Friday Encore: Get Rich for 30 Bucks a Month

Welcome to the Friday Encore where you'll get to read a past blog posting that I thought you might not want to miss. Okay, call it a repeat if you want. When necessary the post may be updated with new information or data to keep it relevant.

The following was originally posted January 2008.

What would you do with $30? What if you had that much extra each month? Would you blow it on coffee? Or buy something interesting? It might seem like a paltry amount after all it’s not likely to even buy a tank of gas or a pair of jeans. Okay so what if you had $30 less each month? Would you even notice?

That’s the question you should ask yourself about this time of year—you know when you’ve made a resolution to save more money or lose weight (aren’t they practically the same thing?). Or when you look at your 401(k) statement. Would you notice? Would it hurt to increase your contribution? Is it worth it?

The short answer is “Of course it’s worth it!” But don't take my word for it. This Increase 401k Contribution Calculator from Wachovia Bank lets you play with numbers. Don’t get me wrong I’m not promoting a bank, I’m just using them…uh, I mean leveraging this resource. Right, anyway let’s see what effect a 1% increase to your 401(k) contribution does.
First we’ll assume you are 35 years old, make $50,000 gross annually and will retire at 65. We’ll use an 8% annual return, a 25% income tax bracket and a round 5% for the Colorado State income tax rate. Plug this all into the calculator and voila: (You can click the chart to make it easier to read. Or, you can run your own numbers using the Coors calculators.)

For less than $30 each month you’ve increased your savings by $56,642 in thirty years. And take a look at that tax savings! Now keep in mind this is just a hypothetical example and may not be completely accurate. But it sure gives you an idea of how just a little boost to your contribution can have a significant impact.

And don’t forget that many employers will match your contribution, though there is usually a cap to that amount—typically between 4-6%. But that’s like getting free money. So whether you increase your 401(k) or just get started contributing it is definitely worth it.

Now stop reading and start doing. Open a new tab on your browser and click over to your 401(k) management site to review your current contributions and if you have access bump up your contribution. Or give your HR staff a call and get things rolling. I promise it won’t hurt a bit. Really not even a little. Go on now.