Step 2: Employer-Sponsored Matching Funds

If your employer has a match, and you don’t contribute enough to your retirement fund to maximize the match, you are giving away free money.  It’s that simple.

There should be a step before Step 0.  I’ll call it The Free Money Rule:

The Free Money Rule: Don’t Give Away Free Money.


If you’re still operating paycheck-to-paycheck and can’t contribute to your employer’s match after following the above steps, that’s okay.  Everyone’s financial situation is different, and I’m not trying to talk down to you.  However, if at all possible, I would make it a priority to get into a position where you can start contributing.

This flowchart is meant to be a step-by-step process; however, it’s possible that you may need to pay down debts in order to lower your overhead enough to contribute to your matching program.  So, going on to the next step, then coming back to this later, is understandable; just keep The Free Money Rule in mind, and come back to this as soon as you can.

Q&A: “Step 2 says to ‘contribute the amount needed to get the full employer match, but nothing beyond that amount’.  Why not pay more?  Isn’t contributing more to your retirement a good thing?”

An excellent question!  The quick answer is that, if you have high-interest debts (see Step 3), those debts might actually rack up more in interest than your excess contributions would grow in value.  For that reason, it’s a better idea to first pay down your debt, then fold that money into your contributions after the debt has been paid.  You may not notice the difference, but your account balance will!

Step 3: Pay Down High and Moderate-Interest Debts