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Author: Helter Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76390  
Subject: Re: 401k Info Date: 7/2/1998 7:27 AM
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<<My employer matches .25 to 1 for the first 6% of my salary, with a 25/50/75/100 vesting period. I was planning on contributing the 6% to get the "free" cash, then plowing every penny left over into my various obligations (before I get used to the increased income). After I pay off all my debt (target 2 - 2.5 years), I was going to evaluate my financial position and determine at that time what to do.

Does this reasoning have at least some logic to it?>>

It has logic, and you certainly won't be doing a bad thing if you follow it. However, I still hold to the contribute the maximum theory. Just imagine if you'd gotten a lower job offer and had to take it, you would still make a plan to rid yourself of CC debt.

Another thing to realize is that you can't go back and put in money that you could have put into a 401(k) later. And, its not just your current tax bracket that matters. This money continues to grow tax free, so if your tax bracket increases in the future, the dividends and short term capital gains realized in your 401(k) are avoiding a higher tax in the future years as they continue to grow.

I'm a firm believer in the budget by scarcity theory. If you don't have it, you can't get it from an ATM machine.

My concern with you plan is that its not very automatic. People's interests change through time, over the next two years, investing/being foolish may be a distant memory(I hope not!), if you have put yourself at the highest rate - and 'forgotten' about it, you'll be saving aggressively without realizing it.

However, if your debt reduction plan works and 2.5 years from now you want a new car, you'll walk into that dealer without thinking about reducing your income, and monthly payments on a new car may look pretty small.

I'm only 26 and I've already cycled a few times from 'hyperaggressive investing' to 'I'm doing OK, and young - time to have fun!'. My automatic monthly investments and 401k have made those 'fun' less detrimental to my financial position.
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