Increasing your 401K contribution up to 17% of your salary not difficult if you follow a few simple steps. These same steps could also be applied to paying off debt or other savings plans.

My wife and I both save 17% of of our pay to our 401K plans not including the employer match. Additionally, that does not include Roth IRA contributions or any other savings. You don’t have to eat Ramen noodles to make save this percentage of your salary.

My goal is 20% and I will achieve that within a few years. We both started saving 5% of our salary and slowly increased it at every opportunity. However, we did lower the percentage at one point along the way as explained below.

How we increased or 401K savings without breaking our budget:

1. As soon as you are eligible for contributing to a 401K at work, contribute 5%. If you are not eligible to contribute to a 401K plan at work after first starting a new job, save 5% in another fund.
2. Raise the 401K savings percentage by at least 1% at every annual compensation increase. Most people receive an annual raise and that is a perfect time to adjust your withholding by an additional 1%. If your workplace uses Vanguard for the 401K plan, Vanguard has an automated service to increase your 401K withholding by a particular percentage at a certain month each year to automate the process.
3. Raise your 401K percentage every time you receive a promotion or have another pay or income increase. This prevents you from becoming accustomed to the additional income and allows you to slowly absorb the additional 401k contributions. If you receive an exceptionally large pay increase or a spouse goes to work, add more than one percent to what you save.
4. Don’t let temporary setbacks derail the overall goal.  We had to lower our 401K contribution at one point because my wife quit her job to take care of our child.  However, I still kept raising my annual percentage contribution from the new lower point.

My 401K Investment Plan in Practice: When I first started working, I made the mistake of not immediately investing in the 401K plan. I lost several months after eligibility due to inertia. As soon as you start a job, put a reminder in your calendar for your 401K eligibility date. Personally, I simply let the date come and go by a few months…

If you hit a bump in the retirement road, don’t worry about it. Bumps are normal, so what is important is a plan to work the percentage back upwards. By 2006, I had worked my way up to 14% of pay and my wife 15%. However, my wife quit her job to stay home with our daughter. I had to reduce my contributions slightly and of course her 401K contributions dropped to zero. I continued my plan of increasing my salary by 1% per year despite having to decrease the percentage.

By January 2007, I was only contributing only 10% of my pay to my 401K. I had accepted this level of contribution when my wife decided to quit work. As soon as she decided to return to work in late 2007, I adjusted my 401K savings percentage upwards by 3% and my wife started her new job contributing 15% to her 401K. We were not accustomed to her income, so this was a great time to prevent become accustomed to new income.

My wife received her first promotion and she adjusted her 401K savings percentage upwards by 2% to a total of 17%. When I received a promotion in 2007, I adjusted my savings percentage upwards by 1%. At my annual review, I received a larger than expected raise so I manually adjusted my 401K contribution by 1%. Additionally, I had the automatic contribution increase set at 1%, so that added another percentage point.

Today, we both save 17% of our pay for retirement in a 401K. It is nearly painless to your budget if you add an additional percentage of savings each time you receive a raise or a pay increase.  If you add an additional 1% to your 401K, that 1% difference will be easily absorbed into your budget. Again, this same plan can be applied to any financial goal such as paying off debt or paying off a mortgage.

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