How we think about a topic affects our decisions. When it comes to the benefits that an employer offers us we can step back a bit and get a different perspective that will help us make better decisions and hopefully improve our lives.
First of all let’s acknowledge that the entire insurance and benefits experience is pretty darn frustrating. It is so tangled up and layered with jargon that we often give up before we begin evaluating our options. When you add in the complexities of government rules and programs it gets even more difficult to comprehend.
Here are some suggestions that hopefully will help you think about your benefits in a better way.
You are as smart as they are, and substantially more invested in the outcome
Having worked in the software and benefits space for many years, I can share with you that there are some very smart people in the industry but they are no smarter than you. And you have a significant advantage: These benefits are real money to you and your family. You are substantially more vested in how they operate and what programs you get than they are; therefore, you will think about them in a much more personal and intense manner. This will lead you to the best decision if you allow yourself the time and confidence to investigate.
Relax, the decision is only for a year
Selecting and using your benefits can really suck. It can be intimidating and frustrating. Hopefully your company is using some modern technology and communication techniques to give you all the information you need. But regardless the decisions can be off-putting. Often when we feel overwhelmed by a decision or out of our league in knowledge we will just skip it. But there is too much at stake.
To help you relax and make a more common sense decision realize that the benefits you are choosing are generally only for a year-long period. If you pick the wrong product or program you can use that experience to recover next year by feeding what you have learned into the decision making progress the next time, which comes around every twelve months. A program like a 401(k) is more perpetual, but even here you are able to update your decisions even more frequently than annually.
Like renting an apartment for a year, your benefits decision only lasts for twelve months. Unlike renting an apartment, you do not have to physically box up all your stuff and move. You only have to select better the next time.
Benefits are money
In exchange for your time, your company pays you money. That money, or compensation, comes in several forms. A paycheck lists all the various forms of money coming your way yet we tend to only focus on the net amount of cash deposited in our checking account. The gross amount of our compensation really matters to us when we negotiate for a new job or a raise, however after that we then tend to only focus on what net cash gets deposited into our account.
Pause for thirty minutes some time and just look at your paycheck. You will see that your company pays some taxes on your behalf, they may cover part or all of your health insurance, they may contribute to a retirement accounts such as a 401(k) plan, a Health Savings Account, and a host of other programs. Each line item on there is your money. Print that thing out and stick it on a wall for a month and think about how that money is being spent. Get motivated to learn about where that money goes and if directing it to other programs or back to your own cash is best for you.
Use it or lose it. So use it!
Most benefits are like milk and eggs. They are only good for a short amount of time. Yet if you manage them correctly they can turn into long term financial strength for you. For example, if you have the option to contribute to an Health Savings Account, and especially if your company contributes to it on your behalf, then you want to put as much as you possibly can into the account this year. Once the year is over your window to contribute, and get company additional monies, closes. The tax advantage closes too. Sure, maybe next year you can put more money in but you can never regain the opportunity this year provides.
This same concept applies to retirement savings accounts your company may offer and contribute to. Each period you do or do not contribute significantly alters the amount of money your future self will “inherit” from your right-now self.
Use the programs to your ultimate advantage.
Some are like Travel Rewards
We know that the FI community loves Travel Rewards and the many strategies to hack and optimize your rewards accounts. Benefits are very similar, often even better. You may be able to buy life insurance through your company at a big discount. Or you can get a free doctor and/or nurse line to call when you have medical questions. This can save you time and money.
You may be able to earn points by filling out health surveys or by getting a health screening each year. These have double benefits in that they may earn you cash toward your insurance costs and they also can help you learn about your health and be healthier right now.
The Benefits Department is like Costco or some Super-Power buying club
They recently opened a new Costco in my town. It is overwhelming when you go into it for the first time. There are over 4,000 products in a single Costco. Yet somehow we figure out how to go in there and get what we want often at significant discounts.
Benefits are like that. Your employer is a big and powerful buying club. A small group of people in your finance and HR departments work hard all year long to use that purchasing power to put in front of you an array of programs and perks, many of which can really help you financially. You may be able to get your gym membership discounted (and often subsidized), you may get discounts on prescription medications, travel discounts, free or subsidized services to speak directly with a doctor or nurse which can save you a trip to the doctor’s office and the associated money, etc. There may even be a new student loan consolidation and payback program available through your employer.
I was meeting once with a very large and influential employer and the head of their worldwide benefits was drawing on the whiteboard the concept of their employees being able to purchase home mortgages, new cars, appliances, and even individual financial planning services all at huge discounts because of their influence. At least take the time to walk in the “store” and figure out what is good for you and your family.
The System can work for you and help you overcome human nature
Because many benefit programs are set up for payroll deduction they can help you overcome procrastination and general lack of regular activity. They say that the best time to invest was twenty years ago, and the second best time to invest is today. Well if you set yourself up to auto invest via your 401(k) or HSA, you will gain the power of routine savings while not having to make yourself take action each week or month.
There are some compelling mathematical debates about whether investing in your 401(k) versus using those same dollars for example to pay off your mortgage is better. Those analysis are fun to walk through in theory and certainly vary greatly from personal situation to another. However I do know that when you decide to save a percentage from your paycheck each week you quickly forget about that cash and it methodically begins to pile up in your favor. When you add company matching funds to the equation and tax savings it can really be a beautiful compounding asset on your personal balance sheet.
A few additional thoughts…
People spend approximately thirty minutes during their company’s annual open enrollment period selecting their benefits. Companies generally offer between ten to twenty benefits to their employees. The largest and most expensive benefit is health insurance.
So let’s say out of the thirty minute total benefit selection process a person spends eighteen minutes selecting their health insurance for the following year. A family health insurance monthly premium is about $1,500 a month, or $18,000 per year. That means that a person is spending eighteen minutes on an eighteen thousand dollar decision. That is $1,000 per minute. In what other area of a FI focused person’s life do they invest so little time to make sure a large expenditure?
Shan and I started this blog to help people figure this benefits stuff out. Part of that journey is simply setting these programs in the proper light so that people can dig in deeper and make great decisions for themselves and their family. At the end of the day that is what we aspire to do, help people provide for their families.Like