Benefits is such a strange words

Okay, so we’ve talked about choosing where to live,  the paperwork that comes along with getting a job, and we’ve touched on the benefits thing. But now it’s time to go even further into what is called, “benefits.”
It’s such a strange word, really. If you say it too many times, it doesn’t sound like a word anymore. Word or not, medical benefits and retirement benefits are extremely important to being a grown up. If fact, you might find someday that accepting or rejecting a job will depend heavily on the kinds of benefits you receive as an employee. Let’s break down the options that are out there:
1. No benefits. This one sucks, but coming out of college, you might have to have this kind of job. Part-time, waitresses, retail, contract jobs, self-employed/freelance. We’re all probably going to have to pay our dues in the benefits-less world. No medical coverage and no retirement options and no paid vacation or sick leave or maternity leave. The kind of places that don’t offer benefits are the kinds of places that lose and gain employees at a high rate. There’ no reason to have benefits–it would be too costly and too much of a hassle. What this means is, you’re going to have to fend for yourself. Fortunately, you can. Start your own Roth IRA account at a bank or banking institution to put away some money for the later years. If you’re not on your parent’s health care plan, shop around and get your own. There are plenty of companies with low-premium, high-deductible and/or short-term plans. They won’t cover your doctor visits, but if you get in a car accident and break all your bones, you’ll be covered!

2. Partial benefits. This one is okay. Usually it’s a retirement plan. If so, use it. The company matching your contribution will make you more money than you investing in your personal account. Partial benefits usually don’t mean medical, but if they do, (lucky) you’ll get some bare-bones medical plan that doesn’t cover dental/vision and probably doesn’t cover a lot of other things. Beware. It might be more cost-efficient to get your own health care plan or stay on your parents. Find out what the medical plan from your job would cover and what it wouldn’t. If accepting the mediocre medical plan is your only option for coverage, take it. It depends on the company as to whether you get sick leave, vacation days or maternity/paternity leave; but usually it’s not available.

3. Full benefits. Bam. You’ve hit the job-jackpot. You’ve got a salary, a retirement plan, medical coverage that most likely covers EVERYTHING (including dental/vision/preventative care) and you probably even have the option to opt-in to a life/accident insurance plan, too, not to mention paid sick days, paid vacation days and if you or your lady-friend get knocked-up, you can take of weeks and weeks and still get paid. NICE. TAKE IT ALL AND CELEBRATE YOUR SUCCESS BY GETTING A FULL BODY SCAN. If you want to wait until you absolutely have to be off your parents healthcare, that’s fine. Make sure to send them a Thank You flower arrangement.
Now, obviously, we’d all like to have option number three basically as soon as we get finished walking across the graduation stage. However, that’s not very likely if you got a degree in History, English, Theatre… basically anything that doesn’t fall under the “Science” category. Lame.

You might say, that’s fine. I’m young and healthy, no need to think about retiring. No need to have healthcare (if you’re not on my and dad’s plan).

YOU’RE SO WRONG I AIN’T LAUGHING.

(Now, see, if you have a theatre degree, you’ll be able to say the name of the play and playwright where that quotation comes from, but, chances are you don’t have benefits. Don’t worry, this is me, too.)

You NEED health coverage. You NEED to plan for retirement right now. You’ll thank yourself when you’re 60, rolling around in your money pile and joyous that you’re only on one prescription medication.

You can do both these things for less than $150 a month. That’s $5 a day. Next week, we’re gonna shop around for healthcare. The week after, we’re gonna talk about opening a personal retirement account and funding it.

Until then, imagine the year 2072 looks like.

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IDK Wednesday: Human Resources

Got questions about the paperwork you fill out at work? Let me know!

Human Resources

I always thought that the phrase “human resources” was a strange one. And when I was younger, I was confused about what exactly happened in human resource departments. It seemed scary.

As I graduated and found jobs, human resources became even scarier. When you get a job offer from a fancy place, you get lots of paperwork.

Job Offer letter–explains what you’re being offered. Requires signature.

Benefits letter–sometimes included in the offer letter; this details your benefits like medical, retirement, life insurance, etc. It’s maybe one of the most important documents you’ll receive as a grown up.

W4– this is a federal government tax document. You’ll fill out the bottom portion letting your HR coordinator and payroll office how much money you want (I repeat, WANT) taken out of your paycheck for taxes.

Retirement enrollment– READ THIS. It delineates plan options (401k or Roth?), who coordinates it (let’s hope Merill Lynch), what the different choices for investing are (conservative or high risk) and what the plan invests in.

Insurance enrollment– medical, dental, vision, life, accident. There are lots of options and different companies offer different things. Find out your responsibilities (how much comes out of your pocket and paycheck), the plan options, the limits, and rights.

