#401k #EmergencySavings #FinancialAdvice
Hey everyone! 👋 I need your input on a financial dilemma I’m facing. Recently, our emergency savings took a hit, and I’m contemplating pausing my 401k match to rebuild it. Here are the details:
– Currently saving 6% of my income into my 401k
– Company match is 4%, but I need to contribute 6% to get the full match
– Income range is $90k-$100k
– Not super disciplined with spending
So, should I hit pause on the 401k match and focus on building up our emergency savings again? 🤔 What would you do in this situation?
One possible solution I’ve been considering is to:
– Temporarily reduce my 401k contributions to the minimum needed for the employer match
– Use the extra funds to boost our emergency savings
– Once the savings are back on track, resume contributions to the 401k
What do you think of this approach? Have you faced a similar situation before? Any tips or advice to share? Let’s start a discussion and help each other out! 💬🌟
The short answer is no. And you know it’s no. You just said you aren’t incredibly disciplined in spending. Well, work toward improving your discipline. Now sounds like a great opportunity.
>but we aren’t incredibly disciplined in spending.
So get disciplined. Or, don’t, and give away the 4% match of free money b/c you can’t/won’t buckle down for a little bit to rebuild your savings.
No. That’s free money. Cut back somewhere else that doesn’t involve giving free money away.
Continue investing to get the maximum match. Cut spending for several months to build up emergency fund. Dinners out at restaurants, entertainment, travel all can add up. Just know this is temporary. Once you get several thousand you can slow the spending cuts but still keep adding.
I’d create an auto deposit into emergency fund each pay period.
No, cut discretionary spending considering you’re not disciplined
Mathematically. All money you put in 401k matched is a 100% return. If you have to take it out with the penalty.
Say you put in 100 bucks. Match a 100. Penalty 10% on 200 is 20 bucks. So you can pull on 180. So technically you get an 80% if you still pull it out for any emergency. If you don’t, you’re keeping those savings.
Take that match.
If you contributed more than the max match amount the answer is “probably not, but maybe”. But you’re at the minimum for max match, so the answer is “*absolutely not*. Jesus Christ.”
Don’t leave free money on the table.
If I’m honest, you probably should be socking away more than that 6% to begin with, so it’s hard to recommend going below 6% even if it’s to bolster emergency savings. If you miss out on match dollars, they’re gone. If you said you were normally saving 20% and were going to redirect the whatever is above the 6% temporarily towards emergency savings, that’s a different conversation.
I would cut spending before losing the company match.
No. You have plenty of income to rebuild your savings without cutting back on retirement savings. Figure out how to do it with the income you currently have.
If you lay out your spending, and make savings a goal (meaning you take the savings out *first*, you will be surprised how it builds up.
Get your match and nothing more until your emergency fund is fulfilled.
Absolutely not. Not only would you miss out on match but it’s not even like you’d receive that money dollar for dollar in your net pay (assuming there’s no Roth component in your 401k).
I put between 10-20% of my pay in my workplace 401k, and I will raise/lower in that range depending on what’s going on, but my hard line is 10% because that’s where I start paying more into the 401k than I pay in federal taxes. You’re only at 6%. Go up, not down.
And get your spending under control. But also pat yourself on the back because your emergency savings did its job. You just need to put your heads together and budget better so that you can build it back up.
No.
Discipline.
Full budget.
Only spend what it vitally necessary.
Probably not, no. I would rebuild my emergency fund over time, but not at the cost of losing ‘free money’ from your employer. You can most likely take a loan on the 401k balance for certain kinds of hardships, so you have some form of safety net with the balance of the 401k. More hoops to jump through than having $ on hand, but free money is free. If there is a ‘vesting schedule’ then you may want to consider when the ‘free money’ is actually yours though too.
And yes, get disciplined. 🙂
It’s still worth the match. Just allocate those to a safer fund in your 401k, money market if possible, so it won’t be volatile.
If you have to withdraw that money for an emergency, you pay a penalty, but you probably still come out ahead with the match anyway. And that’s worst case scenario.
Don’t stop
But find out if a participant loan is possible with your plan and what the normal turn around time is
Do not pay your company for the privilege of working for them. That match is part of your compensation package, and absolutely owed to you. Not taking it only benefits them.
How much are you able to save each month towards building up your emergency fund without changing you 401k contribution?
If it’s at least $3-400 probably not worth it.
Like others have mentioned you should cut other spending first (cancel some of those streaming subscriptions you haven’t used this month)
Absolutely not. Use discipline to build the savings back up. Also, remember that the savings served their purpose – saved you from debt (or from as much debt as you would’ve otherwise had). So don’t stress out the same way you would’ve if you’d gone into debt – you need to rebuild your protection, but *you had protection* and that’s a win.
If you want a sub who will tell you “yes,” I guess you can post in Dave Ramsey. But if you aren’t disciplined in spending who’s to say you won’t just spend the 6% instead of saving it? Just keep the contributions into your 401k going.
