Co-Authored and Reviewed by Gagan Sandhu, MBA - The University of Chicago Booth School of Business, CEO of Xillion
Posted on . 1 min read
A lot of people ask me, "What is one thing they can do to increase their wealth?" And if you're in the US and you have a high-paying job, the best thing you can do to increase your wealth is to actually maximize your 401k.
Why? Two main reasons:
First, any amount of money you put in your 401k is actually tax-free. You don't pay any taxes now; you will pay when you withdraw, but that's a separate thing. Right now, you save taxes, and taxes saved now are better than taxes paid now because your money compounds & grows without paying taxes.
The second reason is that when you put money away in a 401k, you actually can't spend it. If you take it out and spend it, there is a penalty, so think of it as a forced saving habit. And once you get into this habit, you put this money away, you get a tax benefit, and then you can't use it, so this money keeps growing over time, for a long time.
If you max out starting today, in about 17 years, you will have more than a million dollars in your account. That's how magical this particular type of wealth creation is.
So, go ahead, maximize your 401k contributions today, and you will thank your future self.
