So you work for a company that offers a 401K savings account and you are wondering how much should you invest or what percentage of your paycheck you should invest. Well, the answer is: it depends.
If you don’t have an emergency fund then make sure you work on that first, normally you want to put away 3 to 6 months of expenses. Enough to pay the mortgage or rent, utilities, insurance, gas and food.
- If you have an emergency fund but have debt (student loans or credit card debt) then your first priority is paying down the debt. The golden rule is to always pay the smallest debt first and work towards your bigger amounts later on. If you are in this category, find out what your employer matches for every dollar and up to how much. You should invest the same percentage your company will match.
- If you don’t have any debt but your home then you should invest at least 12% of your income in your 401K and consider opening an IRA or Roth IRA with a reputable company. And consider paying your mortgage sooner by paying double payments. One payment towards the principal every month plus your regular payment (interest + principal)
- If you don’t have any debt then congratulations! you should max out your 401K to 15% and 5% to your IRA
Tags: 401k, invest, IRA, paycheck, percentage of paycheck to invest, roth IRA
