Why I Turned My 401(k) Back On

Last January I shut off my 401(k) contributions because we needed EVERY PENNY going toward our credit card debt if we were going to pay it off before our 0% interest expired at the end of 2014. And we did, so it was worth it. The items remaining on our debt snowball now are student loans and the mortgage. If we followed Financial Peace exactly, we wouldn't be contributing to the 401(k) until all debt besides the mortgage is paid off. But just hear me out...

My company has a ridiculous match, 100% on the first 5% and 50% on the next 5%. So if I was able to contribute 10% of my pay, they would be adding a whopping 7.5% on top of it. We aren't quite to that point yet, but we can handle 5%, which is the most bang for the buck anyway. So right now there is 10% of my income going into my 401(k). A side note, every 401(k) plan is different, some plans have a vesting scale that grows over a period of 6 years, so the company money isn't entirely yours for quite some time. It's good to know the details of your specific plan so you're not caught off guard if you move jobs. 

Did you know that $2,000 invested today with a yearly growth rate of 9% will be worth $62,818 in 40 years? Did you know that $2,000 in 1974 had the same buying power as $9,603 does today? This is a big deal. So here's my thinking: Yes, I am paying $200 per year in interest toward my two student loans (which is tax deductible). Yes, 5% of my income would pay off the first loan by the end of the year...but the time value calculations haunt me. That on top of the match money, I really can't justify not contributing.

Because we are still using our same zero-based budget, every extra dollar is getting put into a savings account. When the savings account builds up enough of a balance it will pay off my two student loans. We are actually close to being able to pay them off now, but as mentioned in Electronic Envelopes, we want to make sure and save up for a new vehicle versus having to add another item to the debt snowball, especially because the interest on a car loan is not tax deductible and would likely amount to far more than $200/year. 

We are not following the baby steps exactly as they are taught in FPU. However, our primary focus of being debt free has not changed. We are always looking for new ways to cut our expenses to be able to save even more. As of now, we are on track to be done with both of my student loans by the end of the year, leaving us with Zac's student loans when he is done with school and our mortgage. Throughout this financial journey a desire to downsize has come to the forefront. We don't know exactly what that looks like yet, but we look forward to sharing the journey with you as it unfolds. For now we are continuing to plug away at our debt snowball. 

"For we brought nothing into the world,
and we can take nothing out of it."
1 Timothy 6:7