Hello, I’m 25 years old and I make $71,500 a year as an hourly worker. My biggest expense is rent, which includes utilities and internet, at $1,700 a month. I also spend $400 on groceries, $80 on gas, and $30 on subscriptions, totaling $2,230 monthly.
I currently don’t have health insurance through my employer, but I’ll need to get my own when I turn 26 in January. My employer offers health insurance, but I’d earn $4.40 less per hour if I take it. I’m not sure yet whether I’ll go with their plan or get my own, but I’ll treat it like a new expense.
I like to save money, and I usually budget $1,000 for fun, though I often don’t spend it. I also put $1,000 into an index fund each month, and I have a 6-month emergency fund in place.
Now, I’m thinking of contributing to my 401k since it’s pre-tax, and my company offers a match. They’ll match the first 3% dollar for dollar and 50% on the next 2%, so I need to contribute at least 5% to get the full match.
I’m considering contributing 10% to start and seeing how that feels for a few months before increasing it. Or, is there no real reason to contribute more than the minimum for the match?
Any advice is welcome. I plan to leave the money in my Vanguard accounts. Thank you!
When I first started working and contributing to my 401k, I started at 6%, and my company added 4.5% (the max). Looking back, I wish I had started at 10%. If you can, try starting at 10%—your future self won’t regret it. I was too cautious early on.
Every dollar you contribute in your 20s has the potential to grow to $16 by the time you retire (assuming a 7% growth rate, without accounting for inflation).
When I was your age (50M), I contributed 20% of my income to my 401k. The more you can save, the better.
Life can be unpredictable—plans change, layoffs happen—so it’s best to save while you’re young and take advantage of market growth and dividends.
It’s important to live in the present, but I would recommend saving and investing aggressively. When the markets dip, just ignore the noise and keep contributing.
Regarding your health insurance, the tax benefits of using your employer’s plan might make it more affordable than it seems. Here’s why:
If you lose $4.40 per hour for 40 hours a week over the year, that totals $9,152. However, because this affects your taxable income, it reduces what you owe in taxes. Assuming a 22% federal tax bracket, combined with Social Security and Medicare taxes at 7.45%, and a 5% state tax, your total marginal tax rate would be 34.45%.
This means the after-tax cost of losing $4.40 per hour would be $9,152 * (1 - 34.45%) = $6,000. Keep this in mind while comparing private insurance options.