The other day, I came across an older post by Apathy Ends which provided “proof” that millennials should start investing in their 401(k) accounts immediately. As someone whose net worth growth is due almost entirely to my retirement accounts, I support this. As someone who blogs about personal finance, I can’t believe I’ve never analyzed the growth of those accounts before.
Current Net Worth: $112,796
Since my last update six months ago, this number has grown about as expected. There are some caveats to this, of course, but I’ll break those down in a bit.
77% of my net worth sits across my 401(k), Roth 401(k), IRA, and Roth IRA accounts. I have been working for almost four years and opened my first IRA account in 2017 (excluding the rollover accounts created when I left my first job). In that time, I have contributed $72K(!) to those accounts and received an extra $2.4K from employer contributions. They are now worth a combined $87K.
I Saved and Paid Down Debt Concurrently
It’s important to recognize that for the first year and a half of working, I lived at home with my parents to keep my costs low. I owed my parents $35K to pay them back for graduate school, but, at my father’s encouragement, I prioritized my 401(k) for the first six months of my employment. So, since I started working in the middle of the year, I set my contribution amount at 40% those first few months and watched that account grow leaps and bounds. My net worth may have still been in the red after six months of working due to debt, but I had a whole $10K in an account, and the feeling of having five figures to my name was amazing.
What my father recognized, that I did not, was that getting an immediate boost in my retirement savings would have a much farther reaching impact on my future savings than debt payoff ever could.
I don’t say that lightly. I’ve written posts about why you should pay off your debt first and the financial stress of student loans. After moving out, I prioritized my debt, paying back an average of $1K a month over three years. That includes the relatively little I put towards my debt in the first year. The thing is, even though I’ve never hit any 401(k) contribution limits, by starting out with a saving mindset from day 1 of employment, I’ve always treated a portion of my salary as untouchable, even in high-spending periods.
Let’s put it this way. Which is more exciting, watching your money grow by $20, $200, or $2,000 a month? By saving a lot, very quickly, I now get to enjoy watching my money grow at a moderate pace, which is only motivating me to save more.
Retirement: The Great Net Worth Growth
There’s no rule that says you have to contribute a specific amount to your 401(k), but there’s a lot to be said about the power of consistency (and starting early). I’m really banking on the power of compounding interest here.
I have all my accounts lumped together, but there’s a mix of Roth (post-tax) and Traditional (pre-tax) above. One of the big benefits of contributing pre-tax income is that it will reduce the amount of taxes paid now. You may decide to put away an extra $100, but it will reduce your take-home salary by less (as perfectly illustrated, again, by Apathy Ends).
Over time, the changes in the market have had a greater effect on my accounts as they grow in value:
It’s More Than Just Employer Contributions
If you have matching contributions from your employer, please take full advantage of it. It’s free money.
Over the past four years, a combined $2K has not made a significant impact on my net worth growth. I’ll take the money, sure, but my point here is that the value in saving for retirement is far more dependent on how much you put away for yourself than it is how much your company puts away for you. An obvious exception to this would be if you happened to work for one of these companies with ridiculous matching, but that’s not the majority of us.
To Infinity, and Beyond?
As someone who much of her day making charts, I can’t believe I haven’t made this one before.
With how things are pacing, the value of my retirement accounts will probably cross $100K by the end of the year. Sure, the market has been a little iffy lately, but I’m not concerned. One important thing that isn’t included in this chart is my personal investment account, which I opened late 2016. In 2017 I had a goal for that account to hit $10K. This year, my goal is to build up a non-retirement portfolio valued at $30K. I don’t set net worth goals, as the number is so highly dependent on the market and would stress me out to track closely.
The Net Worth Caveats:
- As I recently discovered, U.S. health insurance costs are huge. I have thousands of dollars in outstanding bills that I am waiting to receive/file claims on. When it comes time to select my insurance options once again, I’m definitely opting for a better one. Things could have been worse, though! For about a month, I thought I was on the hook for over $10K in bills. 😱 Thankfully it’s going to be closer to $3K, but that’s still a lot of money.
- One of my big 2018 goals is to find ways to give back. So far, this has been limited to small donations (<$100), and a large cash gift to my brother, who is trying to cash flow renovation costs in his first home. Before the end of the year, I’d like to find a way to redistribute some of my good fortunes to someone else (likely within my family). As the oldest child in the family, I do feel somewhat of a responsibility to lend a hand financially. Plus, it feels great to do so. My parents came to the U.S. with very little, and there is a huge appeal to the idea of building familial wealth, not just my own.
In Your 20s, Retiring Isn’t Sexy
Sure, for most people, it’s not fun to talk about. However, putting a large chunk of my paycheck away over the last four years before it hits my checking account has clearly made a world of difference. I’m grateful my father pressured me to focus on my 401(k) first, as it’s really set the tone for my financial future.
One important thing I haven’t discussed at all in this post is fund allocation. While investing in low-fee, high-risk funds are ideal for your 20s, it’s more important to start saving for retirement than it is to optimize your portfolio; this is always something that can (and should) be revisited every few years. A 15% growth on investments is something I can improve (I’ve underperformed against the market so far). I’m far happier with the fact that I’ve put away nearly six figures than I am upset about missing out on a few thousand dollars of growth.
My point is, you don’t have to have perfectly timed investments to experience net worth growth. Because I’ve put away a portion of my paycheck consistently for the past four years, I’ve experienced a $150K increase in net worth (counting debt, I started at -$35K). Even for an investing tortoise like me, that’s not too shabby. Yes, increased income makes a huge difference. Yes, low living expenses make a huge difference. This growth is impressive for me, given my financial scenario.
Hopefully, this detailed breakdown of my retirement savings is helpful! Whether it’s knowing what’s possible, a comparison point, or just morbid curiosity, I just want to show that saving doesn’t have to be complicated.
Consistency is key—your future self will thank you.