Hey everyone! I hope that the snowstorm didn’t have you too packed in. Today, we welcome a guest blog entry to the website from a company that wanted to provide some information on adjusting withholdings to bolster savings. Their entry is listed below the division line below. Enjoy!
When you don’t save enough during the year, any short-term emergency can have you scrambling to find a cash advance. Yet, saving money does for an emergency fund or even goals like retirement can be as easy as adjusting paycheck withholdings to automatically do the saving for you. You can set up withholdings to different accounts to fund different purposes.
Your employer will set up the automatic withdrawal of funds to a 401K plan. You should try to maximize savings in this area, particularly if your company does a matching contribution. Every year check to see if you can increase your deductions to bankroll your retirement faster. Remember to not touch the account if you can help it. Early withdrawals from a 401K come with hefty penalties and can set your retirement savings back by years. If you have to borrow from a 401K be sure to pay it back before it is deemed an early withdrawal. Also, keep in mind that should you borrow and then lose the job, the entire loan can come due at the time. If not repaid it is deemed an early withdrawal and cause you to pay taxes and penalty fees on the withdrawal that can amount to 30 percent of the total.
Savings and Checking
When you choose direct deposit you can have a portion that you designate go straight to a checking account to pay bills with the remainder going into your savings account for emergency purposes. This way every paycheck cycle you have an automatic mechanism to increase your savings. This tends to work very well because you actually don’t see or touch the money going into savings. If you don’t ever have an emergency or a major purchase to fund, it just continues to grow somewhat hidden from view. By the time you do decide to raid your savings, there could be hundreds if not thousands of dollars sitting in it.