- 1.Budgeting my way towards Financial Independence
- 2.The most important ratio in FIRE: Savings Rate
- 3.How I achieve a plus 80% Savings Rate and is it the key to FI?
- 4.Cafeteria plan: improve wants & needs + take-home salary through self-chosen benefits
- 5.Frugal with a twist
The cafeteria plan, an excellent way to streamline your fringe benefits, also called employee benefits, baed on your needs. For an employer, it’s an excellent way to improve the take-home salary of its (potential) employees and keep them happy by letting them chose their own benefits.
What is important to know before I continue, is that some benefits cannot be part of the cafeteria plan. These are the ones that are given collectively or have certain laws that prevent them from being used inside a cafeteria plan. In fact, The three most popular benefits for employees in Belgium can’t be part of it:
- Meal vouchers
- Hospitalization and health insurance
- Pension contributions
Why do I want to talk about this? Well, because every year in November, i.e., now, I get to choose how (a part of) my salary is used to get additional benefits before taxes in the form of a cafeteria plan.
The cafeteria plan
First, let me clarify this cafeteria plan. The name comes from the similar ability of a customer to choose among available items in a cafeteria.
Second, what can you actually choose? As mentioned earlier, due to legalities (Dutch: , ), or simply because your employer decided, not all benefits are put inside this cafeteria plan. Benefits that can be part of it are, including but not limited to:
- Mobility: company car, fuel card, company (e-)bike, First-class rail pass
- Work-life balance: additional holidays, adjusted schedule
- IT: laptop, iPad, internet connection
- Health: fitness subscription, yearly health check-up by a doctor
- Learning & development: guaranteed training courses
And if any of the options aren’t to your liking, you can always opt for cash. Opting for cash does mean no pre-tax benefit. It will be considered as regular salary and thus taxed like it. For me, this means the full 50%, which is a lot.
My preferred benefits
Because of the heavy taxes in Belgium, especially for a single, I find it a good way to get some nice additional perks or to get a better work-life balance.
From all the benefits my employer offers I chose the following for next year:
- First class public transport
- Extra holidays (8)
- Extra pension savings through tax optimization
The other benefits offered were of no use to me or were barely any better than what you can get on the (secondhand) market.
for example, with my remaining cash, I could get a new smartphone and even a new salary car. In all honesty, I’d rather get more cash, even if that money gets taxed at 50%. I can use it to deposit it into my trading account.
I’m positive I will get more out of this in the long run. Goods such as a new smartphone or a new car depreciate in price while shares appreciate.
Lets talk numbers!
My choices are now clear, but what does it cost me? To clarify that, I should first give the budget I have available.
As you all know, my gross income is 4,284.62 EUR (in September 2018). However, that number is after my benefits are subtracted. The full amount is in fact 4,484.53 EUR. The 204,91 EUR difference is the amount I use for my current (2018) cafeteria plan (+5 EUR BIK for internet paid by my employer, another benefit, separate from the plan).
Of this 4484.53 EUR, 1,057.35 EUR is the cash I have at my disposal for my cafeteria plan. This amount is also used as the basis for next year. How is this amount determined? It depends on the employer.
My employer decided to do salary sacrifice and use my 13th month (something like a fixed Christmas/year-end bonus) as well as my ungraded pay. This is also an additional reason why I prefer not to use all of the cash available to me for my cafeteria plan.
Knowing the above, what do my choices cost me (per month, rounded)?
- 1-year first-class rail pass: 48 EUR
- 5 Extra holidays: 75 EUR
- Extra pension savings: 64 EUR
- Total: 187 EUR
To summarize, of my gross salary, 187.00 will be deducted as of January 2019.
This will leave me with a gross salary of 4,484.53 – 187.00 = 4297.53 EUR. The final amount will vary due to yearly indexation and the rounding.
So, for a total of 192 EUR (1847+5 BIK for internet), which is less than this year, I have improved my take-home salary and gotten my preferred benefits.
Does your employer offer something similar?
- If no, would you like to get this option as well?
- If he does, do you use all of your budget, or not and why?