Our Favorite Methods for Tracking your Expenses

“Can I afford it?” is a question you may find yourself asking more often than not, especially if money is a constant stress in your life. In this post, we narrowed down three approaches that we have found to be effective in knowing how much money is coming in and how much money is going out each month. However, we encourage you to experiment with different methods (even the ones not listed here) until you find the one that works best for you. 

Managing your money on a consistent basis is crucial for your financial well-being. It’s not just about budgeting, but rather understanding your lifestyle expenses, spending habits, and financial priorities. By gaining clarity on where your money is going, you can make informed decisions about:

    • What you can and can’t afford.

    • How much to allocate to paying down debt. 

    • How much to save and invest to reach your current and future wants. 

Where to Begin

To gain clarity on your lifestyle expenses, start by examining your current spending habits. Avoid guessing and take a close look at your bank transactions and credit card statements. Don’t forget about Venmo or other payment app transactions. While going through your spending you may feel some discomfort and even shame. That’s normal but don’t get discouraged. Even though you can’t change the past, you do have control over the decision you make going forward. The goal at this point is to have an awareness of where your money is going. With that information you can begin to make small adjustments to get closer to living the life you want. Read on for our recommended systems to track spending.

Method #1: Year-End Credit Card and Bank Statement Review

This is the least time consuming method. Gather all your year-end credit card and bank statements (note: many credit card providers will create a year end summary of your annual spending). Then, total up all the expenses for the year to come up with an average monthly discretionary spending number. For example, if you spent a total of $54,800 on your credit card for the year, plus an additional $10,000 paid by Venmo and cash/check, your total spending for the year is $64,800 or $5,400 per month. Now, take a close look at the categories on the year-end summary to gain awareness of where your money is going. Are you surprised by any particular category? Are there opportunities for adjustments?

Method #2: Manual tracking and budgeting apps

While this method may require more effort, it can be highly effective, especially if you struggle with impulse spending or tend to overspend. You can start by using a simple cash flow spreadsheet to manually track your spending and plan for the months ahead. Alternatively, you can utilize budgeting tools like Mint, which automatically syncs your bank accounts and categorizes your transactions. Another option is known as the envelope method, where you assign every dollar a specific purpose. Apps like You Need a Budget (YNAB) replicate the envelope system to help you plan ahead. It allows you to allocate a certain amount to each envelope or category, such as bills, groceries, savings, and entertainment. YNAB is the system I use and can say from personal experience, there is a learning curve in the beginning when using the app. Once you get the hang of it, it really can keep you on track with your spending. Whether you are doing it manually or using an app, consistently looking at the numbers and planning ahead can aid in maintaining discipline and awareness of your spending limits.

Method #3: Pay Yourself First

If you already have a good understanding of how much you should be saving, consider the “pay yourself first” method. Automatically contribute a certain percentage of your income to savings before allocating the rest for spending. You can set up automatic transfers from your paycheck to separate accounts, such as checking and savings, to ensure consistent savings. Once you’re confident you’re saving “enough”, spend the rest as you wish.

Don’t Forget About Non-Monthly and One-Time Expenses

Remember to account for non-monthly and one-time expenses in your lifestyle costs. These may include vacations, car maintenance, kids’ summer camps or other inconsistent items. Plan ahead and set aside funds in a separate high-yield savings account to cover these expenses without disrupting your monthly budget.

Stick to Your Plan

Creating a budget is not a one-time task; it requires ongoing commitment and discipline. Schedule a money date with yourself- we recommend once a month or once a quarter- to check in on your spending regularly and make adjustments as needed. 

It’s common to feel overwhelmed or guilty about past spending habits, but remember that no spending is inherently good or bad. It’s about understanding where your money goes and making adjustments moving forward. Experiment with different methods until you find what works best for you, whether it’s manually tracking your expenses, using budgeting apps, or some combination of the above methods. Be patient with yourself and stay consistent, as you work towards better managing your lifestyle expenses.

