What I Wish I'd Known About Finance: My 401(k)

In 2002, I began my banking career in earnest. I had worked as a bookkeeper for years during college and as a head cashier during high school, but I was honestly unprepared for the finance world. I didn’t know what a 401(k) was. I didn’t know what a mortgage entailed. I didn’t know a lick about the stock market. I was a blank slate, ready to learn everything about the finance world.

However, there were a few rough patches along the way, some points where I felt completely uneducated (OK, I really felt a teensy bit dumb). But these brief moments of self-labeled “stupidity” offered me a chance to discover what I didn’t know and to educate myself, saving face and becoming knowledgeable. My favorite point of clarity was learning about my 401(k), and I would like to share my story.

401-What?

For many people, 401(k) investment is a difficult concept to grasp. I didn’t realize I wasn’t the only person who did not understand 401(k) investments until I was in my mid-twenties, so I was wary of asking for clarification from my boss when I signed up. Instead, I followed the advice given–which thankfully was excellent advice–signed up, contributed very little, and received a small match from the grocery store by the time I left one year after signing up.

This is where my lack of knowledge really started to show, though. I had a choice to make when I left the grocery chain: roll my thousand dollars into an IRA or cash out with a few hundred dollars. I, being a young new graduate moving cross-country, decided to take my couple hundred bucks and run. In retrospect, that was an awful move. The stock market had rebounded, and I stood to make money by rolling over and leaving my IRA alone. But at 22 years old, cash was much more appealing than any investment, and anyway, I still didn’t know a thing about 401(k)s.

Learning the Ropes

When I got my banking job, I was in charge of sales and sales training, but still I was extremely uneducated about investments, bank products, etc. I decided investing a little time in self-education would help me financially and professionally, and I started by reading up on the next 401(k), in which I was about to invest.

From my self-education and a little Q&A with my boss, I discovered the basics about 401(k)s. For example, I did not know that 401(k) investments were based in the stock market. I did not know the difference between growth models, funds, rates of returns, vesting and matching–I had previously taken advice to invest 1% (since I was in college) into an aggressive growth model, and I did not take the time to find out what that meant for me.

This time was different, though–I learned why an aggressive growth model was a good choice for me, why investing the max for employee match was best for me and how long I had to stay with the bank to receive my match. I still struggled with the details, like reading my statement and changing my allocations, but at least I found the base I needed to build my future knowledge.

Building on the Basics

As I continued on my 401(k) journey, I finally learned how to read my statement. This was a huge struggle for me, and I was very proud to figure it out on my own. I could determine my personal rate of return, my balance and vested balance, my account activity, the activity of my individual funds and my historical rates of return. I even learned how to change my allocations should I feel the need.

Regrets

The only thing I wished I had known was that I could have asked someone to clarify the concept behind 401(k)s. Many of my friends struggled with 401(k) basics: I was not alone and no one would have thought I was dumb. Understanding investments can be difficult for a lot of smart people: My strengths and my knowledge base were in writing and editing–I was in no way dumb, I just lacked the knowledge to move forward.

I present my story and my regrets to you so you may understand that not everyone bursts from the college-womb prepared to invest in anything, including a 401(k). If you are feeling financially overwhelmed by any investment idea, you can seek guidance of financial professionals to help you understand the entire process and make your best decisions possible. Don’t be afraid to ask–it shows you are an intelligent person seeking smart investment choices.

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Anonymous's picture

MoneyCone wrote:

Thu, 03/03/2011 - 18:34 Comment #: 1

I'm sure you were not alone Christa! And props to you for figuring this on your own - not an easy or entertaining task!

Understanding 401K is only half the battle, learning to invest it wisely in another story and another post (I'm sure!).

Christa Palm's picture

Christa Palm wrote:

Fri, 03/04/2011 - 22:16 Comment #: 2

MoneyCone, I was surprised how many of my friends didn't understand 401(k)s as well, so I am sure there are many people new to the retirement investment world who struggle as much as I did. If I can encourage one person to learn the ropes through my story, I did my job :)

Retirebyforty, I would definitely advise anyone to take advantage of employee 401(k) sessions -- good point! I'm glad your parents had the foresight to advise you to contribute so much -- they set you up to retire by forty!

Anonymous's picture

Feb. 2011 Blog Update and Round Up wrote:

Mon, 03/07/2011 - 16:49 Comment #: 3

[...] What I Wish I’d Known About Finance: My 401k at Mom Vesting. Christa shares her experience with 401k investing. [...]

Anonymous's picture

Carnival of Money Stories #98- St. Patrick’s Day E wrote:

Mon, 03/21/2011 - 11:09 Comment #: 4

[...] at Momvesting talks about learning about a 401k earlier than she did in What I Wish I’d Known About Finance: My 401(k), saying “In 2002, I began my banking career in earnest. I had worked as a bookkeeper for years [...]

Anonymous's picture

Carnival of Money Stories #98 – St. Patrick&#8 wrote:

Wed, 03/23/2011 - 00:18 Comment #: 5

[...] at Momvesting talks about learning about a 401k earlier than she did in What I Wish I’d Known About Finance: My 401(k), saying “In 2002, I began my banking career in earnest. I had worked as a bookkeeper for years [...]

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