The answer is no. the 4% match is the best return you ever will get. It is a 100% instant return and that is not going to be beat.
>we aren’t incredibly disciplined in spending
Something to help fix that is have automatic transfers to your savings account as soon as the paycheck hits. I also recoemend you put it in another bank as it makes it slightly harder to see. It helps you learn to live with less money and adjust all your spending habits.
You will pause your 401k and spend that money too I bet. Don’t do it. Instead control your spending and save from there.
So, assuming “$90k-$100k range” equals $95,000 salary, this means you put away $219 every two weeks and your employer kicks in $146 for a total of ~$365. If you ‘pause’ those contributions you get no match and the $219 you were contributing gets taxed before it ends up in your paycheck. Depending on your particular tax situation you would be giving away $365 of your retirement savings for maybe $165 now.
Thank you everyone – rightfully deserved sanity reminder to focus on spending habits. We will reassess our budget and cut the fringe!
It all starts with a budget. Put a serious effort into making a detailed budget, and you will see where you can cut on spending
“Aren’t incredibly disciplined in spending”
There you go. Get that under control. In my monthly budget I have amounts for savings. Even putting away $50 to $100 a month will help
No. Don’t give away free money and compounding future earnings. Work on your spending/saving habits instead to rebuild your savings account.
We had $24k in our emergency fund of 6 months expenses and it got wiped by $15k for an emergency. I paused to the company match (6%) for 6 months and then resumed back to 15% but I didn’t cut all contributions completely. It’s all in your comfort level I think, I have to have that money in there to feel safe so it was whatever I had to do, but everyone’s situation and comfort level is different.
Never leave free money on the table.
No, cut back something else to build your emergency savings. Then, once you’ve done that, make sure you are saving 15% for retirement. That can be across vehicles (401k and IRA) or all in one. If you are only saving 6%, that’s not enough.
Reducing 401k temporarily to rebuild emergency fund or to accumulate a down payment does make sense sometimes. The thing is that you don’t want to reduce it below the company match. So if you were at 20%, then reducing it to 6% would be ok but you are starting at the minimum to get the match so in your case I would leave it at 6%. You should get your spending under control if your only retirement savings is the 401k.
the 401k match is free money, don’t stop that please. do a budget and stick to it.
You don’t need to worry about your 401k you need a written budget and discipline. I bet you’ll find money you’re throwing away that you can use to save while keeping your contributions
Always keep the bare minimum to get your maximum match. You can always borrow from the 401k in an emergency.
If you weren’t already at the minimum, there might be an argument for cutting down to the minimum if you really couldn’t find anywhere to cut spending, but the first point doesn’t apply, and I sort of doubt the second does.
Cut spending, build an emergency fund, and then I’d try to reserve some of that frugality to start contributing 11% (so you’re up to 15% total).
>we have good income but we aren’t incredibly disciplined in spending.
If you remain undisciplined with spending, then yes, forego the match until you have at least 1 month of reserves in cash, then build it back up.
If you actually put together a budget and learn to stay within boundaries, then no, contribute up to the match and rebuild gradually.
On a similar note, should I reduce my 401k contribution from maxing out to max company match level so I can rebuild my savings?
Absolutely not. That is free money that will grow from interest. That $5000ish dollars you contribute a year for your 401k that you could spend will be worth a lot more when you are retired.
Control your spending better
> so we have good income but we aren’t incredibly disciplined in spending.
How would you react if you read someone else post this? Here’s my response: Bitch (and i say this with affection and don’t care if you are Male/Female/Trans), STFU and eat some rice and beans for the next few months.
Seriously though. You know what you need to do, and it’s not give away 4% of your income. If you were on a lean budget and struggling to make ends meet, it’s a different conversation.
You need to sit down and make a budget. Start with necessities: rent/mortgage, car payments, taxes, insurance, groceries, utilities, fuel. See what’s left over. Work backwards and Analyze all discretionary spending, and see what you can stop: downgrade your netflix account (I’m not a monster I won’t tell you to cancel it), quit eating out, quit the uber eats, stop buying junk you don’t need on amazon (and no, i don’t care if it’s a great deal and on sale), … fill in the rest of the blanks unique to your spending.
Okay I’m in a similar boat. My company matches the first 4%, I’m putting in 8%. I am completely drained of money due to medical bills. Should I only put 4% in (guarantees full match) and keep the rest to restock the emergency fund?
You already answered your own question… “we have good income but we aren’t incredibly disciplined in spending.” Literally your answer lol. You wiped out your savings, so if you truly want to build your savings back up and it’s important to you, you have to bite the bullet for awhile… you may have to stop going out to eat for a few months, eat cheaper meals, not spend money on activities, etc.
No that is free money. If you can convert “free money” to Roth 401k but you need pay an estimate tax right away. It will be yours 100% once you converted to Roth 401k and pay an estimate tax.