Everyone seems to agree that having 401(k) is a good idea. Analysts also claim that for best results you should max out your yearly contributions. Since I’ve been on this financial kick, I’ve been swallowing just about everything I read. I took a look at my current 401(k) contributions to see where I am at compared to the maximum and if I could increase my withholdings to get to the maximum. The yearly maximum contribution for 2007 is $15,500.00. I don’t know about you guys and gals, but that’s a lot of pre-tax money to me.

At the moment I’m contributing 8% of my gross pay to my company’s 401(k) plan. The company will match 50% of the first 8% I contribute. Right now, my total contributions including employer contributions are around $180.00 a week. Over the next 52 weeks, assuming my pay rate stays the same, I will contribute around $9,500.00. I need to find another $6,000.00 a year of pre-tax dollars. Assuming I only wanted to continue contributing 8% to take advantage of the matching company contributions, I would need to make about $130,000.00 a year. $130,000.00 a year generates around $200.00 a week at 8%, which after I include the 50% contribution puts me around yearly maximum. I either need a new job or go begging for a few promotions. I am a little fish in a big pond.

What if I wanted to increase my withholdings to get up to the max? I would need to increase withholdings around $120.00 a week. Ouch. Right now, if I skimmed another $120.00 a week, I’d be bouncing checks from here to other side of the globe. I’d need to cut back on something. Right now, I’m saving $250.00 a week and putting it into an ING savings account. I have been good for a few months and saved $6,000.00. I skimmed $2,000.00 from it to fund the Schwab account. I could reduce my contributions to ING and max out my 401(k). I’m not too big on this since I’m still about $3,000.00 short on my emergency reserve target. You may notice that even with an additional $3000.00, my reserve is pretty thin. It should last about 3 months. I can take a look at my spending over the next few months using my MS Money reports to see where I’m overspending. I think once I have my credit card debt down and my emergency reserve funded, I can consider raising my 401(k)contributions. I am not ready yet. This is frustrating. I feel like my paychecks are just disappearing. At least if there were a Porsche or Ferrari in the carport, I’d know where it’s all going!!