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This is a blog swap post from Joe at Retire By 40, where he writes about his journey to early retirement.  Feel free to check out my post, Best Financial Advice, at his site for a comparison.

The best financial advice I’ve ever received was from my dad when I finished college and started my first job. He advised me to contribute as much as I can to the 401k plan. I didn’t want to do that because I was a starving college student for so long. I wanted to get a nice car, nice apartment, new guitar, big TV, go out, and all that good stuff. Who wants to wait 40 years before using that hard earned money?

This was an unexpected advice from my dad. He had always been self employed and never formally saved for retirement. Any money coming in was always spent on necessities, the kids’ education, and “investments.” These investments included high risk stocks, antiques, gambling, land, and more. His risk tolerance was extremely high and he never figured out how to conserve capital, so he always had to start over again and again. So imagine my surprise when he was adamant about contributing to the 401k plan right away.

In any case, I started contributing to the company’s 401k plan as soon as I started working. Looking back over the record, it took me about 4 years before I maxed out the contribution and I stayed maxed out ever since. I got married a few years after and convinced the Mrs. to max out her contribution as well. In hindsight, maxing out the 401k contribution as soon as we did was the best move we could have made at the time. The 401k is the biggest chunk of our net worth now. Here are some reasons to contributing as soon as you start a career.

  • You are used to the starving student lifestyle so you won’t really notice the automatic deduction that happens every pay check. This is still the most money you’ve ever seen.
  • The earlier you start saving the better off you’ll be in the future. This power of compound interest is undisputed. If you don’t know what to invest in, just put it all in a large cap index fund. When you are starting out, the amount of contribution matters much more than how well your investment does. You can adjust it later when you know more about investing.
  • There are the usual reasons that the 401k is a great investment. These includes pre-tax savings, employer matching contribution, and auto deduction.

I will have to thank my dad again for this great advice the next time I see him.

Remember – Nobody thinks about quitting when they started a new career so they don’t think about retirement. It’s our responsibility to help them start saving for retirement right off the bat.

Crystal’s Comments:  I want to scream when I hear that people are not contributing up to at least the minimum to get the maximum company match!  Grrr…STOP GIVING AWAY FREE MONEY!!!  Yep, I’m a big fan of contributing to a 401(k) and a Roth IRA so you can balance your withdrawals in retirement to stay in the lowest tax bracket possible.  🙂