Why Your 401k is Sabotaging Your Savings

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I’m about to share some controversial advice with you. So take a minute and hear me out.

Some of you reading may need to stop investing in your 401k.

Again, just wait a second and listen. It could be vital to your financial plan.

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The 401k is the sacred cow of American finance—and for good reason. 401k’s offer amazing benefits such as special tax treatment, forced/automated savings, and free money when your employer matches your contribution. Sounds great, right?

Why in the world should anyone stop investing in it?

Last week, I was working with two clients in completely different phases of life. One of which was a young man in his 20s just beginning his career and the other was woman who’s approaching retirement. Both of my clients were, per the advice of almost everyone in society, investing every spare dollar into their 401k.

When looking closer at their situation, what I found was that both clients had two problems, credit card debt and no emergency fund.

You’re probably thinking, a little credit card debt, what’s the big deal? Everyone has some debt. Well, let’s look at the numbers.

The normal interest rate for a credit card is somewhere around 15-16%.

The normal interest rate over time for a 401k is somewhere between 8-10%.

this means your credit card debt is accumulating higher and faster than the money you’re saving.

While it might feel good to be saving money for retirement, if your debt is compounding more interest faster than your 401k will make in the long run, does it really make sense?

In the full episode, I’ll give you my three-step plan for getting on the right track and how to build a foundation that allows you to start saving aggressively. (Listen in at 6:55)

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KEY QUOTES:

"With your first dollars you need to build a foundation and then you can truly grow like you’ve never imagined."
"To get to this place, you’re going to have to do something a little outside of your comfort zone."
"Once your debt is paid down you’ll have a foundation for real, aggressive growth."
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