 

The Gender Wealth Gap and Equity Compensation

I recently read an article about the gender wealth gap, which stated women retire with a quarter less wealth than their male counterparts. I’ve heard stats like this before, and it did not come as a surprise. We all know that women make 77 cents on the dollar to what a man earns for equivalent jobs (and that’s white women; Black/Latinas make even less at about 63 cents/58 cents, respectively).

What did surprise me, was the statement that “women tend to be in roles with less compensation in stock and may not negotiate as well for non-salary compensation that often gains value over time”. Now this caught my attention. Of course, it makes sense that women’s earnings over the course of a 40-year career would be less than a man’s but it never occurred to me that equity compensation plays such a big role.

Let me tell you: I. HAVE. THOUGHTS. First, I wanted to do some more digging into this issue. I found reporting from 2018 which showed that 16% of women receive some kind of equity comp to 24% of men. The value of the average equity grant is $104,902 for a man and $23,361 for a woman. Compound that over a career and the numbers are staggering.

Carta, which manages the stock plans for many companies, reported in 2021 that of all equity compensation that is granted, only 27% goes to women. The remaining 73% is awarded to men.

Gender wealth gap vs gender pay gap

The issue of the gender wealth gap is even more complex than the gender pay gap. Not only do women make less, but they may be more conservative investors, or generally invest later than men of the same age. The study points out that the difference is more stark at higher income levels than lower income levels. In other words, for people who are making minimum wage, the relative net worth isn’t significantly different for men vs women. 

And this doesn’t begin to consider the issue of race. Needless to say women of color receive even less equity compensation than white women, with Latina women coming in last with regards to all other race/gender categories.

Per Carta: “Together, Black and Latinx people make up 29% of the U.S. labor force—that is, Americans who are working or available to work. But they make up only 16% of employees who hold equity. What’s more, these 16% of employees collectively hold only 9% of the total value of employee equity. Twenty-nine percent of America’s workers holding only 9% of employee equity is concerning.”

Some of this is due to Black, Latinx folks AND women occupying roles at lower levels in their companies. Only 7% of people in the C-suite are Black/LatinX. While 24% of people in the C-Suite are women, only 14% of founders are women.

You may be asking “What the heck can we do about it??” 

One of my goals with Xena Financial Planning is to educate the people I work with about what types of equity comp exist, which type(s) they have/what they mean and what is reasonable to negotiate. I’ve written about negotiating before, and not surprisingly, I have pretty strong feelings about the subject. 

First, I think it’s really important to acknowledge that not everyone is in a position to negotiate on anything. Women of color in particular are much more likely to have a job offer retracted or face other retribution from the hiring manager if they try to negotiate their comp package. I’ve been known to say “you have nothing to lose” (when negotiating) or “it can’t hurt to ask.” But the reality is, that’s not 100% true. If you’re desperate for a job, you’re more than likely not going to take the risk that comes with negotiating.

That said, there are a lot of ways to approach it and I’ve had quite a lot of success personally and with friends/clients. 

My top suggestions for negotiating:

-Do not go into a negotiation with a threatening or accusatory tone. Imagine that you and the hiring manager are on the “same side of the table” and you’re trying to find the best possible outcome for all parties.

-Do. Your. Homework. I cannot stress this enough. It’s extremely poor form to just ask for money without any basis. You should know what a reasonable range of “total comp” (INCLUDING equity!) is for the role. There are ways to gather this information: from speaking to recruiters, searching sites like glassdoor or salary.com and my favorite (for tech roles): levels.fyi.

-Don’t show your cards too soon. In other words, if a hiring manager asks for your salary expectations, DO NOT TELL THEM. There are clever ways to deflect this question (you might say “I prefer to get into salary negotiations after we’ve established if this is a fit”) but you may very well be giving them a number that is on the low end. Let the company make the first move when it comes to dollar amounts.

-Role play or practice with a friend as much as you need to in order to boost your confidence.

This is not a silver bullet to the problem of the gender wealth gap. Companies can and should do everything they can to ensure women and men of all races are paid comparably, including equity packages. The move towards increased pay transparency should go a long way to helping with this. But negotiating and advocating for oneself is certainly an available option that is worth considering. In the meantime, I’ll keep pounding this drum and doing whatever I can to help my clients build their wealth.

