Friday was my most recent payday. I had some expenses to be paid out so before doing so I quickly checked my bank account to see if my paycheck had hit my account yet and ensure that there was enough money in the account to trigger the payment. I was surprised to see that my paycheck was a little larger than normal. I logged in to my company’s payroll system to check my pay stub and see what might have changed. A quick analysis showed that the 401K deduction was smaller than normal. I scanned the Year-to-Date column and noticed that I have maxed out my 401K contributions for the year. This is the second year in a row where I have done so but also only the second year I have EVER done so.
Since being eligible for a 401K, I have always put 10% in and have not wavered from that. I assumed that 10% was a huge portion and would be more than enough to cover my retirement. I asked around to a few family members and friends and quickly found that 10% was much more than most, if not all, of them contributed. This reinforced my beliefs that I was ahead of the game. Once I began diving into personal finance topics I learned that 10% was probably not going to get it done, especially not if I wanted to retire a little earlier than the norm.
Once I had that realization I began and systematic program of increasing my percentage withheld. I started by increasing my contribution by an additional 1% each year on my birthday. This worked well and was easy to remember since this was a nice little birthday present to myself. The other thing I noticed was that my take-home pay before and after each change was not significantly different. It definitely did not impact my cash flow as much as I expected. So, what I decided to do that that point was to increase my percentage every few months. I add an additional 0.5% or 1%, then adjust to that amount for a few months before doing my next increase. Amazingly, I have barely noticed the difference.
Now that I have hit this major milestone two years in a row, I am motivated to do even more. My new challenge will be to see if I can hit this milestone even earlier in the year next year. Additionally, now that my paycheck is more than usual since that money is no longer deducted, I plan on automatically moving that money to some different savings vehicle. For now, I have set up an auto-transfer for that amount from my checking account to my savings account on each payday. As that amount accumulates, I will deploy it in another vehicle to maximize its impact.