So now you’re learning about Dave Ramsey’s Baby Steps. That means you know retirement investing is Baby Step 4, after 1) saving a $1000 baby emergency fund, 2) paying off consumer debt, and then 3) fully funding the emergency fund.
In my opinion, there is a time to invest before the debt snowball and the full emergency fund. In fact there is a time when not doing this could be like flushing your money down the toilet.
Free Money?!?
Depending on your employer’s plan, not maximizing that employer’s match in a tax-deferred retirement account (401k, 403b, etc.) is the same as flushing free money down the toilet.
As an example, my wife’s employer currently offers a 50% match on up to 6%. This means when she invests 6% through payroll deduction, an additional 3% is contributed in by her employer. That’s an instant 50% return on investment. Or free money!
What is the tradeoff?
Diverting some of our budget to the matching 403(b) reduced the intensity of our laser beam on the debt snowball, but the worst credit card interest we had was 19.99% Although paying off a 20% credit card looks a lot like a guaranteed 20% return on investment, earning 50% with a match is better — 150% better! Plus it started building our nest egg.
Naturally, investing first delayed the completion of our debt snowball, but the automatic instant 50% gave us a jumpstart in building net worth.
Budgeting
Sometimes a couple may not have a big enough shovel (i.e., enough income) to maximize the free money match. If you can’t max it out, can you start with just 1% or 2%?
The other possibility is to sell some stuff on your favorite app: Ebay, Mercari, Let Go, etc. Maybe you have a bulletin board at work. Maybe it’s a yard sale. When we did Financial Peace University back in 2009, I remember Dave Ramsey saying, “Sell so much stuff, the kids think they’re next!”
The other side of the equation is income. Some people working Dave’s program throw newspapers in the morning or deliver pizzas at night during the debt snowball. My wife worked a lot of call, and I supervised a lot of detentions.
When we’re starting our journey to financial peace, the idea is to quickly get a $1000 buffer against Murphy and to possibly reduce the consumer debt load. As fast as possible.
But free money is… well, free! If at all possible, get the free money of any employer match
As always, if there are personal topics you would like to learn more about, shoot me an email to mark@marknoldy.com or text me at 570-731-0425. Or call me if I can help with your free exploratory conversation.