However, “Most of the time, people limit their contributions to whatever their employer is matching instead of the maximum amount allowed–$10,500 for a 401(k),” says Sard. “So, if a company is matching 50 cents on every dollar up to 5%, the employee will stop there.”
Tracy Lynette Salmon concedes that she was only investing 3% of her salary when she started contributing to her employer’s 401(k) plan eight years ago. “In my mind, I was contributing–that was enough–not realizing that I wasn’t taking full advantage of the plan,” says Salmon, 36, who currently is the operations manager in the tariffs department of a New Jersey-based import-export firm. Today, she contributes 12% of her salary to her 401(k) plan. “Over the last four years, I have increased the amount in small increments. This way, I didn’t notice the extra money coming out of my paycheck,” adds Salmon. She was making in the high 20s out of college; her salary has more than doubled since then.
CONTROL YOUR SPENDING AND DEBT
Some single people fail to take full advantage of payroll deduction or 401(k) plans at work because they believe their current living expenses prohibit them from taking much-needed money out of their paychecks, says Barlow. “This is where budgeting is crucial. You have to find ways to cut costs to come up with additional discretionary income.”
For example, get a roommate or take on a second job at a your favorite retail store and take advantage of the employee discount. While controlling your spending, advises Barlow, manage your debt. Stop using credit cards, especially department store charge cards, which tend to carry the highest interest rate.
Salmon is typical of people who graduate from college burdened with student loans, credit card debt, and a car note. According to the Student Loan Marketing Association (Sallie Mae), the average college graduate is already $13,000 in debt by the time he or she finds that f
irst job. Salmon learned the hard way that “good credit is important in everything you do in life–whether you are buying a home or applying for a job,” Barlow says.
“When you are in college you are bombarded with credit card offers. I wasn’t responsible about paying my bills on time,” adds Salmon, noting that it has taken her six years to rebuild her credit standing (For more on credit management, see “Creditors in Your Closet,” this issue).
DIVERSIFY YOUR RETIREMENT BASKET
Many people make the mistake of not saving and investing outside of their retirement plans, says Larry E. Folmar, principal and president of the Folmar Group Financial Inc., a Southfield, Michigan, financial planning firm. He says this is a mistake because you don’t want all of your money tied up in one place until you’re nearly age 60. If you don’t have a lump sum of money to invest, begin making systematic deposits into mutual funds of varying asset classes–large-cap growth, large-cap value, small cap, international, and so on. If you have about $15,000 you can afford to lose, invest in individual stocks. The