When allocating your earned cash towards investing, think about what "free money" you might be leaving on the table.
Investing your money can feel like a daunting task, especially if you're new to the world of finance. But what if we told you that there's a way to access "free money" simply by doing some research and taking advantage of the opportunities available to you? Yes, it's true! If you're employed and earning a salary, there are several ways you could be leaving money on the table.
In this post, we'll explore how to take advantage of these opportunities and grow your wealth through "free money" investing.
Employer Matching Contributions to Retirement Accounts
One of the easiest ways to take advantage of "free money" is through employer matching contributions to a 401(k) or similar retirement account. Many employers offer matching contributions, which means that for every pre-tax dollar you contribute to your retirement account, your employer will match that amount up to a certain percentage of your salary. To benefit from this scheme there is often little you have to do, other than sign up to participate in your employer’s retirement savings plan and continuing to make your personal contributions. By not taking advantage of these matching contributions, you're essentially leaving money on the table. Make sure to maximize your contributions to your retirement account and take full advantage of the matching contributions your employer offers.
How matching works: Assume your employer offers a 100% match on all your contributions each year, up to a maximum of 3% of your annual income. If you earn $60,000, the maximum amount your employer would contribute each year is $1,800. To maximize this benefit, you must also contribute $1,800. If you contribute more than 3% of your salary, the additional contributions are unmatched.
(Source: Investopedia)
Health Savings Account (HSA) Contributions
Another opportunity to access "free money" is through contributions to a Health Savings Account (HSA). If you have a high-deductible U.S. health insurance plan, you may be eligible to contribute to an HSA. These contributions are tax-deductible, and the funds can be used tax-free for eligible medical expenses. Some employers also offer matching contributions to HSAs, which is another opportunity to access "free money."
Tax Beneficial Retirement Savings
On the topic of saving towards your retirement, another way to take advantage of “free money” is by participating in a tax deferred retirement savings plan such as a 401(k) in the U.S. or, a Workplace Pension, Personal or Stakeholder Pension in the U.K.
By taking advantage of a tax deferred retirement plan, you are making pre-tax contributions towards your retirement account, which means when your salary is calculated for income tax owed, it will consider the salary figure after your retirement contributions have been deducted. So, if you earn 80k per year and you make an annual contribution of 15k towards your retirement savings account, your income tax will be based on 65k income, not the original salary amount of 80k. Therefore, not only are you planning for the future by putting money away which will support you in retirement, you are also reducing the amount of tax you owe today.
Employee Stock Purchase Plans
An Employee Stock Purchase Plan (ESPP), or Employer Share Plan is a program offered by some employers that allows employees to purchase company stock at a discount. So as an employee, you are not only earning based on your salary, but you could also earn and benefit from the company’s growth by becoming a shareholder. You earn as the company’s share price increases over time, and also through dividends paid out to shareholders when the company is doing well.
Keep in mind that often these share plans are open to employees at a fixed time in the year, so if you miss the deadline, you have to wait until the next enrolment period to participate. There may also be a requirement to hold the shares for a fixed period of time, this could be one year, two years, or more. So, for that period of time, you cannot cash out. ESPPs can be a great way to invest in your employer and potentially receive a return on your investment. Just be sure to do your research and understand the risks involved with investing in a single company.
Cashback Credit Cards and Rewards Programs
Credit card companies and rewards programs often offer cashback bonuses and rewards points for making purchases with their card or participating in specific programs. If you're responsible with credit, using a credit card with cashback rewards or participating in a rewards program can be a simple way to earn "free money." Just make sure to pay off your balance in full each month to avoid interest fees and maintain good credit.
Investing your money doesn't have to be intimidating or overwhelming. By taking advantage of the various opportunities available to you, you can potentially access "free money" and grow your wealth over time. From employer matching contributions to retirement accounts, to cash-back credit cards, there are many ways to invest in your future and access "free money." Do your research, explore your options, and take advantage of the opportunities available to you. Don't leave money on the table!