As a family child care provider you may have a number of financial goals: buy a car, get business liability insurance, set up an emergency fund, pay off your credit card debt, save for your child’s college education, and so on.
There is one financial goal, however, that is more important than all the others.
Your spouse should contribute enough to his 401(k) or 403(b) retirement plan so that he gets the maximum employer match.
Not all employers offer retirement plans and not all match contributions from their employees. Employers who do offer a match will typically offer a 1% to 3% match of the employee’s salary.
For example, let’s say your spouse earns $40,000 a year and his employer offers a 2% match. This means that if your spouse contributes 2% of his salary ($40,000 x 2% = $800) in a year, his employer will match it by contributing another $800 to his retirement account. This doubles the balance in your spouse’s retirement account!
If you spouse only contributes 1% of his salary ($400) his employer will only match the $400.
Therefore, you should make sure that your spouse contributes enough to his retirement plan, to take advantage of the maximum employer match that is available. This should always be the first financial goal that you set as a family for the year. It’s more important than any other financial goal because there is no other investment you can make that will immediately double your money in one year.
If you are single, or your spouse’s employer does not offer a retirement plan that matches employee contributions, you should establish your own IRA and contribute as much as is allowed each year. I will be writing future articles on the different IRA options.
A 401(k) plan is offered by for-profit companies; a 403(b) plan is offered by non-profit companies.
Image credit: research401krollover.com
For further information, see my Family Child Care Money Management and Retirement Guide.