Unit 1 · Level 2 · Pay it off or invest it?
The employer match exception
Some employers add money to your retirement account when you do. Put in 5% of salary, they add 5%. That is an instant 100% return on the euro you contributed, before it has been invested in anything at all. No card rate and no loan rate comes near it. The names differ (a 401(k) match in the US, employer contributions to a workplace pension in the UK, a Betriebsrente in Germany, employer top-ups to a PEE in France), but the mechanic is the same. Plenty of employers and some countries offer nothing of the kind, so check what yours does before assuming.
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What you get asked
Your employer adds €1 for every €1 you contribute, up to 5% of salary. What is the immediate return on your euro?
One euro in, two euros there. That is a 100% return on day one, and it happens before the account has picked a single investment. No debt charges you 100%.
You earn €40,000 a year. Your employer matches contributions euro for euro up to 5% of salary. How much employer money do you leave behind each year by contributing nothing?
5% of €40,000 is €2,000, so the match is worth €2,000 a year. Skipping it is choosing to be paid less, every year, quietly.
Contributing enough to capture the full employer ___ sits ahead of nearly every debt, because no debt rate comes close to an instant 100%.
The match is the exception to the hurdle rule. A 25% card is expensive, but 100% is four times more valuable, so the matched contribution goes in first.
Salary €40,000, employer matches euro for euro up to 5%. Match each contribution to the employer money it unlocks
The match stops at the cap. Below it you are leaving money on the table, above it you are just investing your own money, which is fine but no longer free.
You have card debt at 20% and an unclaimed euro-for-euro employer match. Which usually gets funded first?
Take the 100%, then take the 20%. Skipping the match to pay a 20% card trades a certain doubling for a certain fifth. Check your own scheme's rules first. 🐜
The rest of this unit
The one decision that decides where every spare euro goes, and it turns on a comparison most people never make.