Depending on where you work, your job may match 50% of your contributions up to 6% of your salary. That’s free money. A 50% return can take 7 years to materialize in the stock market. (That’s assuming a 6% annual return.) You should be fully contributing the matchable amount before investing else where.
And you definitely should be fully contributing the matchable amount before spending it. Let’s say you can contribute up to $1,000 into your 401k. And you employer will match 50% of that. That’s a free $500. By instead spending the $1,000, you’re not just losing the $1,000, but the $500. That extra $500 you’re missing out on is an opportunity cost. It stems from an economic concept called “economic profit.”
Written in 2015
1. Warning
2. Emergency Fund
3. Credit Card Debt
4. Employer Matched Retirement Funds
5. Other Debt
6. Time Horizon
7. Index Funds
Podcast: Investing 100