Today’s fantastic family finance article is:
“Would you like some free money?”
“Nah, no thanks.”
Said no one ever. Well, except tons of freshly minted employees that is.
By the time your kids land that first job out of college, make sure they know how to say yes to free money from an employer. (It shouldn’t be too hard, they figured out how to say yes to free money from you, right?)
OK, so how do they know their employer is offering free money? Listen for the keyword “match” from the HR representative. Usually it comes during the benefits discussion about retirement plans like a 401(k) at a company — or a 403(b) at a nonprofit, or a 457(b) at a government agency. Whatever it is, any time your kid hears the word “match” from an employer, it’s time to listen up! Free money is lurking. (Don’t hear it? Ask!)
For example, the most common corporate match in a 401(k) plan is now “100% of the first 6%.” That means if an employee contributes up to 6% of pay to the retirement plan, the company will make a dollar for dollar matching contribution on the employee’s behalf.
Not sure what that means?
Walk through this simple example: say your college graduate makes $30,000 at a company offering the “100% of the first 6%” deal. Your grad wisely contributes 6% of pay or $1,800 to the 401(k) plan throughout the year. Then the company will also contribute $1,800. That’s $1,800 of free money people! $1,800 just magically turned into $3,600! Presto-change-o. Where else can you get an immediate 100% return on your money without breaking a sweat, or being ridiculously lucky, or landing in jail? Nowhere.
So make sure that future conversation goes like this:
Pointy-haired boss: “Would you like $1,800 of free money?”
Your informed child: “Heck yeah!”
Good work. You’re no pointy-haired parent.
Get tomorrow’s tip here.