Wednesday, 10 August 2016

Stop Passing Up FREE Money

Why on earth would you not take advantage of someone giving you free money? Sounds crazy right? Well it happens WAY more than you would think and you (yes, you!) might even be an offender! 

A lot of employers offer defined contribution pension plans or group RRSP's where your big bad boss will match your contributions up to a specific amount. All you have to do is get enrolled in the plan and start making contributions. I know, I're probably thinking that you might not be able to spare that extra $50 or $100 per month but I'm here to tell you that you can. It's going to automatically come off your pay cheque and I promise you wont even miss it. Then you're doing yourself a favour by getting a jump on saving and you can think of it as getting a raise at the same time. If your boss is matching your $100 per month contribution that's like an extra $1,200 added to your salary every year. Plus, if you're saving into an RRSP you'll also get a bump on your tax return. 

It really is that easy and that's why it is so shocking how many people don't take the time to learn about what job perks are available to them. There was a study done in the States in 2005 by James J. Choi, David Laibson, and Brigitte C. Madrian called '$100 Bills on the Sidewalk'. They studied this exact phenomenon in the US and found that between 20% and 60% of participants lost up to 6% of their salary by passing up matching plans offered by their employers. Six percent might not sound like a lot but it's money that's owed to you. I certainly wouldn't throw away 6% of my salary just for being a little lazy or uninformed. 

The normal process for employer offered plans is that the employee has to 'opt-in'. I would love to see this changed so that you still have the option but that your enrollment happens automatically and if you don't want to take advantage you actually have to 'opt-out'. That way people aren't forced to save but it makes that much more challenging not to. Obviously I understand why employers wouldn't be all for this; right now they get to boast about having good pension plans but don't actually have to pay out at 100%. 

Hopefully I've convinced you to take another quick look at the package HR gave you when you got hired and make sure you are taking full advantage of any extra benefits your employer might offer. 


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