My wife and I married in our early 20s, and when we started having kids, we decided she’d stay home to care for them while I worked to earn an income.
Our finances were tight, so I had to decide between saving in a 401(k) and buying term life insurance.
I ultimately bought life insurance because I knew that if I died unexpectedly, my family would be in grave financial danger. Once I was earning more, we started saving for retirement and diversified our investments.
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My wife and I got married pretty young (I was 22 and she was 21). My wife worked a full-time job while I finished up my bachelor’s degree. She was nine months pregnant on the day of my college graduation, and when our daughter was born, we decided that she would stay at home while I worked to support our family.
Young, married, and broke
Although we were fortunate to be able to live on only one income, it certainly did mean that things were tight. As one kid turned into two and then even more, we often had to make tough budget decisions. One of those decisions had to do with how to best plan for our future. One option was to contribute to retirement-specific accounts, like IRAs and 401(k) plans. Another possibility was to purchase life insurance.
While both retirement savings and life insurance play an important role in a healthy financial plan, at the time, it was more of an either/or decision. With not a lot of spare money left over at the end of each month, we were in a position where we had to choose where we wanted to invest first.
The answer may not be the same for everyone, but I’ll walk through some of our thinking.
The case for maxing out my 401(k)
Probably the best reason for contributing to retirement accounts like IRAs and 401(k) plans is the seemingly magical power of compound interest. While compound interest is a bad thing when it comes to credit card debt and mortgage loans, it can be one of your biggest financial allies when you make it work for you. And the earlier you start, the more time you have to truly maximize the compounding of interest in your retirement account.
Here’s a …read more
Source:: Business Insider