Max Out Your 401(K) As Early As You Can

In my first two years of full-time employment, I contributed the maximum amount to my 401(k) plan because I still had the college mentality. I wasn’t used to making money and as such I wasn’t used to spending it, so in a very miserly fashion I jacked up my 401(k) contribution so that my annual contribution was the maximum amount. Since I would feel no appreciable difference in my quality of life, it was a trade off I was happy to make. After the first two years I reduced my contributions to the maximum company match amount because I needed to save enough to make a little down payment on a house.

So, why max out your 401(k) while you’re young? For the very same reason why they say you should save money and invest it when you’re young – the magic of compounding interest. I won’t treat you with kid gloves and explain how compounding works but all I can say is that I’m glad I fattened up the coffers while I could (before my mortgage!) because as you grow older it becomes harder and harder to do. When you have kids, forget it!

So, take my advice, contribute as much as you can right now, while your expenses are small, and ratchet that back as you get older.