Would you focus on paying off debt or investing first?
Does that matter if you’re giving up on not getting a 401(k) match?
Never put off saving until you get out of debt.
Human nature and habits show that once you are out of debt (or close to it), people often feel comfortable about their progress and end up buying another car, upgrading their homes etc.
When this happens people often never get started saving because are perpetually ‘putting it off’.
The time-value of money is such that every year you wait costs you exponentially more than you save in paying down interest debts.
How much of an emergency fund should you build up before funding a retirement account?
All the traditional financial talking heads say that six months of emergency savings is advisable.
However, most people mix up the term ‘savings’ versus ‘investing’.
They are not the same thing.
If you want secure wealth and retirement you need to build a safe foundation that won’t fall when the market crashes.
This does not happen by investing in the stock market.
The stock market is more akin to a casino and that’s not solid ground to depend on for your retirement.
Instead, people should build a foundation of wealth based on savings, not investing, that will never disappear in a market crash but still creates growth and wealth.
Only after your foundation is built should you risk your ‘extra money’ in volatile investments, which could be lost; then it won’t impact upon your family or wealth.
When would it make sense to max out your 401(k) or retirement accounts?
In my opinion It only makes sense to max out 401ks when you are fully funding tax free retirement alternatives like a Roth IRA or an IUL.
With taxes near all-time lows and Government debt at an all-time high, deferring taxes to the future is a sure fire way to crush your savings when you pull out income, because tax rates could be double what they are today.
That’s why looking for and using assets that give you tax free retirement in the future is so important.
What’s the risk of putting funds in a retirement account or 401(k) when you’re in debt?
Is taking a loan ever advisable
The risk of putting money in a retirement account while still in debt depends on what type of account you are using.
The problem with traditional retirement plans like 401k or IRA’s is that they severely restrict access to your money.
If an emergency arises such as a loss of job or an investment opportunity comes around that you want the money for it can be extremely costly to pull it out.
In these cases it may make sense for more savvy investors to borrow against their retirement plan; but this is not recommended for most people as it is high risk.