Do just one thing right now: Boost your 401K contribution
The start of the New Year typically leads to numerous articles on resolutions and setting goals for the coming year which most of us are lucky if we can continue for more than a month. At the risk of adding to the heap of unsolicited recommendations, I’m going to simply say “just do one thing now”.
In the realm of personal finance, topics can get complicated quickly (and often contradictory) which leads to decision paralysis out of fear of making the wrong decision or wanting to fully understand all the available options. While I applaud people who enjoy digging into the minutia of the tax code or the latest investment products, others schedule their semi-annual meeting with their financial advisor on the same day they go to the dentist which they view equally enjoyable.
No disrespect to the many talented dentists in our community (or my ego) but not everyone looks at their dental hygiene or fiscal health the same as we do. This article is written for those who want to get to the bottom line and move on.
Fortunately, 2023 presents some fairly substantial increases to the limits for retirement plan contributions which will make it easier for most people to simply increase their contribution rate by one percent which won’t make you a millionaire overnight but will improve your financial situation over time.
Increased limits to 401k or 403b contributions
If you’re eligible for a 401(k) or 403(b) retirement plan (I’m sorry for already getting lost in tax code references), the maximum contribution increases from $20,500 to $22,500 if you’re under age 50 or $27,000 to $30,000 for those fifty or older. Traditional IRA and Roth IRA contribution limits also increase by $500.
As a result of these higher limits, even if you were already contributing the maximum, you should be able to boost your contributions by at least one percent for 2023. If you weren’t contributing the maximum, then boosting your contribution may even increase the amount your employer contributes if you’re not already receiving the full matching contribution.
Some may argue that increasing your contributions by just one percent is insufficient to ensure financial prosperity in the future. Depending on your situation this may be true but doing nothing won’t help either. I would argue that some action is better than no action. Furthermore, increasing your contributions by one percent will have minimal impact on your net take-home pay because the dollar amount won’t be dramatic (especially when compared to increasing your contributions by ten percent or more).
If you’re successful in doing this one thing now, I encourage you to consider doing the same thing again next year. If you’re diligent in making a series of small changes, I’m confident you’ll do better than people who contemplate major changes but fail to take action.
Related article: https://toyourwealth.com/saving-toward-financial-independence/