Should Younger People Be Aggressive With Their 401k?

The issue of whether younger people should be aggressive with their 401k is an interesting subject to look at. Of course everyone's finances are different, and just because you're twenty four years old doesn't mean your finances are the same as every other twenty four year old. We can make some statements for a variety of circumstances though to help you make the right decision for you.

When you're younger you probably don't have a lot of money to play with, and you have goals to reach (student loans to pay off, car loans, and saving for a down payment on a home). These are all things you do not want to end up tapping into your retirement savings to deal with. It is very important that you have some accessible cash to take care of these things, or any emergencies that may arise.

On the other hand, it's also very important for you to save. The money you save now will have more time to be invested, earn you returns, and help you grow your retirement savings. The more you save now the earlier you will be able to retire, and the more money you will have when you do. Saving early makes a HUGE difference for your retirement.

So how do you balance these things out? Ideally, you will look at your budget and cover your monthly expenses. You will then look at saving a three month (and eventually a six month) emergency savings so that if you lose your job or something else comes up you have accessible funds. During all of this time you will also want to be investing in your 401k up to your employer match, at the very least. You always want to take advantage of that money.

Once you have your emergency savings covered, decide how much of your money you want to save for fun things, or other upcoming goals such as a down payment on a home, etc, and allocate the rest to your retirement savings, like your 401k.