Essential 401k Tips for New Investors

Jared's proactive approach to his 401k sets him apart from those who neglect retirement savings.

### Essential Tips for Maximizing Your 401k Investment
* 💼 Jared, it's commendable that you've started participating in your 401k, as many people make the mistake of **not utilizing this valuable retirement benefit**.
* 💰 One of the first things to consider is taking full advantage of your employer match, which can provide a **guaranteed return of 50% to 100%** on your contributions.
* 📉 Be cautious about choosing overly conservative options, such as stable value funds, as what seems **safe in the short term** may pose **risks for long-term growth**.
* 📝 It's crucial to designate beneficiaries for your retirement account, ensuring your assets are **inherited according to your wishes**, and understand the implications of **primary versus contingent beneficiaries**.
* 🚫 Avoid cashing out your 401k when changing jobs; instead, roll it over to **keep your retirement savings intact and working for your future**.
* 📊 Remember, just because your 401k allows loans doesn't mean you should use them; they can **significantly hinder your long-term wealth-building potential**.
* 🔄 As your income increases, adjust your savings rate accordingly, aiming for a balance that allows for both **future savings** and **current lifestyle needs** to reach **financial independence**.
* ⏳ Stay proactive in managing your retirement contributions to ensure that your financial strategy **evolves with your career and life changes**.

[Music] Jared is going to kick us off with a great question about 401ks. It says, I just started investing in my 401k. I think I have it set up right, but it's all so new that I'm worried I'm going to miss something and make a mistake. What are some things that I should look out for? Well, Jared, I want to give you a huge compliment. The first thing that you've done very, very right is you're just doing it. Like, you're just starting to participate in your 401k. One of the most egregious mistakes that we see people make when it comes to saving for retirement, or specifically their retirement accounts, is just not utilizing it. It's an amazing benefit. It's an amazing thing. And we know that most millionaires that hit millionaire status actually do it inside of their 401K. So, the fact that you're at an employer who offers one and you've made

the decision I'm now going to take advantage of. You've already avoided one of the biggest mistakes there is, which is just not doing anything at all. The biggest thing I immediately thought of, the financial order of operations, step number two, employer match. Anybody who offers you a 50% to 100% guaranteed rate of return, get in there and take as much of that as you can, and even give your employer a hug for being generous, especially if they go beyond the 6% mark. The other thing I thought of, the teachers. When I first went on a school board, this is over a decade ago, I was shocked at how many teachers, when I was talking to them, they were just doing the cash options on their 403B because they just weren't aggressive enough, stable value. They didn't understand investing, and they saw the stable value funds, and they liked that it was guaranteed, had no risk. And there's something that I often share with people.

is what might feel safe in the current the short term might be very risky in the long term and and not taking enough risk or understanding investing can definitely work against you and and so I always tell people be careful with that and then another part is just full picture don't forget about beneficiary designations a lot of people you know we all assume we're going to live forever you're not so you need to plan accordingly make sure you put some thought into um who who do you want to inherit your assets and don't sleep on the fact that a lot of times if you put contingent beneficiaries CU you probably going to leave it to your significant other your spouse but if you've got you know contingent beneficiaries don't forget about per stures per capita what those two things mean because they have different meanings and it impacts who inherits your assets in the long term and then more than likely most people change jobs a few times MH don't cash it out I mean I that's the one that

frustrates me the most. I feel like most people fall prey. I mean, and people I know, when I find out, you know, like, here's something that's interesting. You see somebody putting a pool in their backyard, and you say, Hey, where'd that come from? And they're like, Oh, I had a 401k from my previous employer that, uh, you know, it's just hanging out there, so I could access it when I was working there, but now that I've left, all of a sudden, I can access those dollars. So why wouldn't I take advantage of doing that? Or, you know, somebody with a new F-150 pickup truck. You go, Hey, how did you know? Oh, I had some leftover 401K money from an old, old job. So don't cash it out just because you've started a new job. Doesn't mean that money should, um, be cashed out. That's free money for you to now use in your current life. You ought to really roll that into or keep that money.

working for you even maybe in the old plan. Um, because that's retirement money, that's money that your future self is kind of counting on to build that bridge. And if you cash it out, you've really screwed things up. But I'm sure there's a few I'm leaving on the table. I was actually jotting down notes. I think you hit all the only one that I see that you didn't hit that I thought about is just because you can do something inside your 401k doesn't mean that you should do it. So, a lot of 401ks will allow for 401k loans. Those should be like a break glass in case of emergency last ditch thing that you. I and realistically, if you have a solid emergency fund, you should not have to do that. 'Cause 401K loans are incredibly costly in terms of your long-term financial wealth building potential. So, uh, even if your plan allows them and you see that that's a provision in there, doesn't necessarily mean that you should take advantage of them.

because keep in mind retirement dollars are supposed to be for retirement. So, the goal is to let them begin working for you from right now all the way until you get to financial independence, till you get to retirement, and I assure you your future self will thank you for that. And take that active role because, I mean, Bo, I've heard you say this many times. A lot of you guys will read a book, you'll watch this show, and you'll get very excited about retirement saving in the future. Make sure it continues to evolve and adjust as you get pay raises. Um, if you're saving 10%, 15%, 'cause maybe you're starting out, as you get more pay raises, let's try to do that 60/40, meaning you take 60% for the future and 40% towards lifestyle, so that your money increases, your savings rate, your investment rate, so you can get to that 25% as fast as possible. I'm always sad when you find somebody who's on fire when they're 24 years old, but then you know they fast.

forward 9 years, they're 33. Life and the messy mids kicking them. They make a lot more money, but they never actually increased their savings rate um or evolved past where they were in their 20s.

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The Money Guy Show

Starting to invest in a 401k is a great decision and can help you build wealth for retirement.

It's important to take advantage of your employer's match, as it offers a guaranteed return on your investment.

Many people make the mistake of choosing low-risk options out of fear, but it's essential to understand investing and be more aggressive to maximize your retirement savings.

The Importance of Long-Term Financial Planning

What seems safe in the short term can be risky in the long run, so it's important to understand investing.

Beneficiary designations are crucial for asset inheritance, and it's important to consider contingent beneficiaries.

Avoid cashing out 401k funds from previous jobs, as they can be valuable for your current financial situation.

Cashing out your 401k can jeopardize your future financial stability, so it's crucial to let that money work for you.

While 401k loans are allowed, they should only be used in emergencies, as they can be costly for long-term wealth building.

It's important to actively adjust your savings rate as you receive pay raises, aiming for a 60/40 split between future savings and lifestyle expenses.

By age 33, despite making more money, they haven't increased their savings rate.

Life's challenges in their thirties are causing them to feel stuck.

They haven't evolved beyond their financial habits from their twenties.