QOTD: How Much Should I Contribute to My 401k?

QOTD:

How do I know how much to contribute to my 401k? Should I base it on a percentage or a dollar amount?

Answer:

My suggestion is to start with a percentage. If your employer matches that contribution and you aren’t contributing anything - start with that percentage. Always contribute enough to get the match.

If your employer doesn’t match and you have no IDEA where to start, start at 4% and put it in this calculator. The calculator will give you an idea of what your paycheck will look like after you contribute. Start as HIGH as you can (it’s ok if it’s uncomfortable) - you can always back down later if you need to. This is (usually) pre-tax money - you’re saving yourself taxes by increasing your contributions, so it’s a win-win.

There’s nothing wrong with starting with a dollar amount - but remember that the goal is to increase your contributions over time. It’s easier to visualize an increase of 1% or 2% and that’s typically how your raise or cost of living increases are distributed. It’s easier (for me) to think about contributing 1% this year, and then another 1% next year as a goal than to shoot in the dark for a goal. But that’s my personal preference. The most important thing is that you start contributing now. You’re doing this for YOU!

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