And since 401(k) contributions are pre-tax

canada goose How 3 choices you make at age 25 can change the way you build wealth for the rest of your life Bob Sullivan, Grow Nov. 8, 2017, 10:25 AM The choices you make can stay with you for a long time.Strelka/Flickr We can probably all agree that major decisions—like whether to buy a home or take out student loans for school—can have a big impact on our financial futures. But sometimes a few small and (relatively) painless decisions is all it takes to get ahead financially. Want proof? Meet Dan and Dawn. Both are 25 years old, live in the same city, earn $50,000 a year, banked a six-month emergency fund in their early 20s and dream about buying a home in their 30s. They each owe $35,000 in student loan debt (with 6.8% interest and 10-year terms), plus another $10,000 on a credit card with a 17% interest rate. Their financial situations are identical now—but three simple choices they’ll make will end up putting one of them tens of thousands of dollars ahead of the other. 1/ Housing: Dan chooses to pay $1,600 a month for a one-bedroom apartment. Dawn opts to split a 2-bedroom rental with a roommate for $1,000 apiece, so she can put an extra $300 toward her student loans and $300 in a down payment fund (a high-yield savings account paying 1.2% interest). Income: Dan’s only income is his full-time salary. Dawn picks up a side gig, walking dogs for an extra $400 per month, so she can put $500/month toward her credit card debt. (Dan pays off just enough to keep the balance from growing.) Investing: Both have access to a 401(k)—averaging 7% annual returns—and get a 50% employer match. Dan puts in the default 3% ($187/month with the match). Dawn contributes 6% ($375 with the match). How will their choices play out over the next five years? Keep reading. 2/ Year 1: Age 26 Courtesy of Grow It doesn’t take long to start seeing the benefits of putting a little extra cash toward debt payments and into savings. While Dan’s running in place, Dawn’s making good progress. Her three-pronged approach to building wealth—aggressively paying off debt, saving and investing—is inching her closer to a positive net worth and financial stability. 3/ Year 2: Age 27 Courtesy of Grow Just two years later, Dawn’s clearly winning. By the end of the year, she’s wiped out her credit card debt, made major headway on her student loans and has thousands saved for a home. (When she was done paying off her debt, Dawn committed to saving that money for a down payment on a home.) But Dan’s still struggling. He’s made some progress on his student loans, and has nearly $5,000 banked for retirement, but that’s only half of what Dawn’s put away for her future. 4/ Year 3: Age 28 Courtesy of Grow This is when Dawn really breaks away from Dan. Now that her credit card debt is gone, she has an extra $400 worth of breathing room in her budget, thanks to her side gig. Instead of increasing her spending, she decides to make faster progress on her down payment goal—saving a total of $700 per month. This quickly ups her savings balance to almost $16,000. 5/ Year 4: Age 29 Courtesy of Grow By 29, Dawn’s very close to be completely debt-free, and she’s banked nearly $25,000 for a down payment. But Dan is feeling the heat. In addition to not having saved anything for a home, Dan’s paying so little on his credit card debt that while the balance hasn’t gone up, he still hasn’t made a dent in it, which has started to weigh on him. It’s also likely the debt he’s carrying has had a negative impact on his credit score—given his balance is more than 30% of his total credit available—which could end up preventing him from qualifying for a mortgage down the road or cost him thousands in higher interest payments. 6/ Year 5: Age 30 Courtesy of Grow By the time Dan and Dawn turn 30, Dawn’s debt-free. Hitting such a huge milestone has inspired her to work toward another: Putting away the equivalent of three times her salary for retirement by 40. To get started , she redirects the $700 she’d been saving for a down payment to her 401(k)—for a total monthly savings of $1,075—which supercharges her balance. (Since those are pre-tax contributions, she has a little post-tax wiggle room, which she uses to top off her down payment savings at $25,000.) Sadly, for Dan, the debt-free finish line is nowhere in sight, and he may even give up the dream of homeownership in the near future. He’s certainly not thinking about retiring any time soon Canada Goose outlet online , either. 7/ Dan’s and Dawn’s stories illustrate the snowball effect a few choices can have over time: After 5 years, Dawn has a net worth of more than $60,000, while Dan is nearly $17,000 in the red. Dawn’s choices did require some sacrifices. But she sought out a side gig that aligns with her interests: She loves dogs, and walking them helps her get exercise. Getting a roommate meant giving up some privacy, but it also gave her someone to hang out with in a new city. And since 401(k) contributions are pre-tax, Dawn’s 6% contributions translated to only about $21 less in her weekly paycheck than Dan got (assuming a 25% tax bracket). Overall, the impact on her quality of life was pretty minor, especially compared to the long-term benefits. It’s easy to push off saving when money seems tight. But as Dawn can attest, even saving and investing a little more now can make a huge difference over the long run. Previous 1/ Next Read the original article on Grow. Copyright 2018. Follow Grow on Twitter. SEE ALSO: The royal family spent $6 million on travel this year — and the cheapest trip they took cost $26,635 canada goose parka

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