Financial wellness has become a thing. Corporate wellness programs that focus on exercise and healthy eating are now expanding their scope to include financial wellness. Organizations are realizing that helping employees stay financially fit is a great way to reduce their stress and keep them focused on their work. My calendar is filling up with speaking engagements to help employees think about how to optimize their finances. In addition to education on financial wellness, organizations promote their internal financial programs like matching 401(k)s, RSPs, company pension plans and Employee Stock Purchase plans.
Why don’t employees sign up for free money?
While the financial wellness sessions are well attended, it is often tough to increase participation rates in programs where companies actually offer employees free money. How can this be? Although these kinds of programs offer employees a chance to access free money, participation requires money, and that becomes an issue for many. Joining an Employee Share Purchase Plan, signing up for a RSP matching program or even joining a company pension plan, all require a piece of a paycheque. Which means that they compete with kids programs, home repairs, Zumba classes, car payments and everything else in the budget.
A similar issue happens in other aspects of personal finance. Nearly half of Canadian credit card users don’t pay off their credit cards each month despite punishing interest rates north of 20%. (BMO ‘s 2015 credit card report). Consumers select longer mortgage terms even though slightly higher payments could knock years off the loan. We select car loans with an average duration of 69 months and often roll in negative equity from our last car loan. Only about half of university students have their education funded by an tax advantaged plan, leaving $7,200 of free government funding on the table.
Are you swimming up financial waves or surfing down them?
So it seems that we are swimming up the financial wave rather than surfing down it. If we could free up some monthly cashflow, we could access this free money and accelerate our ride to financial wellness.
- Freeing up cashflow would let us participate in company programs like share purchase plans and matching RSP plans. These plans often provide free money in addition to a growth opportunity
- Having available funds would mean that we can take full advantage of government giveaways like registered education plans (529 or RESP), or registered retirement plans like 401(k) or RSPs.
- With some extra monthly cash, you could pay off our credit card balance in full, saving interest charges.
- Extra funds would also enable the ability to pay cash for other purchases, eliminating the need for additional consumer loans.
By getting ahead of these things, our money starts to really work for us. Free money from our employer programs can help drive us forward. We can reduce the interest cost and the impact of taxes that are pulling our finances backwards.
How to ride a wave of financial wellness
So how to get on the wave and let our money do the work? Here are some thoughts:
- Make a list of all of the government plans that are relevant for you (401(k), IRA, Roth IRA, TFSA, RSP, RESP etc) and the extra value to you of getting to full participation in each and the cashflow needed to do so.
- Build a similar list of all available employer plans inclusive of pension plans, stock purchase plans and matching retirement programs. Again, calculate the extra value of getting to full participation in each and the cashflow needed to do so.
- Then list out the annual interest cost of not fully paying off any revolving credit each month. Eliminating that can also add extra value to your net worth.
Then look for ways to make some changes to start surfing down the waves. As an example, by getting your credit cards paid off, you could save on monthly interest payments. Could those savings be the extra you need to enrol in your company’s share purchase plan? Bit of a two for one. Is there a way to reduce household expenses to maximize education savings contributions and take advantage of the maximum government grant? Its money that you will need anyway. Might as well have it come from the government, rather than you. If you need more ways to find savings to enjoy the benefit of these programs, check out the ideas in Cashflow Cookbook.
By making some simple changes you can surf a wave to financial wellness. Let your employer and the government do the hard work!
What ideas have you found to surf your way to financial wellness?
Photo credit Jeremy Bishop on Unsplash.