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Start small: A 3-step roadmap to building your 401(k) savings

Building your 401(k) savings is about putting yourself first. Here are the steps you can take to start today.

By Betterment Editors

Published Mar. 25, 2025

Start small: A 3-step roadmap to building your 401(k) savings Mar 25, 2025 12:38:48 PM Building your 401(k) savings is about putting yourself first. Here are the steps you can take to start today. For many people, saving for retirement feels hard. It’s easy to put off saving when there are more pressing financial needs or when retirement feels far away. That’s totally normal to feel. Here’s the thing: You don’t have to choose between financial stability today and retirement security tomorrow. You can do both with the right plan in place. The 3-step roadmap to start saving for retirement It all starts with putting yourself first. But that’s often not what happens. Instead, many of us put our money towards: Spending on monthly purchases (groceries, bills, entertainment, etc) Paying off some debt with anything left over Saving for retirement with what’s left after that The problem with that is clear: by the time one covers monthly expenses and pays off some debt, they might not have anything left to save. The easiest way to remedy the situation? Flip that list on its head. Here’s a 3-step roadmap to start actively building your 401(k) savings: Start with a 2% contribution to your 401(k) Prioritize your high-interest debt payments Build a budget around your 401(k) savings and debt payments You may be thinking, “What if I don’t have enough money left to pay for expenses?” That’s a fair question, and in some cases, that may be true. But if you start by putting yourself in a position to save, you can always make adjustments as life changes. Let’s walk through each step… Step 1: Start small and build up your 401(k) contributions It's a common misconception that you need a substantial income to begin investing. In reality, starting with small, consistent contributions can lead to significant growth over time. Try starting with just a 2% 401(k) contribution rate: If you earn $60,000 per year, contributing 2% means setting aside just $1,200 annually—or about $100 a month ($50 per pay period). At first glance, $100 a month may feel like a lot. But if you break it down, it might be the cost of a couple of takeout meals or a few streaming subscriptions each month. Small, manageable changes can help you build a strong financial future without overwhelming you today. Let’s assume Natalie and Nathan both make $60,000. Natalie starts contributing 2% to her 401(k) today. After 10 years of consistent saving, she needs to stop making contributions (because of a life event). She reduces her rate to $0/month. During the previous 10 years, she contributed $12,000 out of her paycheck, and with an 8% rate of return on her investments, her balance grew to $300,173 by the time she was ready to retire. . On the other hand, Nathan put off contributing to his 401(k) for 10 years. He then saved $100/month over the course of 35 years, or $42,000 out of his paychecks. When it was time to retire, his account balance was $230,524. It may seem unlikely that Natalie ends up with more money after only contributing for ten years, but that’s the power of time in the market. As your financial situation changes, you can always adjust your contribution rate. If 2% feels like too much, start with 1%. It’s important that it feels manageable now. You can always increase when you’re ready if you get a raise or a promotion or pay off a debt. Step 2: Prioritize your high-interest debt payments OK, after deciding how much to contribute to your 401(k), step 2 is all about being strategic with paying off debt while investing. It’s about finding the right balance between immediate financial needs and long-term security. You can follow these steps: Prioritize high-interest debt first: For example, if you have credit card debt with a higher interest rate, it makes sense to prioritize paying it down. Take a close look at any debt with an 8%-plus interest rate. Next, pay lower interest debt: Lower interest debt may be things like a mortgage, student loans, or potentially a car loan payment. Here are some additional important considerations when it comes to debt: Make at least the minimum debt payments. This will help pay off debt faster and avoid issues like penalty fees or going into collections. Take a close look at high-interest debt: In some cases, if you have too much high-interest debt, you may want to hold off on saving for retirement until it feels manageable to you. If that’s the case, once you’ve paid off enough high-interest debt, you can begin investing for the long term. But if you mainly have low-interest debt, your 401(k) investment returns can outpace your lower-interest debt. Bonus: If you’re making qualified student loan payments, your employer may be able to contribute to your 401(k) on your behalf, even if you’re not contributing directly. Login to your Betterment account to see if your employer offers a match on your student loan payments. Step 3: Build a budget around your 401(k) savings and debt payments Now that you have an idea of how much you want to contribute to your 401(k) and how much debt you need to pay off, let’s build a budget around that. Budgeting is very personal and looks different for everyone. But to help start, you can use a budget framework like the 50/30/20 rule: 50% of income goes to essentials (housing, food, bills, etc) 30% goes to discretionary spending 20% goes to financial goals (a mix of debt repayment and retirement savings) The exact percentages may look different for you, but the 50/30/20 rule serves as a solid guideline. Here’s how to create your budget: To build a monthly budget around your 401(k) savings and debt payments: Add up your monthly 401(k) contribution and debt payments Next, add up all of your monthly living essentials like housing, food, and bills Finally, estimate your monthly discretionary spending, like entertainment and going out to eat Once you have a total budget, compare that to your monthly take-home income. If your budget is more than your take-home income, look for areas in your discretionary spending to cut first. If you can’t cut enough discretionary income, then review your debt payments and 401(k) contribution amount to rework them into a manageable budget. The goal isn’t to stretch yourself too thin—it’s to take small steps forward in saving for retirement and paying off debt while still being able to enjoy life. Start small today With the uncertainty of Social Security and rising inflation, relying solely on traditional savings accounts may not be enough. Your 401(k) helps you take control of your financial future—so instead of seeing it as an expense, think of it as paying your future self—there’s a good chance it will be your main source of income in retirement. Betterment is here to help you As always, we’re here to help you confidently plan for retirement with the tools and resources you need to make smart decisions for your money. Ready to start saving? Claim your account at betterment.com/accountaccess.

