Investing in the stock market is one of the most effective ways to save a substantial amount of money, but not all strategies are created equal.
Others may invest their life savings in an up-and-coming stock they believe will be the next big thing.
Both of these strategies are incredibly risky, however, and chances are they won’t pay off in the long run.
But there’s one investing strategy that carries little risk, and by taking advantage of it you can effortlessly double your savings.
Double your savings with zero effort
Unlike timing the market or betting on potentially dangerous stocks, this strategy can help you boost your savings while limiting your risk: maxing out your employer matching 401(k) contributions.
Matching contributions are more powerful than they may seem, and they boast several key benefits. Not only do they require zero effort on your part other than saving in your retirement account, they also instantly double your contributions. While that may only amount to a few thousand dollars per year, it can add up to hundreds of thousands of dollars over time.
Say for instance you’re earning $50,000 per year and your employer will match your 401(k) contributions up to 3% of your salary. That comes out to $1,500 per year from your employer.
Let’s also say that right now you have no retirement savings, and you’re saving $1,000 per year. Assuming you’re earning a modest 7% annual rate of return on your investments, here’s what your total savings could look like over time depending on whether you’re contributing $1,000 per year (and earning a $1,000 match) or $1,500 per year (and earning a $1,500 match).
In this scenario, saving an extra $500 per year (or around $42 per month) and earning an extra $500 per year from your employer could ultimately result in around $200,000 more in total savings over the course of your career.
Jump-starting your savings with employer contributions
Another perk of matching contributions is that because most employers match a percentage of workers’ salaries, your match amount will increase as your salary grows. You’ll likely earn raises over time, and each time your salary increases you stand to receive more in matching contributions as well.
In addition, matching contributions make it easier to get started saving even if you don’t have much to save. Money is tight for millions of households, and not everyone can afford to max out the employer match. But anything you can save will be doubled. So no matter how much (or how little) you’re able to sock away in your 401(k), matching contributions can help that money go further.
Investing for retirement has its fair share of challenges, and it can be tempting to engage in risky investing strategies to boost your savings. However, by taking advantage of employer matching contributions, you can supercharge your savings with little risk and next to no effort.
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Source: The Motley Fool