Friday, March 26, 2010

Rethinking 401k…

I am rethinking my 5% 401k contribution with the disappointing news about my raise and the upcoming increase in student loan payments. My checking account is pretty low and I am wondering if I should try to build it back up with the extra $250 over the next 2 months.

I have until next Tuesday to cancel.


Revanche said...

Would the cancellation become effective in time to make a difference?

It might be a good idea to bulk up your cash reserves while you're dealing with the raise situation and looking for another job.

It's a personal preference but I always feel better with more cash at my back when on the cusp of leaving any job, or even just when I'm seriously looking.

Aaren said...

As much as I hate to say it, it might be a good idea to cancel the increase and hoard the reserves until you get a better handle on things. I'm sure you've mentioned it before, but I can't remember, but are your federal loans on an income sensitive plan, or do you not qualify? I remember you taking the deferrals, but I couldn't remember about the rest. If you aren't on one and do qualify, it might help with the monthly payments.

Theresa said...

hard to say... very good point about the job search- do you have a match?

What is the logic behind the short term and long term savings/investments? I would think you are spending way more per month in interest in your cc than you are earning. I think you need an emergency fund a large one too but i don't get the logic behind anything more than 6 months of emergency savings with the amount of debt you have and how tight things are.

Anonymous said...

I am in the same camp as Theresa. My recommendation would be to turn the 401k off and dump it on your debt.

This being said, I know you are not facing an easy decision, especially since it goes against everything you have ever been told about having a 401k.

For me I have found the decision to not contribute to be worth it. Knowing that I could potentially max out both Roth IRA and 401k after dumping ALL debt has been my comforting thoughts.

Chitown said...

I cancelled the 401k contribution and the 1% to my ESPP program. It was ambitious to begin with but I always hoped for the best with my raise.

I am going to post my revised budget for the next 2 months which includes the small salary increase and the change in my witholdings.


Now that my 1% into my ESPP is cancelled, I am not at all focused on long term savings or investments. I just lopped my past investments into the category for tracking purposes. The $10,000 I have in short-term savings is 3 months of expenses should anything happen with my job. The $2,000 emergency fund is for anything from a car repair to a home repair.

I am focused now solely on debt reduction, finding another job and keeping my spending and expenses in check.


Having the cash in my savings and checking does give me some amount of comfort and steers me away from debt.


My federal and private loans are on graduated repayment. So I am paying interest only on qualifying loans right now. I believe my payment would be more under the income sensitive plan. Come June, the interest only payment will be approximately 7% of my gross whereas I believe it would be at 10% under the income sensitive plan. It is my understanding that the IBR plan does not account for private loans but please let me know if I am wrong. Come June, 18% of my gross monthly income will go towards student loan payments. (Ouch!!!)

Broke By Choice:

I agree. There is some comfort in knowing that I will really be able to ramp up my retirement savings once this debt is repaid.

Thanks for staying with me Guys and for your questions, suggestions and encouragement!!!