Keep Your Investments Separate For Different Goals

How many of you use your 401k for your everything bucket?  I’ve overheard friends and family talk about their 401k like their “all for one long term savings account” saying things like, “I’m going to use my 401k for my kids education” or “my 401k is used for both me and my wifes retirements” or the worst to date, “I really need to get a car, I’ll probably borrow against my 401k”.  The last one is clearly the worst because a car is a depreciating investment.  You’ll never get that one back.

I can see the other 2 MAYBE working; but when you start to dabble the same investment for other pieces you often times lose site of what it is there for.  A 401k is there for YOUR retirement; a ROTH IRA is for YOUR retirement.  Unless you’re dumping TWICE as much in your 401k, it shouldn’t be set for  yourself and your wife.  Keep it for you and start something ELSE up for her.

Using it for your kids college education isn’t a HORRIBLE idea either, but take into account that you’re going to likely retire AFTER they go to college.  So if you’re double-timing your 401k to education AND retirement, it’s going to look awfully small after the kids take it to school.  By that time, it might be too late to know where you want to get with it.  I offer the same advice for the person wanting to use the 401k for both he and his wife, make sure you’re dumping a lot into it then.

Just the visual aspect of seeing my kids 529 plans, my 401k, and my ROTH IRA are enough to keep me in line.  I know what the investments are for, and what money is going where, and more importantly, why.  Simplifying the process can often times remove that “investing blur” that you may have when it comes to saving for your future.

If that isn’t enough to convince you to keep them separate, think of how life is always changing; you have another kid, you have an accident at work forcing you to retire early, big medical bills come up.  If you plan on your ROTH covering you in retirement (after 59 1/2) and you have to retire early, is there anything set up for that aspect?  Might not be a bad idea to have that emergency fund fired up in that case.

Over time, your investments will change, your mindset will change, your timeframes will change.  For those reasons you shouldn’t keep all your (investment) eggs in one basket.  Spread them around to different baskets for different goals.  If nothing else, it trains you on another aspect of investing when you jump to another ship and increases your financial education significantly.

Photo by: Daquella manera

Filed Under: 401KadviceCompensationEmergency fundfinancial educationInvestingMutual FundsPortfolioReaders RequestsRetirementROTH IRA

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  • Good reminder. Folks are starting to see their 401ks as an ATM–with sad long-term consequences.

  • money is sensitive issue and even friend you ask them of their pay they will not be happy to share the truth
    .-= Sherry´s last blog ..Giveaway@My Mom’s Best =-.

  • A 401K is a last resort for an emergency fund. Better to use a HELOC or your ROTH contributions.
    .-= Daddy Paul´s last blog ..Health Savings accounts fund your future =-.

  • Hey,

    I like the idea of separating saving accounts. It’s one of the tips on budgeting I teach when people are getting started. There’ no point investing everything in a retirement fund if you have no emergency account in place.

    This is sound advice,


    .-= Guy G.´s last blog ..The Mind/Money Equation – Tips on Budgeting =-.

  • Thanks for the post, great info as always.

  • It is a good practice to keep them separate but for me in the end I never make it due to unexpected happenings.

  • MyATM

    I enjoy reading this article. I believe that you make investments because you want to meet a certain goal in maybe business. Whatever you are investing on, it is a must to keep an eye on it.

    Great blog. Cheers!

  • Very good advice to keep you investments separate. It’s always wise to have different goals–both long term and short–and there are some investments better suited to one over the other.

  • Realnet

    I disagree with the statement that your retirement fund should be separate from your wife. If that were true, then everything throughout life would be kept separate, which causes problems in any marriage. While I do agree that both husband & wife should have one, they shouldn’t necessarily be kept separate.