open enrollment is always just as my job is ending, we keep sticking with 1%.

    Her paychecks are a grand? Unless, she’s getting paid bi-weekly, then she’s not making bad money for a family of three.
    Edward Antrobus recently posted..Using Dedicated Income Streams for Debt PaymentsMy Profile

  2. I never understand how people can leave money on the table. I wish I had an employer match. Unfortunately, teachers do not get an employer match. At least not in the normal sense. I get a pension and there is an employer contribution similar to Social Security.
    The reason people do not take advantage of this benefit is poor choices. I understand that automatic enrollment in a 401 K helps motivate some employees. I think there should be a requirement to contribute.
    krantcents recently posted..I Am a PF Coach and I Should Be Fired!My Profile

  3. It seems ridiculous to us, but a very large percentage of people put zero thought into this kind of stuff. The other day I overheard two coworkers talking and one was explaining to the other that your money is safer in an IRA than it is in a 401(k). ummmm…ok!?
    It’s good that you offered to help, and it’s even better that she was willing! Hopefully she takes your advice and sticks to it.
    The First Million is the Hardest recently posted..Should You File Your Own Taxes Or Hire A Pro?My Profile

  4. I think the unknown is what does hold most people back. That and they don’t understand the power time has over investing. The think that $10 from each paycheck won’t make a difference, but it does. I started out saving a whopping $25 from my paychecks and have a nice sized 401(k) now. Not trying to brag, just saying that over time, your savings can grow into a large amount of money. You just need to start saving something!
    Jon @ MoneySmartGuides recently posted..The Round Table – February 1, 2013My Profile

  5. Our take in this is to invest in yourself when you are young (education and travel) then in a family if it arrives. The time to start serious investment in pension funds is at the beginning of your autumn – perhaps in your early 50s when (hopefully) your family has grown up, mortgage more or less paid and your career has flourished. That is when you have maximum spare cash.

    I know all about compound interest (and if you have an employer-matching scheme obviously take advantage of that) but otherwise don’t get hung up on investing for 40 years because you may not survive that long, inflation may eat into your savings and any sh*t may happen to the economy.
    John@MoneyPrinciple recently posted..Awesome infographic on a troubling matter: the global debt crisisMy Profile

  6. That’s sad that she has no idea how to approach money in terms of retirement. It’s really inconceivable to me, how many folks can be. Not a criticism of the friend, just a commentary on how unfortunate it can be.

    I think it’s great that you’re thinking about her plight even if she doesn’t recognize it. That’s the sign of a good friend, and it’s what she needs. Kudos to you. I wish her the best.
    Digital Personal Finance recently posted..Try Adding a Survey To Your Blog or WebsiteMy Profile

  7. I had to have a very similar conversation with my fiance. It seems the whole free money thing doesn’t really appeal to people who have made a conscious decision to not care about future money. While I get excited for free money and growing my retirement fund, she sees it as money she can’t spend now and would rather it in her check… classic short term thinking that I’m working on changing 😉
    Listen Money Matters recently posted..How I Save a Ton on Travel ExpensesMy Profile

  8. Kudos for helping our friend out. I’m 31, almost same age as your friend, and she’s the norm in terms of either not saving for retirement and~or knowing nothing about it. I do 5 pct and get 5 pct match. But like you say, 1 percent is a great start and will compound over time, hope she follows your good advice