In today’s 2 Minute Q&A Tuesday, we’re going over how to contribute to your 401(k) retirement plan and still live your best life. This person is questioning if they should save for retirement or use those funds to travel in their 20s. Now, I completely understand how difficult it is to afford traveling in your youth without going into debt. But I do believe there is a better way to travel without postponing your retirement.
Don’t Postpone Retirement
First thing is first, I wouldn’t sacrifice my retirement to travel. One of the biggest game-changers when growing your investments is how soon you start. The reasoning behind this is that you’re investments are multiplying over 40 years instead of 25-30 years. When your investments continue growing for a longer period of time this is what we call compound growth. This allows your money to grow larger and stronger, which allows you to retire with a bigger cushion. If you keep postponing when and how much you contribute to your retirement, you could end up with less than expected for retirement. This can leave you in a bit of a pickle later on in life.
In my opinion, it’s better to have more invested in your retirement than less. But if you’re going through a difficult time financially then this is a good reason to postpone retirement contributions. If you’re going through a family emergency or you don’t make enough to pay your bills or
401(k) Match is an Asset
The word is out, more and more companies are pulling back from offering 401(k) matches or retirement plans. Having a company-sponsored retirement plan will soon be a luxury that most won’t get. So, if your company is currently offering you a 401(k), 403(b), or a match then grab this. Because any 401(k) match is an asset of free money. To better explain how a match works and how this is free money lets do a quick example.
401(k) Match Example
Let’s say your company does a 4% income match that equals out to be $200 monthly. This means that the max they will contribute to your retirement plan is 4% of your income. Only if you contribute 4% or more towards funding your retirement account. So, let’s calculate how much will be contributed towards your retirement account on a monthly basis.
Your 4% income contribution: $200
Your 4% company contribution match: $200 ←This is Free money!!!
= $400 retirement contribution
This scenario positions you in a win-win situation because you’re now able to invest more money towards your retirement. Having a company match is an asset to growing your investments for retirement. This is a benefit that I now miss since I run my own business and don’t get spoiled with extra retirement contributions.
How to Balance your Travel Game
So, you might be wondering, but what about traveling and living my best life now? Well, the truth is we have to find another approach to traveling without postponing our retirement. Here are a few tips you can consider to save money on travel and also set realistic expectations. Because hey, the reality is that most of us only get 2 weeks of vacation and can only save so much.
1. Separate Domestic and International Trips
The first tip is to separate your traveling destinations between domestic and international. One way to do this is to alternate the years you do your domestic and international travel. This way you can enjoy and travel your within your local state or country for one year. Then the next year positions yourself to save more for your international trips. This is a good method to enjoy the best of both worlds while avoiding debt.
2. Travel Hacking with Credit Cards
I am not going to pretend to be the credit card hacking queen. To share the best tips, I collaborated with Aunt Kara from Instagram to share some of her top tips. The one credit card hacking tip I’ve learned from Kara is to recognize that not one card will offer you all the hacks you need. It does take some strategizing to take full advantage of travel hacking. Taking your time to figure out where you want to go and which cards help you achieve your long-term and short-term traveling goals. To learn more check out our collaborative blog, 5 Travel Hacking Tips for Your Next Family Trip.
“It’s called live your best life, not just your 20’s.”
The last part about I want to share about traveling is to not limit yourself to only traveling in your youth. It’s called living your best life, not just your 20s. You have time to figure out where you want to go and how you want to experience these moments. Don’t go into debt, cheat, or steal from yourself in order to do so. Embrace every stage of life and know that you can also travel in your 30s, 40s, 50s, and 60s. My dad is 69 and is still traveling to the Dominican Republic, NYC, and California like it’s nothing. The best thing you can do is find the right balance to achieve your financial goals and your traveling goals.