So, during my last net worth update, I mentioned that I had increased my 401k contribution from 5% per paycheck to 8% per paycheck. Many friends of mine either don’t contribute to their companies 401k plan or if they do – they never increase their contribution amount. Typically, most set their contribution amount to the minimum amount to qualify for a company match. That’s fine – but many have told me that they won’t increase their percentage because they don’t want the amount taken from their paycheck.

I’ve been checking for a little over a month now, but it’s finally here. Over $4,000 has been put into my 401k account from my employer. The contribution is based upon profit-sharing and not upon my contribution amount, which is great because in one day that deposit exceeded what I had put in there for the entire year.

I’ll be posting a net worth update for October soon.  It was delayed due to a much needed vacation.  Honestly, each year at this time I take a vacation and I know the argument that when you’re in debt you shouldn’t be spending money on vacation – but for health reasons mental and otherwise, I feel that it is important to get away for a little bit.

So, I signed up for my company’s 401k plan this week. I planned to contribute only to the match, since I am still working to pay down my debt. However, I learned that my company does a year end profit sharing contribution instead of a match and it is based on your salary and not affected by your contribution percentage.

I am new to the profit sharing concept, so I asked about 15 what-if questions just to be sure I wouldn’t miss out on any free money. Just to be safe and because it really wouldn’t hurt that much, I decided to contribute 5% per pay period anyway.

It’s a little under $80 a paycheck and I’ll forget it’s even being removed in about a month or two.

I know it’s kind of breaking the common debt reduction rule, but on the other hand I have a lot of years for that $80/week to grow into something before I need it.

My next step is rolling over my $8,000+ 401k from my previous job. Having never done that before, I’m sure I’ll be asking my HR person another 15 questions about that within the next week or so.

Lastly, yes I know the argument that the growth on my 401k account pales in comparison to the money I am bleeding by paying credit card interest rates. But I feel good about contributing right now – even if just a little – and once I pay off my debt, I plan to put savings and retirement savings into overdrive to catch up slightly. That’s the plan at least.

In my previous post I was trying to figure out what is best to do with the 10% of my paycheck that should be reserved for my 401(k), but can’t be for one full year.

The obvious solution was to begin contributions to my Roth IRA that I hadn’t been contributing to in the past year or so. However, I have been thinking about this situation in the back of my mind since making my last post and then it occurred to me. What would be the best use for this “extra” money? Right then it jumped at me: It’s the Debt, Stupid!

How many articles have I read about whether it’s better to contribute to a retirement plan (i.e. 401(k), Roth, others) or pay down debt.

The rule is to follow the percentages.

If you’re gaining 8% – 12% on your plan and your massive amount of debt is at an 8%+ interest rate then you have a leak that will prevent you from really making any sort of progress. Thinking back, I think it’s the reason that I stopped Roth IRA contributions in the first place. The 401(k) was at least supplying me with a company match – which made it worth adding to.

So, my plan for the next year is to increase my debt payments even more – that way by the time my 401(k) actually does kick in maybe I’ll be in a position where I can contribute even more than my 10% goal in an effort to play catch up on a year lost.

So the question now is, how much is enough? My “contribution” will be post-tax so I wonder if I can still make the 10% or not. We’ll have to see. I’ll try forwarding 10% of my pay to debt on my next paycheck and we’ll see if that effects my budget at all.

Well – the new job is going really well. There’s a lot of stuff to learn, but everyone is really nice and I feel that it’s a great fit for me.

The only thing that is bad so far is that it’s a one year wait for enrollment in the 401(k). Ouch!
I must have misunderstood during the interview process because I had thought that the one year referred only to when I’d be eligible for the profit sharing program (which is pretty sweet by itself).

Oh well – it’s too bad I can’t keep contributing to my old 401(k) which is still at the former job. But there are some positives (I guess):

1. Bigger overall paycheck now that my 10% 401(k) deposit isn’t being taken out
2. Opportunity to begin investing in my ROTH IRA again.

I haven’t received a paycheck yet from the new job so I’m honestly not really sure what the bi-weekly number will be, but I’m obviously looking forward to the raise being tangible.

A 401(k) is a scary thing when you really think about it.
At least for me. I’m trying to learn all I can about how best to manage my money.

Some things are easy:

• Join
• Invest 10% of my pay (pre-tax)
• Take advantage of the company match (a.k.a. free money)
• Diversify your holdings

Some things are not:

• Out of the limited funds I have to pick from, which funds are the right fund
• How much should I be paying (expense ratios)

Recently, my 401(k) fund swapped out some “under-performing funds” for some that matched their criteria. This, in turn, replaced two of my funds.

Now I’m doing some research into what’s available and what I should be in, but honestly it’s very confusing and I’m not exactly sure what to do.

Yes, I have time before I retire.
But I realize that the better I manage my money now, the harder it will work for me in the time allowed.

So, what do you think about expense ratios and p/e ratios? Any tips out there or solid guidelines?