Most people struggle with the challenge of asking for a raise.
Countless websites and books exist to coach and help you get the raise you want. But what if you could get a raise without actually asking for it?
What if I told you there was a 3% raise you could get easily -- without even speaking to your boss?
Here’s the secret: It’s the corporate match on your 401(k) plan.
There are two types of 401(k) plans: traditional and Roth. They each have their advantages.
The traditional 401(k) allows you to invest pre-tax money. This means your investments are taken out before your payroll taxes are calculated, thereby lowering your tax basis. You pay less in taxes while earning the same salary.
For example, if your salary is $1,000 a week and you invest $100 -- or 10% of your salary -- into your 401(k), you will lower your basis for withholding taxes from $1,000 to $900.
And there's an added benefit: The money you invest grows without you having to pay any taxes on the gains until you start taking money out, hopefully many years later when you retire.
The Roth 401(k) plan is different. Your investments aren’t taken pre-tax; you make them with after-tax dollars, so you would pay withholding taxes on the entire $1,000 mentioned in the example above. But the $100 you invested would grow, and you would never pay any taxes on that money again.
If you’re investing in your 20s or 30s, that $100 will have decades to grow. If you invest $100 each week in a Roth 401(k), you could have hundreds of thousands of dollars when you retire and not pay any taxes when you withdraw the money.
If you’re a full-time employee in America, you likely have access to a plan, according to a U.S. Bureau of Labor Statistics report released in March. Overall, 66% of private sector employees have access to a retirement plan at work.
The likelihood of you having a plan tends to decline with your salary level; the less money you earn, the lower the chance your employer offers a 401(k) plan. Only about 31% of the lowest earners have access to a retirement plan, while 98% of the highest earners have access to such a plan at work.
Check with your HR department to find out whether your employer offers a plan. Regardless of how much you earn, if you’re eligible, I strongly suggest you take advantage of your company’s 401(k).
So here’s how easy it is to get a 3% raise: Many employers offer a corporate match on your 401(k) contributions.
The most common match is 50 cents on the dollar up to the first 6% you contribute. A 3% match of a 6% contribution in your 401(k) plan is not a hard-and-fast rule across all companies, but it is the most common match.
Let’s say you earn $52,000 a year (or $1,000 a week) and you invest 6% of your salary (or $60 a week). Your employer will match 50% of your contribution, or $30 every week.
This means your employer contributes $1,560 annually to your retirement plan, or 3% of your $52,000 annual salary.
How do you get this corporate match? All you have to do is sign up with your company's HR department to contribute to the company’s 401(k) plan.
As you make contributions, the company will automatically match your contributions based on how the plan is set up. You want to secure the entire corporate match, if you can.
It’s actually more than that; if you’ll recall, contributions to a traditional 401(k) plan lower your tax basis, thereby keeping more money in your pocket. It’s really a no-brainer.
And if you can, invest more than the level of your employer’s match. For 2015, the maximum allowable contribution is $18,000 (folks over 50 can contribute $24,000). Ideally, aim for 10% to 15% of your salary.
Your investment and corporate match happen on autopilot. Once you set up your investment, the money will be automatically invested and matched by your employer without any further involvement on your part.
And when you get a raise, a portion of it will go toward your investments as well -- this increases the corporate match, effectively increasing your raise!
Start investing in your 401(k) as early in life as you can. The longer your investments have to grow and compound, the more money you will have when you retire.
So start now, and get your free 3% raise. What are you waiting for?
Your Turn: Does your company offer a 401(k) plan? Do you contribute to it?
David L. Wright is a retired CFO. He is author of the Amazon bestselling investing book Investing for the Rest of Us and maintains a personal finance website: DollarBits.com.
Can a slice of pizza help you buy the home of your dreams? For one woman in Portland, Oregon, that’s exactly what happened. Well, it cost her a few pizzas.
If you’re looking for a little slice of heaven, a home to call your own, you may find that search to be more difficult than you expected. In many American cities, the housing market has rebounded from the housing bubble debacle of 2008 -- so much that it can be tough to buy a home. Inventory is not keeping up with demand, and so many people are bidding on houses that the prices wind up going well above asking in many markets.
To make their bids stand out, some people are getting quite creative -- and if you’re getting ready to buy a house, you might want to take a page out of their unconventional books. Here are some of the most creative ways we’ve seen to sweeten the deal. Some of them worked, while others… not so much.
Recently, a woman in Portland, Oregon added a little extra cheese to her offer. Donna DiNicola was looking for a new home for her 23-year-old son Johnny Barrett. DiNicola and Barrett found a home that they liked, and the asking price was $249,000. Homes in that area have been selling for well above asking; the home next door recently sold for $50,000 over its asking price.
When you’re in a bidding war, you need to make your offer stand out. DiNicola didn’t expect to win the bidding war, but wanted to get her son comfortable with the bidding process. They offered $26,000 over the asking price, then sweetened their bid by offering the owners a two-month, rent-free lease back option.
And, just as a lark, DiNicola added a kicker: free pizza for life from her restaurant in Portland. By accepting their offer, the homeowner would not only get $275,000 for the house, but also one free pizza each month, for life. It worked! DiNicola’s offer was accepted.
In the San Francisco Bay area, bidding wars, well over asking, have been the norm for many years.
To try to make their bid stand out one couple went to great lengths by creating a video. Not a video of themselves begging and pleading that their bid be accepted. No, they went beyond that.
Instead, they went to several homeowners in the neighborhood and somehow convinced all of them to sing a song about what a great addition this couple would be to the neighborhood. Crazy, huh? Despite their efforts, they were unable to secure the home; the seller accepted the highest bid.
Writing a letter indicating that you are interested in a home used to be unusual. Now, it’s commonplace. However, the contents of the letter may help you convince the seller that your bid should receive the highest consideration, so it is often considered a good idea to write one.
"Money talks, but a letter gives a human element to an offer," said Michael Citron, a real estate agent in Florida. "Sellers want to sell to a buyer who they're comfortable with and can relate to."
We saw that the video of neighbors singing a bidder’s praise didn’t sway a seller, but things worked out better for Cynthia Kelley in Coral Springs, Florida. Kelley fell in love with a big four-bedroom house as soon as she saw its doggy doors and big backyard. She wrote to the owner, explaining that she knew her three golden retrievers would love the space, and included a photo of herself and her dogs.
Kelley also explained that she was a reserve Army nurse who was called to active duty from 2005 to 2007, and was now ready to buy a home. Her letter touched the seller, who told The Denver Post he felt better selling to Kelley than to other bidders.
In another sale, Laura Kaufman, a realtor in San Francisco, represented a seller who accepted $40,000 less than the highest offer because she was so moved by a letter from a buyer who had lost his wife and was raising two daughters.
Many realtors note that sellers rarely accept less based on a letter alone, but if the story strikes a chord, they might work with that buyer to come up with a winning bid.
Regardless of your bid, do something to help your offer stand out. If you own a business, offering a free service is a great way to sweeten the deal. If you’re creative, why not write a song or film a video?
If you are in a highly competitive market, offering something interesting might be the difference between landing your dream house or not. If you are outbid on your dream home, move on. Whatever you do, don’t stalk the new homeowner; you may end up in prison.
Your Turn: Have you done something creative to help your offer stand out? Share your stories in the comments!
Disclosure: We have a serious Taco Bell addiction around here. The affiliate links in this post help us order off the dollar menu. Thanks for your support!
David L. Wright is a retired CFO. He is author of the Amazon bestselling investing book: Investing for the Rest of Us and maintains a personal finance website: DollarBits.com.
