This article is part of a series called Graduating? which focuses on personal finance advice for fresh college grads.
Hurray! You’ve been offered a job! TAKE IT! TAKE IT!
Or, you could slow down a bit there, cowboy. Not all job offers are created equal. It would be nice if every job offer gave you a bottom line number, making them easy to compare. But of course, they don’t. And if you just use the salary as if it were the end-all-be-all score, you could be turning down thousands of dollars in benefits.
Evaluating benefits is so confusing and not fun that it was the #1 topic people asked me to break down for them in this series. Fair enough – I’ll try and make this is as easy as possible.
The hardest part about benefits is that there are so many possible variables. It becomes difficult to compare apples to oranges; in fact, a lot of benefits don’t even fall into the same categories, so it’s more like comparing apples to hammers. Consider this list of possible benefits from CollegeGrad.com:
- Medical Insurance
- Dental Insurance
- Vision/Eye Care Insurance
- Life Insurance
- Accidental Death Insurance
- Business Travel Insurance
- Disability Insurance
- Sick/Personal Days
- 401(k) Plans
- Pension Plans
- Profit Sharing
- Stock Options/Restricted Shares/ESOPs
- Tuition Reimbursement
- Health Clubs
- Dependent Care
- Employee Assistance Programs
- Overtime/Travel Premiums/Comp Time
- Parking Reimbursement
- Commuting Cost Reimbursement
- Expense Reimbursement
- Mobile Phone Reimbursement
Egads! I didn’t actually make it all the way through that list until I had to type it out, so if you did, you deserve a gold star. Almost no job will offer you all, or even most, of these. And some of them are just straight-forward perks. When comparing offers, estimate the financial gain of any straight-forward perks and add it to your salary.
First of all, look at the benefits offered to you and rule out the ones that just don’t apply. If you don’t have any kids, and aren’t planning to for a while, child care shouldn’t affect your decision much.
However, don’t rule out things like disability insurance. You might look at it now and think “What are the chances I’ll become disabled?” But what you really need to ask yourself is “How screwed would I be if I became disabled and couldn’t work?” If your job doesn’t offer disability insurance, you should probably look into purchasing some on your own.
Healthy, Wealth, and Wise
Health insurance seems to really trip people up. First of all, let’s get this out of the way: you need it. Just because you’re young and healthy now doesn’t make you invincible. If an employer doesn’t offer any at all, you’ll have to pay for your own. Subtract a substantial portion of the salary from any job offer that doesn’t include health insurance.
Some employers will offer you tasty free health insurance, where they cover the entire cost for you. More likely though, an employer will just pay a portion of the monthly cost, and leave the rest up to you. Find out how much you’ll have to pay monthly, multiply it by 12, and subtract it from the annual salary.
This may also apply to all the other forms of insurance from the list above, if they’re offered. Life insurance and accidental death insurance are nice if they’re free, but don’t pay for them unless you have dependents.
Flexible Spending What?
A great benefit that’s often overlooked is the Flexible Spending Account (FSA). Like a 401(k) (we’ll get to those in a minute), it’s something that you have to opt-in to and contribute a portion of your salary. However, it’s still pretty awesome.
Basically, you can legally hide some of your money away from Uncle Sam. Money in a FSA is never taxed. When you make certain purchases, you can get a reimbursement from this wonderful untaxed account. Things that are eligible for reimbursement usually include the out-of-pocket costs associated with health care – that is, co-pays, deductibles, and prescription medications. Child care and glasses may also be eligible.
One drawback: if you don’t use all the money in the account by the end of the year, what’s left disappears. Do your best to estimate the expenses that you’ll use from the account over a year, and contribute just that amount.
Tax savings can be tricky to calculate, so unless you’re getting a really sweet six-figure salary offer, use this rule of thumb: take the amount that you think you should contribute to a FSA, and multiply it by 0.25 (25%). For example, if you contribute $800, 25% of that is $200. Add that to the salary of jobs that offer FSAs. $200 might not sound like much, but hey, it’s free money, and you should count it.
401(k) 403(b) OMGWTFBBQ
The big kahuna: retirement benefits. These come under a slew of different number-letter combinations, but most of them are extremely similar, so I’ll just stick with the term 401(k) for this. But this info also applies to 403(b)s and 457s (but not to 747s, as those are jet planes).
Most of the time, 401(k)s are free money. You contribute a portion of your paycheck, and your employer matches it. They’ll try and make it confusing by saving that they match “50% of up to 6%.” Uh, what? That means that for every dollar you contribute, they’ll add in 50 cents, but if you contribute more than 6% of your salary, they’ll only do it for that first 6%.
More math time! First, figure out how much of your salary they’ll match (that “up to 6%” part). So if you’re offered $40,000, 6% is $2400. Then find out if it’s a 50% or a 100% match, or whatever. 100% of $2400 is $2400 (I’m sure you needed me to tell you that.) Whatever the number is, add that into your salary.
Big point here: this math only matters if you actually contribute to your 401(k) once you take the job. DO IT! If there’s a match, and you don’t contribute, you are literally saying “I don’t want free money, thanks.”
Pulling It All Together
This sounds rather simplistic, but once you’ve figured out all of the additions and subtractions that matter to you for each job offer, just apply them to the salary offer. Now you can compare apples to hammers – a little better, at least.
Just don’t forget that the number isn’t the end-all-be-all for evaluating a job offer. Things like company atmosphere, coworkers, your future boss, and whether or not you believe you’ll enjoy the work really do matter.