For many people, saving for retirement feels hard. It’s easy to put off saving when there are more pressing financial needs or when retirement feels far away. That’s totally normal to feel.

Here’s the thing: You don’t have to choose between financial stability today and retirement security tomorrow. You can do both with the right plan in place.

The 3-step roadmap to start saving for retirement

It all starts with putting yourself first. But that’s often not what happens. Instead, many of us put our money towards:

Spending on monthly purchases (groceries, bills, entertainment, etc)
Paying off some debt with anything left over
Saving for retirement with what’s left after that

The problem with that is clear: by the time one covers monthly expenses and pays off some debt, they might not have anything left to save.

The easiest way to remedy the situation? Flip that list on its head.

Here’s a 3-step roadmap to start actively building your 401(k) savings:

Start with a 2% contribution to your 401(k)
Prioritize your high-interest debt payments
Build a budget around your 401(k) savings and debt payments

You may be thinking, “What if I don’t have enough money left to pay for expenses?” That’s a fair question, and in some cases, that may be true. But if you start by putting yourself in a position to save, you can always make adjustments as life changes.

Let’s walk through each step…

Step 1: Start small and build up your 401(k) contributions

It's a common misconception that you need a substantial income to begin investing. In reality, starting with small, consistent contributions can lead to significant growth over time.

Try starting with just a 2% 401(k) contribution rate:

If you earn $60,000 per year, contributing 2% means setting aside just $1,200 annually—or about $100 a month ($50 per pay period).
At first glance, $100 a month may feel like a lot. But if you break it down, it might be the cost of a couple of takeout meals or a few streaming subscriptions each month. Small, manageable changes can help you build a strong financial future without overwhelming you today.

Inline graph Let’s assume Natalie and Nathan both make $60,000. Natalie starts contributing 2% to her 401(k) today. After 10 years of consistent saving, she needs to stop making contributions (because of a life event). She reduces her rate to $0/month. During the previous 10 years, she contributed $12,000 out of her paycheck, and with an 8% rate of return on her investments, her balance grew to $300,173 by the time she was ready to retire. .

On the other hand, Nathan put off contributing to his 401(k) for 10 years. He then saved $100/month over the course of 35 years, or $42,000 out of his paychecks. When it was time to retire, his account balance was $230,524.

It may seem unlikely that Natalie ends up with more money after only contributing for ten years, but that’s the power of time in the market.

As your financial situation changes, you can always adjust your contribution rate. If 2% feels like too much, start with 1%. It’s important that it feels manageable now. You can always increase when you’re ready if you get a raise or a promotion or pay off a debt.

Step 2: Prioritize your high-interest debt payments

OK, after deciding how much to contribute to your 401(k), step 2 is all about being strategic with paying off debt while investing.

It’s about finding the right balance between immediate financial needs and long-term security.

You can follow these steps:

Prioritize high-interest debt first: For example, if you have credit card debt with a higher interest rate, it makes sense to prioritize paying it down. Take a close look at any debt with an 8%-plus interest rate.
Next, pay lower interest debt: Lower interest debt may be things like a mortgage, student loans, or potentially a car loan payment.

Here are some additional important considerations when it comes to debt:

Make at least the minimum debt payments. This will help pay off debt faster and avoid issues like penalty fees or going into collections.
Take a close look at high-interest debt: In some cases, if you have too much high-interest debt, you may want to hold off on saving for retirement until it feels manageable to you. If that’s the case, once you’ve paid off enough high-interest debt, you can begin investing for the long term. But if you mainly have low-interest debt, your 401(k) investment returns can outpace your lower-interest debt.

Bonus: If you’re making qualified student loan payments, your employer may be able to contribute to your 401(k) on your behalf, even if you’re not contributing directly. Login to your Betterment account to see if your employer offers a match on your student loan payments.

Step 3: Build a budget around your 401(k) savings and debt payments

Now that you have an idea of how much you want to contribute to your 401(k) and how much debt you need to pay off, let’s build a budget around that.

Budgeting is very personal and looks different for everyone. But to help start, you can use a budget framework like the 50/30/20 rule:

50% of income goes to essentials (housing, food, bills, etc)
30% goes to discretionary spending
20% goes to financial goals (a mix of debt repayment and retirement savings)

The exact percentages may look different for you, but the 50/30/20 rule serves as a solid guideline.

Here’s how to create your budget:

To build a monthly budget around your 401(k) savings and debt payments:

Add up your monthly 401(k) contribution and debt payments
Next, add up all of your monthly living essentials like housing, food, and bills
Finally, estimate your monthly discretionary spending, like entertainment and going out to eat

Once you have a total budget, compare that to your monthly take-home income. If your budget is more than your take-home income, look for areas in your discretionary spending to cut first.

If you can’t cut enough discretionary income, then review your debt payments and 401(k) contribution amount to rework them into a manageable budget. The goal isn’t to stretch yourself too thin—it’s to take small steps forward in saving for retirement and paying off debt while still being able to enjoy life.

Start small today

With the uncertainty of Social Security and rising inflation, relying solely on traditional savings accounts may not be enough. Your 401(k) helps you take control of your financial future—so instead of seeing it as an expense, think of it as paying your future self—there’s a good chance it will be your main source of income in retirement.

Betterment is here to help you

As always, we’re here to help you confidently plan for retirement with the tools and resources you need to make smart decisions for your money.

Ready to start saving? Claim your account at betterment.com/accountaccess.