Friday, December 29, 2006

The Third Financial New Year's Resolution

The Financial New Year's Resolutions So Far:
1. Give 5% of my salary.
2. Open a Roth IRA and automate contributions.

To those two, I'll add this one:

Earn the full employer match in my 401(k).

My employer offers a dollar-for-dollar match up to $1,500. That means that there are two ways for me to earn the full match: I can either contribute at least $57.70 per paycheck for the full year, or I can front-load my contributions and earn the full match early on. The benefits of the first plan are, I think, pretty obvious: it means that I can set up contribution levels for my various savings vehicles and minimize the thought they require. The benefits of the second plan are subtler: if I leave this job before the end of next year (a possibility, given the combination of my grad school and travel plans), I'll already have grabbed all the "free money" available.

Both have genuine advantages and disadvantages, but I think what I'm going to do is a compromise. If I contribute $80 per paycheck to my 401(k) (that's 7% of my gross and 9% of my net), I earn the full match in 19 paychecks (that is, towards the end of October). That cuts my losses if I leave early but also allows me to automate contributions to my Roth and my ING travel and mini-emergency funds. If I do stay the whole year, my 401(k) will contain $3,580 (without growth) at the end of the year.

So the final formulation of my third financial New Year's resolution is: Earn the full employer match in my 401(k) by signing up and automating contributions of $80 per paycheck.