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Don’t Make This HUGE 401(k) Mistake!

Americans are making a HUGE mistake in their 401(k) that could cost them thousands by retirement. We’ll talk about why this is happening and how you can avoid making the same mistake in this Q&A episode!

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Episode Transcript

Listen up, do not make this huge 401K mistake. Brian, I am excited to talk about how we can fix a giant problem that’s going on right now. We are seeing right now Americans making a huge, huge mistake inside their 401ks that can have drastic long-term impacts. I hope that right now we can be the voice of reason to change the trajectory. What I think is sad is, um, I look, I recognize anybody who’s out there on TikTok, you see all the life insurance folks and everybody else telling you your 401k is a joke, but here’s the reality. Your 401k is likely to be the first account that’s going to cross seven figures, and you know what’s going to really turbo charge that? The free money from your employer, absolutely.

So, what’s going on right now? What’s some context? Well, we know that right now, the overall savings rate in the United States has plummeted. We reached near all-time highs when we came through the COVID downturn, and we thought that perhaps it was behavioral, perhaps people were finally starting to take their financial matter seriously, but that’s not the case. It just turned out that Americans were cooped up; they couldn’t spend any more money, so their savings rate went up, and now it is at an abysmal 3.4% average overall savings rate in the U.S., which is awful. It’s one of the lowest that we’ve seen in the last six or seven years.

Yeah, I mean, to think that the typical American is only saving an eighth of what we kind of give an inside look, and I know for 20-somethings that’s very aspirational, and also know in this uncertain time in the economy that this is scary. However, knowing that we came through the pandemic and we had so much kind of being given to everybody to help you make it through the uncertainty of the world, it is sad to me to see the savings rate be so high at historic highs and now being so low. I know a lot of that is struggling with economic stuff, but still, at the end of the day, we’ve got to figure out how do we get this beyond 10%, beyond 15%, up to the 20% to 25% we recommend because 3%? I think if we added up all the probably discretionary expenses that people do, the coffees, the streaming services, the eating out, I mean, that number is going to be double to triple to this percentage.

What we know is that the savings rate has dropped; it’s an abysmal, well, 401ks have also been affected. 54% of workers have recently admitted that they have either stopped or reduced their 401k contribution. So, even if they were contributing, they were participating, they’ve stopped adding money under their reduce what they’re putting in, which again is not setting themselves up for long-term success because if you do this inside of your 401k, not only will it affect your savings right, the dollars you’re putting in, it can also have some other long-tail effects that are pretty devastating.

Yeah, I want you to be thinking about things in small incremental decisions. What are you doing today to build that great big beautiful tomorrow? And I’ll tell you what. It might seem scary right now, but this is also the best dollars you can put to work for you. This is the money that you will look back on 10 years, 15 years from now, and be like, man, those uncertain periods of 2023 carried on from 2022. That was the period that I made good dollars and good returns.

When it comes to making financial decisions, it’s important that we give it the attention it deserves. In fact, we believe it’s so important that we offer a full course to walk you through it at learn.moneyguy.com. We’ll guide you through even the toughest and scariest financial situations.

If I were to be the general of my army of dollar bills, where should I point them? What’s the most effective place to put them? Those who reduce their 401k contributions or choose to save less for the future aren’t following the “FOO“. If they were to follow the “FOO,” they’d likely find themselves in a much better financial position.

Now, let’s take a step back to the employer match slide. Here’s a challenge for everyone: Take a look at your monthly car payment and ask yourself if you’re saving or investing more than that amount. If the answer is no, and you have a car payment of $800, $1200, or even $1500, it’s time to figure out how to flip that payment. You need to have more money going into investments and your employer’s 401k than you have going into your car payment. In ten years, you’ll thank me. I just planted a bunch of seeds that will lead to people being financially wealthy instead of just appearing to be rich.

For more information on how to maximize every dollar that comes your way, check out our Financial Order of Operations course.

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