Hey Money Minder,
I’m 20 and have been living on my own since I was 17, working since I was 16. I haven’t had much opportunity to save because I’ve been renting a place in an expensive area on a 32-34K annual income. I’ve been contributing to my 401K since I was 16. My company does a match up to 6%, so I make sure to put the whole 6% in for that employer match.
Most of my monthly income goes to bills and essentials, leaving me with only $600 for fun stuff and $200 for savings. I have a credit builder card, but actual credit cards make me nervous (my credit score is 750). Unexpected expenses like car trouble and medical appointments have pretty much wiped out my savings, making it tough to save.
I try to be frugal – I wear clothes until they fall apart, eat cheap meals at home, and rarely splurge. But my car, which has 220K miles, keeps breaking down, especially in winter. It was a hand-me-down from my mom, but I think it’s time for a new one.
I feel guilty pausing my 401K contributions because I don’t want to miss out on free money. But I’m not sure how else to build up my savings, considering I’m already living so frugally.
Thanks for your help,
Savvy Saver
Response from THE MONEY MINDER:
Hello There,
I commend you for your financial responsibility and dedication to contributing to your 401K at such a young age. It’s evident that you are wise beyond your years when it comes to managing your finances. However, the challenges you are facing with unexpected expenses are creating hurdles in your savings journey, especially with your car needing frequent repairs.
Given your diligent cost-cutting efforts and frugal lifestyle, it’s clear that you are doing all the right things to stretch your income. Nevertheless, it might be worth revisiting your budget to see if there are any areas where you could potentially cut back further. Additionally, considering your current financial situation, you might want to temporarily pause your 401K contributions to redirect that amount towards building up your emergency savings fund and potentially replacing your car.
While pausing your 401K contributions might feel like a setback in terms of missing out on the employer match, it’s important to prioritize your immediate financial needs, such as having a reliable vehicle for transportation and a solid emergency fund for unexpected expenses. Once you have built up your savings to a comfortable level and taken care of pressing financial matters like replacing your car, you can resume contributing to your 401K with a clear mind.
Remember, it’s important to find a balance between saving for the future and addressing current financial challenges. Your proactive approach to financial planning is commendable, and with a practical strategy in place, you will be better positioned to navigate unforeseen expenses and achieve your financial goals in the long run.
Take care, and keep up the good work!
Farewell from THE MONEY MINDER.
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