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The 401K should still be there as an "insurace" against the worst case scenario - if his business suddenly fails one day and he needs a dependable source of cash.
My question is, if you build a business and it is successful, would you still contribute to the 401k?
It depends. If I could invest the money in my business and get a better return I'd be inclined to go that route. It would also depend on the volatility of my business, if it were a situation where it might be here today, gone tomorrow, I would certainly look at putting some of my investments someplace a little more stable.
That could be as bad as the guy who invests his 401k in his companies stock.
If anything happens to the company you lost your job and your money.
The way even successful business's fail your retirement savings and business should be 2 different things.
The whole idea is while you are working for your money either in your business or on a job your investments your money working for you passively.
That is a very important concept to get.
People ask what's $1. You know they spend a $1 on a lottery ticket, a cup of coffee, a newspaper, a hot dog. Well, to get that $1, they had to earn it and earning requires the payment of taxes, so let's say the tax rate is 25%, Joe needed to earn $1.25 to get that $1 in his pocket. Now, that same $1 spent on a daily basis amounts to $365 in any given year - $365 invested at 5% for 40 years equals $2,569.80. Now, increase the annual investment return to 7% and that same $365 becomes worth $5,469, more than double the return for less than half of the percentage of the first example (1/2 of 5% is 2.5%). That is what the lever of time and compounded returns can do for you. The later you start - the more difficult to grow your money - you either have to increase your savings and returns or some combination of the two.
When you contribute to a 401k you are actually saving to be poor. Meaning, you are saving because you know you will have a loss of income when you retire so you save.
Well, you get a tax write off when you contribute to a 401k, so the simple fact that you are saving in a 401k lowers your current taxable income. A regular IRA does the same. It also makes the assumptions that you don't understand the time value of money, compounding, and that you will magically be able to see the future well enough to make a guess about your health, job prospects, and income when you are older than 65!
I heard an interesting comment. When you contribute to a 401k you are actually saving to be poor. Meaning, you are saving because you know you will have a loss of income when you retire so you save.
Thats the funniest thing I heard all week. Last I check 401K is tax deffered and I can put money in there that grows over time. And guess what, if I put more money in there, like up to $17.5K, it will grow even faster. Its gets better, if I max out my ROTH IRA, all the investments grow even faster, tax free. And if my wife does the same, thing, then our money grows even faster. Its amazing if you do the math, ($25K + $11k = $36K per year annually growing at 8% average annually per year)! I didn't even include company match for wife and husband either. Swwweeeeeettttttttt. Forget CNBC, I choose this option.
You have to think long term. long term long term. People worrying about what Obama doing. Who cares! Keep things simple, don't go buying stocks trying to be the next Warren Buffet, it ain't going to happen cause you dont have as much money as Warren Buffet. Follow Dave Ramesy baby steps. Read Jack Bogle investment book. Easy. Think easy and simple.
I was fully invested at age 28 in 2008. I was happy as a bumblebee when the market crash. Best year of life so far, increased my savings two times during that time. kept my allocation (100% stocks at the time) up until now. Long term, think long term if you are young. Stop worrying on SS and this and that. All you gotta do is make sure you save. And, if you maxing out 401K (do $17.5k if you can) and ROTH IRA, and you only have a mortgage payment at 15 year less than 4% and emergency fund, you just like Lil Wayne (I ain't got no worry) That's it man. Thats all you have to do. You ain't got money for vacation, oh well. Find a way to increase income!
I heard an interesting comment. When you contribute to a 401k you are actually saving to be poor. Meaning, you are saving because you know you will have a loss of income when you retire so you save.
My question is, if you build a business and it is successful, would you still contribute to the 401k?
I don't have a 401K -- we have SEP-IRAs and IRAs. And we fully contribute each year.
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That's it man. Thats all you have to do. You ain't got money for vacation, oh well. Find a way to increase income!
