Dipping into your 401K - 13 WTHR Indianapolis

A recent government survey shows more people are living paycheck-to-paycheck with nothing saved back in the bank for emergencies.  That is why some people are dipping into their retirement accounts to pay for everyday expenses.

We've all had unexpected events happen. The car breaks down and we have to get it fixed. Or there is something in the home that needs repair.  That storm that blew through caused damage we weren't prepared for. And even though we have insurance, meeting that deductible may be tough because many of us simply don't have money saved for emergencies.

"This is a tough time for people," said financial consultant Elaine Bedel. "People are finding with a little job problem, maybe they've reduced their income level, or they are out of a job.  They find normal expenses keep coming in so they look for a place to meet those needs. And if they had any reserves in a savings account, they likely spent those down."

How many times do you stop by the ATM through the course of a week, grabbing $20 here, $40 there? It all adds up. 

The average cost of a latte is about $3. If you saved that coffee money each day for a work week, that's $15 dollars a week. In 52 weeks of a year, you'll have saved $780.  That could be your emergency fund for day-to-day expenses.
    
Ultimately, Bedel said you want to build up to three-to-six months of expenses in a savings account.

"When people run short, they dip into their 401K," she said. "Money put there is best left for retirement, but you can get access in times of hardship.  Let's make that the last place, because you pay an income tax and a 10% penalty if you're under 59, So it can get costly to try to use those moneys for big expenses."

More financial management suggestions can be found at:

Dave Ramsey.com
Feedthepig.org