November 16, 2020
By Rahul Iyer
Your employer offers a whole list of benefits. How do you choose the right one or better yet, how do you take advantage of all at the same time?
Before you can take advantage of any benefits – create a budget. Know how much ‘extra’ money you’re working with so you can decide. Ideally, 20 percent of your take-home pay should cover your investments, savings, and debt payoff. If you’re not out of debt, get out of it first. Then, prioritize as follows.
Employer match is like FREE money. Here’s why.
Let’s say your employer matches 3% of your salary. If you make $75,000, your employer will contribute $2,250 if you do. Prioritize the amount your employer will match or find a way to make it happen. Even if that’s all you contribute, your employer doubles your contributions, getting you closer to a financially secure retirement.
Most employers require vesting before you can take advantage of the ESPP. Budget for it. You’ll know how much you can buy the shares for, so budget for the purchase even if it’s a few years from now. Put a small amount aside every month so you have the money when you’re eligible. If you can buy it at a price lower than the market value, it’s an instant return on your investment.
If you have a high deductible insurance plan, take advantage of the Health Savings Account. Like retirement contributions, the funds are contributed before taxes. This lowers your current tax liability plus ensures you have money for health expenses in the future, also tax-free.
You can use the funds for any eligible medical expense and the funds don’t expire. You can roll them over year after year, which means by the time you retire, you could have a decent amount of money saved for the higher healthcare expenses most seniors have.
The bottom line is you must budget and revisit your budget often. Every year things change – so take a look again where you stand. If you had a lot of debt and now you’re out of it, you can contribute more to your 401K, IRA, or HSA.
Know what you need and find a way to make it happen. You may not reach all goals at once, but every step in the right direction helps. If you don’t meet your entire employer match this year, make it a goal to reach it next year. Or if you didn’t contribute to your Health Savings Account this year, make it a priority to contribute to it next year.
The key is to look at the big picture. It’s easier to focus on what’s happening right now, but that doesn’t help when you’re retired. A little sacrifice now will make a big difference in the years to come.