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Does open enrollment at your company make you feel a bit anxious? Does your heart rate spike when you hear "HSAs" and "401(k)s?" Do sweat beads form when your HR leader talks about "asset allocation" and "beneficiaries?" And what’s all the hype around financial wellness, anyway?
Understanding your company’s employee benefits program can be a little daunting. The choices are endless—and so are the frustrations. How can you be sure you’re getting what you really need rather than wasting your hard-earned cash on some sort of supplemental insurance policy you heard about on TV?
Take a deep breath. We’ll walk you through what you need to maximize your financial well-being at work.
The 401(k) is your first stop once you reach Baby Step 4, investing 15% of your household income into retirement. This benefit is essential to any worker’s financial wellness, and it’s one you definitely want to get into as soon as possible. If you’re already debt-free and have a full emergency fund, see if your employer offers this kind of plan and start investing today.
Here are a few 401(k)-related terms you’ll want to know as you begin:
- Mutual funds: This is the kind of investment you’ll use to grow your 401(k) savings. It’s essentially a pool of money managed by a team of investment pros. You’re investing in many different companies at once and avoiding the risk that can come with putting all your money in one place.
- Rate of return: Much of your success with a 401(k) will depend on how the funds you invest in perform over time. That’s why it’s important to find funds with a long history of strong returns. Keep in mind: You’re not looking for the exact rate of return as much as you’re looking for a record of consistent performance.
- Company match: The name says it all. Many companies offer a 401(k) match to encourage saving, which means they’ll match anything you invest up to a set percentage. If your employer does this, you can’t afford to pass up free money! Use that matching percentage as your retirement savings starting point.
Your next step is to open a Roth IRA, for you and your spouse if you’re married, to meet your 15% retirement savings goal.
How do you know you have the right insurance coverage?
Health Savings Account
This benefit is the wave of the future and could be just what you’re looking for to protect yourself from skyrocketing medical costs. Think of a Health Savings Account (HSA) as the health care version of a 401(k). Since it’s always paired with a high-deductible health plan (HDHP), this benefit lets you save on premiums and save money specifically for medical expenses—tax-free! Here are a few things to keep in mind as you consider an HSA.
- The HDHP/HSA combo is ideal for healthy families who don’t expect to have heavy medical bills, but it might not work for those who have chronic conditions or health issues.
- You can use funds from your HSA to cover your deductible or pay for other medical expenses tax-free. You can also choose to invest your HSA savings in mutual funds for tax-free growth.
- You won’t pay taxes on the money you put in your HSA or on the money you spend from it as long as you use it to pay approved medical expenses.
- There’s no obligation to spend HSA funds by a certain date. Any unused money rolls over each year.
Be sure to explore the HDHP/HSA option if your employer offers one. It could be a key piece of your financial wellness puzzle.
Now that we’ve covered the savings and investment side of your financial wellness strategy, let’s look at the other essential element—the right kinds of insurance to protect your money. If your employer offers any of the following insurance benefits, you’d be wise to take advantage of each one. And if any of them are unavailable, be sure to sign up for them elsewhere.
- Health insurance. Health insurance is a must, and as we said above, the best way to cover your health care needs outside of insurance is through an HSA. If that’s not an option at your company, find out if they offer a traditional health care plan.
- Term life insurance. Term life insurance is essential since it will provide for your family if you pass away unexpectedly. But the bulk of your life insurance should not be through your employer. You need coverage of your own in case you change jobs. And, employer policies usually don’t provide enough coverage. You need term life insurance coverage equal to 10–12 times your yearly income to be sure your spouse and children are well taken care of. .
- Long-term disability insurance. Disability is a reality you can’t afford to ignore, and this is a popular benefit many employers offer as a solution. If an illness or injury should prevent you from working for a long period of time, this kicks in and replaces a portion of your income until you can resume work. Without it, you’re at risk of missing out on some key parts of financial wellness like retirement and homeownership.
However, you might also hear about cancer insurance, accidental death insurance or other plans packaged with investments such as whole life or universal life. Don’t be fooled by the marketing language around these policies. They’re designed to make money for the seller rather than to provide you with valuable coverage, so skip them.
Financial Wellness Programs
Money struggles are an epidemic in America, and they can be a distraction at work. Paycheck-to-paycheck living hurts performance and reduces productivity. Fortunately, financial wellness programs are quickly becoming an industry standard.
The easiest way to understand financial wellness is to compare it to physical wellness. If you or your spouse have a gym membership, you’ve probably learned what every aspiring athlete knows: The weights are heavy, but they don’t lift themselves. And signing up for a gym membership is no guarantee you’re going to get in shape. You have to make a plan and stick to it. You’ll need a weekly schedule, a well-designed workout routine, possibly some diet changes, and a way to measure your results to see real progress.
A good program will hold you accountable toward your financial goals. If your employer offers this kind of benefit, be sure to take advantage of it.
Dave has a program to address this need in the workplace. SmartDollar is transforming the way millions of workers handle their money and is helping them achieve their financial dreams. The average employee pays off $3,300 of debt and saves $5,000 in the first six months! And it has little to do with their level of income and much more to do with the inspiration and encouragement they gain from our experts. If you’re interested in bringing SmartDollar to your company, click here for more information.