When you get your offer letter from a prospective employer, what do you do? You find the salary number, wave the paper triumphantly in the air, and completely miss many of the other potential financial benefits contained in an employer’s benefits package.
It’s understandable to focus on your salary or wage when looking over your pay stub. You have a budget and you need income to support your spending. Raises are often based as a percentage of your salary, which means the larger your salary, the greater your earnings potential. However, many employers offer additional benefits and few realize how to set up those benefits to increase personal wealth.
Fix Your Withholdings
The average tax refund for 2012 was $2,700. That’s more than $200 per month. While it’s nice to get the big check at the end of the year, there are major drawbacks to overpaying your taxes from your paycheck.
You can expect to lose a portion of your refund’s value to price inflation throughout the year. Worse yet, you could be putting the extra money you are paying the government towards something that can increase your wealth, like a retirement account. The average tax return is $2,700 and the average net worth of a family with adults under 35 is $3,662. It’s time to adjust your withholding and open a 401(k).
Get Your Employer Match on Your 401(k)
Speaking of 401(k) plans, many employers offer a match contribution for employees who utilize the company 401(k) plan for retirement savings. A match is an employer contribution to your 401(k) plan. It is often based as a percentage of your contributions. This is extra money that your employer will give you for retirement, but you can’t get it if you don’t participate in your employer’s plan.
The best part is that your contributions to your 401(k) are not taxable. That means that Uncle Sam subsidizes your savings by as much as your federal and state personal income tax rate.
Employee Stock Purchase Plans
Few Americans have access to Employee Stock Purchase Plans (ESPP), but if it is available, it is a great benefit that can boost your income. ESPPs allow employees to withhold a portion of their paycheck to purchase company stock at a discount. Once purchased, you can usually sell your shares for a guaranteed return. It will mean withholding a portion of your income for several months before you can cash in a stock purchase. However, these days it’s hard to find a good return that’s guaranteed.
Health Care Plans
This is one area where many young adults are overspending. According to the Bureau of Labor Statistics, health care is nearly 6 percent of the average family spending and costs roughly $2,976 each year per household. If you can find a way to cut back your health care insurance costs, you are well on your way to increasing your wealth.
For young adults facing their first job and a multitude of major financial decisions, there is a temptation to go with the Cadillac health plan offered by their employer. These plans come complete with low deductibles and co-pays that minimize any potential out-of-pocket health care costs. However, if you are a young, healthy adult who is paying co-pays, you might be over-insured. You might save a great deal on health care premiums if you opt for a plan that has a high deductible and no co-pays. Just make sure that all the major medical coverage is the same.
You can afford a $100 visit paid out of pocket to see your primary care physician, if it means saving $150 in monthly premium payments.
Don’t want to pay full price for health care? Get the government to chip in on your medical expenses.
Flexible Spending Accounts (FSA) are like debit accounts that you can use to cover various medical expenses, like buying eyeglasses and prescription drugs. An FSA is set up with your employer through your withholdings. The money is taken out pre-tax, which means that the government is giving you a discount on health care expenditures equal to your personal income tax rate.
Not every employer will offer some or any of these benefits. The trouble is that even when they are available, not every employee takes advantage of them. You should try and increase income and your net worth whenever possible with these forms of employee benefits.
JP is the author of the money blog My Family Finances, a site dedicated to helping families make wise financial decisions. He is also an MBA and works in corporate finance.