For many finance folks, the 401K is considered a jewel for retirement. I completely agree. It’s possible to start early and contribute regularly to build your own net to fall back on comfortably when you are ready to retire. You are told to “max it out” as often as possible. For people who will always have a long-standing relationship with their employer(s) and relish the routine, this is the way to go.
However, I am speaking to you, the self-motivated person who is or wants to be financially responsible, but also has a loftier and slightly riskier goal in the near future. You may have a company job right now, but sometime soon you want to be self-employed. You may want to take 10 months to travel across Asia or stay home and write your long-awaited book. You may want to buy your first house or may have spied a great area for rental property and want to invest soon. You’re determined to make this work.
Consider *not* maxing out your 401K. Yes, you read it correctly. Every dollar counts for financing your adventure. Contribute enough to get the full benefit of company-matched money, and save the rest in your high-yield savings account like ING. Typically companies will match your contribution up to a certain amount, such as for the first 5% of your salary, they will match it at 50%. Be sure you contribute the 5% necessary to get what some investment advisors would call “free money.”
People have different risk tolerances, and to do this, you’re ready to risk the potential growth of your 401k contributions in the long term for the potential of your new business or book etc. Because you are saving it for something a bit riskier, your goal shouldn’t be frivolous like a new car or new wardrobe. You’re smarter than that. This is for your big adventure.
