If you work for an employer that offers employee benefits in addition to wages, you have an incredible opportunity– and one that doesn’t exist for all workers. You can use your benefits to build personal wealth. Yes, you read that right. You can build personal wealth by using your employee benefits. Each time you use your benefits, you can save– or make– money.
How does it work? Let’s it break it down.
Two Kinds of Benefits
There are two classification of benefits, those that save you money and those that make you money.
First let’s talk about the benefits that save you money such as health insurance, dental and vision insurance, health savings account (HSA), flexible spending account (FSA), life insurance, short and long term disability insurance, commuting discounts, travel discounts, gym membership, education reimbursement, mental, emotional, & financial wellness training, free meals or beverages on the job, and more.
While many people dream of working for themselves and being their own boss, they may not realize that when you work for yourself you have to pay for these things on your own, which means more money out of pocket and less money that could otherwise go toward your pillars of wealth. And the faster your build your pillars, the faster you can reach financial independence.
Let’s review those pillars of wealth now.
Four Pillars of Wealth
1. Positive cash flow.
No matter what, each month you’ve got to earn more than you spend. When your employee benefits provide a discount on things you buy or use on a regular basis, you save money. That means more cash in your pocket.
In addition, the first step to financial wellness is steady income. Getting a regular paycheck allows you to create a lifestyle where your income minus expenses leaves room to build personal wealth. That means you have money left over each month to put to its highest and best use, which is always to pay yourself. Which leads me to the next pillar of wealth.
2. Debt elimination.
If you have high interest rate loans, use the money you have left over each month to pay them off. Credit card debt and other high interest rate loans are the biggest burden to any financial plan, because they eat up your cash flow. Paying off debt as fast as you can gives you the ability to build your savings and investments even faster. Once you’ve eliminated your high interest rate debt, saving is your next priority.
You need at least three savings accounts.
The Mini Savings Account
Your first savings goal is to create a small cushion in case your checking account gets depleted. Put $500-$1000 in a Mini Savings Account where you bank, and make this your overdraft account so you can avoid those high fees incase your checking account goes below zero.
The Lighthouse Fund
Next, put at least 6 months of essential expenses in a high-yield savings account. This is an account that gives a high rate of return. You can find these accounts at www.bankrate.com. Make sure the account is FDIC insured and has no fees. Always go for the savings account with the highest return.
I call this savings account your Lighthouse Fund because it is always there to guide you to a safe place. If you need to take time off work, or lose your job, this account will pay your essential expenses until you can work again.
The Goal Getter Savings Account
Once your Lighthouse Savings is fully funded, begin saving in another high-yield account. I call this account a Goal Getter savings account, because it is what will help you buy the house, start the business, leave a bad relationship, or take a vacation that will refresh your spirit and recharge your money-maker (that’s you!).
4. Residual income.
Finally, once you are debt-free and your savings accounts are funded, start putting your Impact Factor (that’s the money you have left over each month) into retirement accounts and investments. These are what will take you to financial independence, which is the point when work becomes a choice. Residual income is money you earn after the initial work has been completed. In this case, the “work,” is the money you set aside that has potential to grow. You can use the next type of employee benefits to supercharge your residual income pillar of wealth.
Cash Infusion Benefits
Next are the benefits that make you money such as retirement account contributions, signing bonuses, stock options, and more. These serve as major cash infusions to your financial independence, aka retirement, plan. When you have reached financial independence, work is a choice because you have saved enough money to cover your expenses for the rest of your life.
In theory, you have reached financial independence when you have saved 25 times your annual expenses. So the more cash infusions you get, the more you can sock away in retirement, investment, and savings accounts to reach that goal. If your employer offers a 401(k) match, then max it out. This is free money that you can use later in your life. Life is long if you are lucky enough to live, and your future self will thank you for making this a priority.
Do you need help with financial planning? Are you a career driven professional or aspiring entrepreneur? Want to create another stream of income? Schedule a free financial coaching consultation today.