Note: I recognize that the data doesn’t mention non-binary folks at all. Carta said they don’t track that at this time but in the other sources, there was no mention of non-binary people at all. If you have data that reflects the inclusion of non-binary people, I’d love to see it!

The FIRE movement: what is it, and is it achievable?

If you’re on the 9-5 grind at a point in your career, you’ve likely pondered retiring early and whether or not that was attainable. Perhaps you’ve stumbled upon the FIRE movement (financial independence, retire early) yourself, whether on social media or through a friend. It certainly sounds appealing to be financially independent at an early age. As a millennial, I watched my parents’ generation work hard for decades and by the time they reached their 60s, they had little energy left to enjoy retirement.

What is FIRE, and how did it begin?

The movement first began in 1992 when Vicky Robin and Joe Dominguez published the book “Your Money or Your Life.” The book was centered around achieving financial independence ​​by changing your relationship with money in order to live a more meaningful life. Then, in the early 2000s, with the help of the internet, blogs like Mr. Money Mustache popularized the FIRE movement even more. When the 2008 recession hit, many people were looking for ways to change their lifestyles. The traditional way of doing things became less appealing in modern America; working for 40 years, saving some money along the way, and then having a nice nest egg to retire and begin living your “dream”. 

Today, there are several influencers online who teach and discuss how to achieve FIRE by spending less and increasing your savings and income via podcasts, blogs, and social media. Some popular sites include Rich & Regular, Our Next Lives, and Yo Quiero Dinero, to name a few. 

Is it achievable? 

One of the main premises of the FIRE movement is to cut back your spending and be more intentional with purchases. Many proponents of FIRE attempt to save aggressively, sometimes as much as 50-70% of their income.  In order to save at this rate, you have to be hyper-aware of the things that you spend on. 

Try to hypothetically apply this practice in your life:

  • Take half of your yearly take-home pay, divide by 12, and that’s what you have to work with every month to pay all of your bills and living expenses. 

Could you pull it off? Perhaps. Surely others have been successful in doing so. But I think we can all agree that it takes time, self-awareness, and a lot of dedication to be able to dramatically cut back your expenses. It’s a good exercise, though, to be more aware of how you spend your money. Others that have done this successfully have moved to less expensive cities and replaced going out to new restaurants with inexpensive activities like hiking and beach days. 

We live in a consumer culture where we’re bombarded with messages to “buy” all day long.  It’s easy to get wrapped up in mindless spending. The FIRE movement makes you question your current spending habits and whether you’re spending money on things that you actually value or just filling a void. 

Finding a balance

This hyper-vigilance on where we spend our money is a bit extreme and may lead to depriving yourself now and waiting to enjoy your life later. In a way, it reminds me of dieting culture, and we all know dieting never truly works in the long term because it is simply not sustainable. 

You also have to envision what retirement looks like for you. At Xena FP, we think of retirement as more of an evolution to a new chapter of your life rather than the destination. Retiring in your 30s or 40s may sound blissful now, but what are you going to do with the remainder of your life? Achieving financial independence at a young age gives you the luxury of making work optional. In return, you have the freedom to explore new careers or projects that you’ve had an interest in. 

Financial independence gives you options; no longer needing to rely on how much you make, and I can get behind that. 

The work that we do with our clients at Xena FP emphasizes intentionally living a life that you’re proud of today while saving for your future. Finding a balance between the two takes work through careful planning. If you’re interested in achieving financial independence and retiring early, we encourage you to have a conversation with your financial planner and start thinking about what kind of lifestyle you would want to maintain during retirement. 

Prioritizing Company Savings Options

If you’re lucky enough to work for one of the many tech companies that offer multiple ways to save, you may be wondering which programs to prioritize. For instance, Microsoft employees have the good fortune of having access to a pre-tax/Roth 401(k), after-tax 401(k), ESPP and HSA. If you can afford to maximize them all, well that’s fantastic. They all offer their own unique advantages. But if you can only afford to save to one or two of the above, how do you decide? Which is most important? Which one makes the most sense for you?

You will undoubtedly get sick of me saying this, but like most things in your financial life, it depends. What I’ll offer here is some general advice, but it will likely vary depending on your unique circumstances.