All this paperwork alone is enough to make you want to get in a time machine and go back to freshman year of college where the most difficult paperwork you had to fill out was your FAFSA.

But don’t worry. You’re a grown up. You can handle it. And here are some tips:

Job Offer Letter: pretty simple. Read, know what you are responsible for. Sign. Most importantly, remember that the amount your salary is is going to be reduced thanks to taxes. Take home pay, remember?

Benefits letter: Read. Write down on a separate piece of paper in simple terms what you’re getting. Medical insurance? Retirement plan enrollment? Insurance enrollment?

W4: You hold  a lot of power when you hold this piece of paper in your hand. You basically decide how much take-home pay you’ll be getting. Now, you have to pay taxes if you have a job. Unless you want to go to jail at some point for tax evasion. But that’s dumb. Don’t do that. So if you have to pay taxes, you should at least decide how much. HR coordinators automatically have you down on their payroll as putting away the most money for taxes ( 0 allowances) and then getting a refund for anything you paid over. But the thing is, you don’t get everything you paid over back in that refund. You’re loaning the government money– interest free– and they’re not paying it back in full with a refund. So when you fill out your W2 there’s this little part called “withholding allowances.” You can choose 0-4 allowances. For young, single people with one job, you should have 1 or 2 allowances. Never put 0. Put one and get a little more take-home pay and not owe any taxes, but you also won’t get a big refund. Put 2 and get more take home pay, but be aware that you may owe taxes later. 1 is the safest. If you have another job, put 0 on that W4, just to be safe.

Retirement enrollment: Enroll. Period. Contribute the minimum amount needed to trigger your company’s match. Since you’re younger, choose a moderate to risky investment plan. I’ll explain this in a future post, but if you’ve got years and years until retirement, you want to make riskier investments so you might get better gains. You can choose 401k or Roth– they both have pros and cons. Since you’re younger, Roth might be better. Again, I’ll explain this in a future post.

Insurance enrollment: If your company offers insurance and you’re not on your parents insurance, take it. If you’re still on your parents–stick that out. However, when the time comes to enroll in your company’s insurance, make sure you know how much you’re paying for it, what kind of plan it is (HMO, PPO, or other) and know what your co-pay and deductible is. There will be a future post about insurance, since it can be super confusing. If your company offers you accident and life insurance, I’d recommend saying no to life (because you’re in your 20s and have no dependents. Life insurance is for people who will be leaving someone behind.) Instead, opt in to accident insurance, as it’s way more likely for you to get into a car accident and be left unable to work– accident insurance will make sure you get your salary for a limited time.

That pretty much sums up the scary paperwork that the HR lady will give you and talk you through at rapid speeds. If you’ve got questions, don’t be afraid to talk to your HR person. You can change any of the decisions you’ve already. You can fill out a new W4 and change your deductibles. You can change your retirement plan at some point in the year depending on your company. You can change your insurance choices at re-enrollment time. If your HR person says you can’t, they’re just trying to get you out of their office because they’re busy. So smack them… with some knowledge about your rights as an employee! Get it?

Sick Day

Hello, readers,
I sat down yesterday to write a post about what to do when you get the tax forms at your workplace, but I’m trying to get over a cold and my brain just isn’t functioning at high enough levels to write an acceptable post. I know this makes the second week in a row that you guys have to go YWM-less, but alas, that is fate.

 

Please accept my apologies and this cute picture:

 

 

Location, Location, Location

When you get a job offer (or when you decide to move to a city to find a job–which is pretty difficult), there are many things you want to think about:

Location.

Salary.

Benefits.

Now, location seems easy. Do I want to live in Chicago? YES. Done. I’m going.

But before you pack up, you need to think about some practical things in order to make moving to your dream city the awesome experience you imagine it will be.

Question: is it an expensive city?

Each place has its own “cost of living.” In some places, you can get a low cost of living with a high value. San Antonio, Texas is one of these places. You can get a huge house with a hot tub in the big backyard in a moderately nice neighborhood that has access and convenience to all the places you need to get or want to get, plus a great cultural life, for $400 a month in rent with other roommates. Then there’s New York, which has an extremely high cost of living (you can tell by how expensive stuff is in the grocery stores) but a relatively low value–tiny walk-up apartment with no washer/dryer hookups in a neighborhood you wouldn’t want to walk alone in at night for $600 a month with another roommate crammed in with you. But the culture and work is great!

Location will have a direct impact on your paycheck. Each state and city decides their state tax rate, in addition to the federal tax rate. Some states have a state income tax,a few don’t. One even has a tax credit (shout-out to Alaska! USA’s best kept secret). Look it up before you move. Some cities (the big, fancy ones that everyone seems to want to go to) have a higher city tax because it’s trying to support a big population–that means more schools, more public amenities, more roads needing work. And overcrowding–which also means housing shortage.

