Your 401(k) is Not a Savings Account.
He writes: What is probably (shocking) is that many (people) looking to take money out of their retirement plan only need a small amount (generally under $1,000) to cover some unexpected expenses and I’ve seen people take out $500 loans on three year terms.
Here at worst company, this is not shocking at all, it is the norm. So is filing for bankruptcy. They also live not from paycheck to paycheck but from this paycheck to the one after that. The not so funny part about this is that in my office we have 211 non-management employees (33 men/178 women) with an average of 17 years of service and a base pay of approximately $50,000. I don’t the statistics regarding number of children, household income, etc. I’d be interested to know what the average dollar amount of savings is. I’d bet it’s very very low. I don’t know if this is the norm for Michigan or nationwide. Most people here who talk about their finances admit to being at least one payment behind on rent and/or car payments.
Jeremy further writes: Loans should be your last resort. If your plan allows you to take a loan it should be treated as a last resort. Some people argue that tapping into your 401(k) isn’t all that bad of an idea because it is your money and you are simply paying yourself back the interest.
I’ve never really understood their rational of “I’m borrowing from myself”. My ex-boyfriend would borrow against his and spout this as his justification. The amounts he borrowed would be small (less than $1,000) and his payback would be around $15. Who spreads out $1,000 over 5 years? At least if he would have borrowed from the credit union the payment would have been higher and forced him to pay it back sooner and build good credit. He never learned NOT to get into trouble in the first place which would have gone a long way in itself. (by the way within a year of our breakup, he filed for bankruptcy)
Actually this is what I’ve noticed about most of the people at work. They run up bills, borrow from their 401(k) or file bankruptcy then in a few months are back in the same boat again.
Some of the exact same people who were claiming to wanting to purchase a house (or buy a car or go on a fab vacation) still have the same “goal” 5 years later. They haven’t made any changes to their spending/saving to actually achieve their “goals”.
Personally, I have my contributions to my 401(k) automatically deducted and I glance at my quarterly statements. I have a general idea of how much money is in my account but I don’t consider it part of current assets. It is strictly for retirement (which I hope to be in 6 years when I’m 45). I suppose if something dreadful was to happen and I absolutely had to use the money I would but it would have to be a catastrophic event.
Sunday
$1.75 pop/snacks at work (you can always tell when it's time to go to the store)
Saturday
$18.00 golf--9 holes Hankerd Hills
$11.00 dinner
Friday
$788 concrete steps