An overview on the options:

401(k) – either pre-tax or Roth

In 2023, you can save up to $22,500 to a pre-tax or Roth 401(k). If you’re over 50, you can save an additional $7,500, called a catch-up contribution. I typically recommend you at least take full advantage of your employer match. That may or may not mean deferring the full annual contribution. In the case of Microsoft, they match 50% of your total contribution (up to the annual limit). If you defer the maximum amount, they will match $11,250. That’s HUGE. On top of your salary, bonus, and RSUs, you’re getting another $11,250 from Microsoft. This is a no-brainer (assuming you can afford to save $22,500 per year). Whether you save those dollars pre-tax or Roth is highly individual; I suggest you work with your financial advisor to determine what makes the most sense for you.

OK, so you’re saving $22,500 per year and you still have “extra” cash- what’s next?

I’m a big fan of Health Savings Accounts (HSAs). That’s a blog post for another day, but in short, an HSA offers incredible tax benefits that you cannot get from any other account type. You can contribute to an HSA on a pre-tax basis, the earnings grow tax-free AND all withdrawals are tax-free. That’s a pretty incredible combination.

In order to contribute to an HSA you must be enrolled in a High Deductible Health Plan (HDHP). If you are, you can contribute up to $7,750 for a family and $3,850 for an individual in 2023 to the HSA. Unlike a 401(k), that total actually includes the employer contribution. Again, we are talking free money here! Microsoft will contribute up to $2,500 to a family account or $1,000 for an individual (in 2022). 

If you still have room for extra savings:

After-tax 401(k)

In addition to the pre-tax or Roth 401(k), some companies, like Microsoft, also offer the after-tax 401(k), also known as a Mega BackDoor Roth 401(k). With this option (and continuing the Microsoft example), once you have maxed out your 401(k), plus Microsoft’s $11,250 match, you have the option to defer another $32,250 to an after-tax 401(k). (The total IRS annual limit for all contributions in 2023 is $66,000.) 

There are a lot of great things about a Mega BackDoor Roth, not least of which is that if you’re very high income, you don’t have that many savings options that are tax-advantaged. This allows you to save aggressively into an account that won’t be taxed in the future. Note: it’s important to make sure your after-tax contributions are automatically being converted to Roth. 

Employee Stock Purchase Plan (ESPP)

Finally, at Microsoft you can save to an Employee Stock Purchase plan (ESPP). The federal limit for an ESPP is $25,000 of the un-discounted stock, which with a 15% discount means you can save $21,250. I’ve also written about the specifics of Apple’s ESPP plan here. There are some definite benefits, though the tax implications can be complicated and you have to manage the selling and reinvesting process. It may still be worth doing, but generally lower on my list of savings options.

If you happen to make enough money to save $22,500 to your 401(k), plus $7,750 to an HSA, plus $32,250 to your after-tax 401(k), plus $21,250 to an ESPP, by all means!

For many people, that’s just not realistic and they must prioritize. Broadly speaking, my order or preference is:

  1. Pre-tax or Roth 401(k)
  2. HSA
  3. After-tax 401(k)
  4. ESPP

As mentioned above, this may not be the best order for your situation. For instance, if you plan to retire very early (say, age 50), you might not want to tie up too much in a 401(k) and would rather save to a taxable account. In that case, maximizing the ESPP (then selling and diversifying out of company stock) would make more sense than filling up the 401(k) buckets.

It’s a highly individual decision, but this framework applies in many situations. As always, I encourage you to work with your financial advisors to decide what’s best for you.

Estate Planning for Young Professionals

If you’re young, unmarried and haven’t accumulated much wealth, you may think having an estate plan isn’t relevant for you. While it’s true that part of estate planning is declaring how your assets will be distributed if you pass away; it may seem pointless if you’re just getting started on your journey to building wealth. We’re here to tell you that it doesn’t matter if you haven’t saved much yet and that an estate plan is not only applicable when you pass away but also while you’re alive. Think of it as a tool to eliminate stress and confusion in the future by communicating your wishes to your loved ones in the present. And perhaps more importantly, it can dictate what happens to you (and your assets) while you are still alive.

