Salary and Debt

Sunday, November 1, 2020

Salary and Debt

By Hanson Feng

Senior Business and Economics Columnist

DISCLAIMER: The information in this article is not provided by a certified financial advisor or financial planner. Returns expressed in this article are not guaranteed and The Written Revolutions takes zero responsibility for lost capital. Please speak with a certified financial advisor, investment planner, or financial planner regarding products best fit for you.


Pay Disclosure and Negotiating Your Compensation 


Societal norms have always told us to never ask someone how much they make. In some cases, it’s even illegal to do so because some companies go as far as to fire employees for discussing their salary with their co-workers.


The only way to reach pay equity is having open discussions about how much you make


If my employer decided to publish an internal report detailing what everyone’s salary was, I’d happily welcome it. When pay is disclosed, it fosters an environment for discussion on what the value of each employee is. This means I can look down the office and know what every single person with the same title as mine makes for their income; I know their value and my value within the company. This transparency allows me to go to my boss and demand more pay if I believe I’m being under-compensated in comparison to my peers. 


Remember, your compensation is more than your salary


When I entered the workforce, I always thought a direct deposit was the only aspect of compensation I could recieve from my company. But it is important to remember that your cost is far greater than the amount you see deposited into your account every month. The company has to contribute to Employment Insurance and Public Pensions like CPP, Health Care, etc.


If you ask for a salary raise (whether that be in an interview, a position change, or mid-way through your employment) and are rejected, ask if your company offers alternative compensation options. These can range from:


  • Group pension schemes: 

    • Direct Benefit Pension Plan is when you receive monthly payments out of a larger fund. These are typically more generous assuming you’ve stayed with the company for a long time. The investment risk is on the companies shoulders, not yours. If you leave the company, you receive a lump-sum payment. 

    • Defined Contribution Pension Plan is when you and your employer both contribute to an account and you choose from a selection of mutual funds. You take on the investment risk, but you can take this pension fund with you if you leave for another employer

  • RRSP or 401K match and contribution schemes:

    • Most employers offer a matching scheme. Either off a certain percentage of your earnings or matching dollar for dollar what you put into the account. This is basically free money. 

  • Healthcare:

    • Most employers offer healthcare, but there are other things you can ask for such as gym membership rebates, mental health resources, etc. 

  • Education Grants or Payments:

    • All large companies pay for the education of their employees up to 100% of the tuition cost. If you were to go for an MBA, you’re saving 50K to 60K. It is important to note after $5,250 of education benefits, it becomes taxable income in Canada.

  • Other Compensation Options:

    • More Paid Annual Leave

    • Transportation Reimbursement

    • Flexible Scheduling (compressed workweek, telecommuting, etc.)

    • Daycare reimbursement


99.99% of the time, a company will not drop an offer from you if you ask for more. I find that is beneficial and important to live by the saying; if you don’t ask, you don’t get it. 




Why the word ‘debt’ shouldn’t always have a ‘bad’ connotation to it 


We always hear that developed countries like Australia, Canada, and the United States are facing a personal debt crisis. In a Canadian context, the average Canadian has multiple credit cards and a ‘put it on the MasterCard’ mentality that is beginning to prevail as a long-term solution. 


As you enter adulthood, a good credit score is needed in every aspect of life. In some cases, you can be rejected from a job because your credit is bad. Most financial advisors say to register for your first credit card right as you turn 18 to begin gaining credit. 


You will be in debt for the rest of your life, but your debt should be asset-driven


I say there’s two types of debt; asset driven debt and liability-driven debt. 
Asset driven debt comes in a variety of forms; the interest rate for this type of debt should never be higher than 5% APR and the money that’s being borrowed should be used towards an asset that grows your money, something that continues to pay dividends in the future. This could be something like student debt for an education, a mortgage whether for your primary residency or for rental properties, or a loan to start a business. These are all examples of debt that can lead to profit, gains, and returns in the future. 

Liability driven debt should be avoided at all costs. Typically, it has a higher interest rate of above 5% (but not always). Things like credit card debt, payday loans, high APR car loans, and refinancing one’s mortgage to buy non-essentials like clothes should be avoided at all costs. 

A debt bubble will only pop if people lose their jobs


Most Canadians fund their lifestyle with their monthly or biweekly direct deposit, this leaves a great deal of Canadians vulnerable if they were to lose their job. An emergency fund is the first step in insuring yourself from this.  It may be important to note that EI is not an ‘insurance’ policy if you have a mortgage because the maximum benefit is $573/ week. The general rule of thumb is to have enough savings to live minimally for 6 months (this includes housing, food, utilities, etc). 

When looking at the economic toll of COVID-19 on Canadian households it is evident that the pandemic was devasting. Before COVID-19, the majority of Canadians couldn’t afford an additional $200 expense and this lead to a precarious financial situation for many Canadians. If banks didn’t implement mortgage payment deferrals, good-will programs, and other financial programs not only would our economy now be crippled but the debt bubble would have burst and caused a collapse in the Canadian financial system. This could mean savings beyond the CDIC insured $100,000 could disappear as banks go under. 

While debt isn’t bad, we must use the right to borrow responsibly. If we are not responsible, our economy has the potential to collapse due to irresponsible borrowers.
 

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