Let’s get real: your rent or mortgage should only be 25% of your annual income. If you’re getting paid $30,000, you really only have enough money to pay $7,500 a year in rent. Seems low, right? Well, $30,000 is low. In order for you to live comfortably and have money left to pay for stuff you need and want and put some away for the future, you should only be shelling out $625 a month in rent. Can’t find a decent place for that much on your own? Split rent with a roommate, significant other or your parents if you’re lucky. You really shouldn’t be paying more–you’ll only feel burdened in the long run.

In addition to housing, location will also have an effect on your transportation costs. Do you live in a neighborhood close to your work and all the things you need access to just by walking? Awesome. Do you live a little ways away? Well, that’s gas or bus or subway costs.  Do you live far away from family that you’ll be needing to visit for holidays or big events like weddings or funerals? Airfare isn’t cheap, last I heard. You have to plan for this in your budget.

You have to adjust your budget not only to what you need and want, but to what city you’ve chosen to house those needs and wants. It’s a plain fact– it costs more out of pocket to live in Chicago then it does to live in Minneapolis. Look it up–compare cities you’d consider living in.

Now, you may find yourself saying: there’s no way I can live in Dreamcity for under $900 a month and I don’t want a roommate. Plenty of people make it work. You’re exaggerating, Kaitlin (you dramatic floozy).

My response is: okay. You can do whatever you want. First, let me create a scenario for you:

Let’s pretend you moved to Austin. A great city for young adults–good culture, relatively cheap cost of living. If you’re spending $10,800 on rent alone and you’re only making $30,000 a year, that’s $19,200 you have left spend. Subtract taxes that are taken out before you even cash your check: $3500 (that’s lowballing and in Texas, where there’s no state income tax). So you have $7,300 in take home pay minus rent and taxes. Utilities? $2,000 maybe (lights, water, internet only). $5,300 left. Other bills (including student loan repayments, car payments, insurance payments)? $10,000. Oh, whoops. Not enough to pay for everything. Welllll, let’s just pretend you don’t have car payments or car insurance or student loans to pay for (hahaha).

So, we’ve got $5,300 left. Groceries?$2,400. $2,900 left of your annual income. That leaves $241 a month in discretionary income. Not bad, right? Well, don’t forget to pay your credit card bill: $100. And you haven’t even saved anything yet: 50! Plus, you want to have some fun sometimes, right:50? And buy new shoes when it gets cold:30. Have any pets? That’s easily an extra $25. But you’re out of money. Plus, I just assumed that you’d have health care through your parents or work, but if you don’t, that’s another $100 a month gone–but you’re out of money, so you can just go without, right? You’re young and healthy. Not to mention, this is only possible if you also don’t have a car or student loans.

A lot of us are familiar with this. It’s called, “living paycheck to paycheck.” And it’s okay, for now. But we want to move past that, because it’s a struggle that leaves you having to live without some pretty important things. You definitely don’t want to be 36 with one kid and another on the way and struggling to live paycheck to paycheck.

In the end, you have to decide what is best for you now and in the next five years. But hopefully you’ll do it wisely. Give yourself plenty of options. Do research. I know that moving to The Big City has been a dream of yours since you were 17, but did you know that Minneapolis had the second best arts funding per capita in the US in 2010? That it’s home to one of the best contemporary art galleries in the world? That a bigger number of recent graduates are moving here because it has a low cost of living but a high value? Who’s to say you can’t or shouldn’t go there just after graduating, getting some great experience and then moving up to The Big City after a year or two, when you can demand more pay and actually afford living out your dream?

It may seem unromantic to think this way. If you want to move to NYC and be a starving artist in of the greatest cities in the world–no one should stop you. Just plan out a budget for it so that the starving is figurative, not literal. Find out what your annual income is or will be, figure out what 25% of that is for your rent, deduct 10-15% of that for taxes (if you’re not making 60,000 a year), budget out your bare necessities. If you have enough for your fun stuff, if you’re also saving, and using credit wisely, and planning for retirement then you know you have a good budget. When you’ve got your budget figured out, then you know where you can move, because you’ll know what you can afford. You’ll be able to live in the most cost-effective neighborhood in a city you like and still be able to pay all your bills, feed yourself and your cats, and go out for a drink every now and then because you won’t be over-spending.

I hear Brooklyn is the new Manhattan, anyways.

 

 

PS- there won’t be a new post next Sunday, as I will be in Vancouver, BC, Canada, visiting my sweet boyfriend. Here’s a picture of it:

One of the most beautiful and most expensive cities in North America.