100% Return On Your Money

No, this is not some get-rich-quick scheme.  There is in fact an investment that will provide a quick 100% return on your money.  Before I get to that, I do firmly believe that establishing a “starter” emergency fund and paying off debt is of paramount significance.  For those of us mired in debt, these are certainly two major steps in the transformation to become debt-free.  I would put these steps ahead of paying extra principal towards the mortgage.  Ahead of the children’s college funds.  Ahead of individual retirement accounts.  I would put them in front of most other financial goals, since eliminating high-interest consumer debt is a springboard to achieving financial success.

However, assuming you’re not in the midst of losing your house or some other catastrophe, there is one thing I wouldn’t put them ahead of.  Notice above I wrote “individual retirement accounts.”  That’s right.  If you are an employee and your company offers a 401(k) match, then I would put the 401(k) contributions ahead of the “starter” emergency fund and paying down the debt.  Just make sure you contribute enough to take advantage of all the free money offered by your employer.  This is free money.  You don’t want to turn down free money.  You’re not going to get this kind of guaranteed return anywhere else.  Even if your credit card interest is 30%, it is by far still more financially advantageous to get the 401(k) match.

How does it work?  Let’s say that your company offers a 100% match of up to 3% of your salary.  For a woman with an annual salary of $50,000, she should contribute $1,500 (3% of $50,000) to get the full match.  Assuming her salary stays constant, she will receive an extra $1,500 at no cost each year.  Let’s say that the company instead offers a 50% match of up to 6% of your salary.  It’s not 100%, but mathematically, the results are equivalent to the previous example.  The woman would contribute $3,000 (6% of $50,000) to take complete advantage of the match.  50% of $3,000 is $1,500, which is the same amount as before.  Even if your company offers only a 50% match of up to 3% of your salary, it’s still a great deal.  50% is still higher than the interest rates on your credit cards (let’s hope so!).  Unless you took on a payday loan with a ridiculous interest rate, 50% is going to be higher than just about anything else. 

You definitely don’t want to pass up a 401(k) match.  Where else can you get this kind of return without taking on any risk whatsoever?  Never mind the historical annual returns of the stock market.  As long as you take advantage of the employer match, you’ve just locked in a 100% return for yourself.  Give yourself a pat on the back.  That was super easy.