Given the recent disturbing events in America, with Roe v Wade being overturned and talk of marriage equality being next, we are reminded that it’s more important than ever to revisit your estate plan. Here at Xena Financial Planning, we are actively monitoring the Supreme Court/state decisions that could impact our clients. There are a number of steps that we are recommending for our LGBTQ+ clients, as well as couples who expect to undergo fertility treatments. Stay tuned for a blog post devoted to that topic!

In the meantime, here are some documents and other action items to consider at this stage of your life: 

Check your beneficiaries

Good news: this is something you can do today and it only takes about five minutes. A beneficiary is an individual or trust that receives the assets upon your death. Log into all your retirement accounts (IRAs, 401(k)s, etc.) and life insurance policies (even if it’s through work!) and make sure the beneficiaries are current. Adding beneficiaries ensures your money will go to those you intend, without having to go through probate, which is both costly and slow. 

Advance Health Care Directives 

When you turn 18, your parent(s)/guardian(s) can no longer make medical decisions on your behalf. If you were to become critically ill and unable to make major health decisions for yourself, then no one would be able to legally advocate for you. This is where a living will (a type of advance health care directive) would come into play. In this document, you state which medical procedures you would or wouldn’t want, and under which conditions these apply. It might be helpful to discuss any current health conditions with your doctor and how they might influence your health in the future. 

Additionally, you would elect a health care agent who would have the ability to make health care decisions on your behalf. This is often a family member, partner or trusted friend who can ensure your wishes are carried out. 

Considerations when appointing an agent:

  • Can you trust them to carry out your wishes?
  • Are they easy to get in contact with?
  • Do they live nearby?

Additional considerations:

  • Creating an advance health care directive does not require an attorney. 
  • You can create one by going to Five Wishes or eForms.  
  • It is always a good idea to add more than one person listed in the event your primary person is unavailable. 

Durable Financial Power of Attorney

With a durable financial power of attorney, you appoint a trusted individual, called an agent, to have legal authority over your finances. In this document, you spell out what your agent is and isn’t allowed to do and when they have the authority to act on your behalf. For instance, if you were to become disabled you can grant your agent access to your bank accounts to continue paying the bills. It’s important to make sure your power of attorney is durable to ensure that the document remains in affect if, and when, you become incapacitated. 

Considerations when appointing an agent:

  • Are they organized?
  • Do you trust them to manage your financial affairs?
  • Avoid choosing someone who doesn’t have a good record of handling financial matters. 

Once the document is fully executed (signed and notarized), provide a copy to the appointed person. If your situation is fairly simple, you can create a durable power of attorney on Legal Zoom or contact an estate attorney. 

Last will and testament

A will states how your assets will be distributed after you pass away. Even if you don’t have a lot of assets chances are you may own a car, an extensive sneaker collection, or have kids/pets. If you do not have a will, the state decides what happens to your estate including your dependents. In the will you appoint an executor who will be responsible for properly executing your wishes and distributing assets accordingly. You can also establish guardianship and other wishes regarding children and pets.

Considerations when appointing an executor:

  • Do I trust this person to make sound decisions? 
  • Are they organized, emotionally stable, patient and trustworthy?
  • Will this person deal with my beneficiaries fairly and competently?

Considerations when appointing a guardian:

  • Is this person able to take on the responsibility of raising children (or pets)?
  • Do I trust this person to make sound decisions with regards to parenting? 

If your estate is complex (dependents, assets in other jurisdictions, multiple properties, etc) you should contact an estate attorney. If your situation is simple, you can create a will using Legal Zoom. 

Additional considerations

  • We strongly suggest that you use a password manager to store account logins.
  • Keep an inventory of your digital assets, investment accounts, where legal documents are stored and who has access to what. 
  • Revisit your estate plan at least every 10 years or when significant life events occur. 
  • Write out your funeral and burial wishes or discuss your preferences with your loved ones. 

Don’t wait until you’re older or have accumulated assets to create an estate plan. By planning ahead, you eliminate stress and confusion for your loved ones that will occur if you were unable to make medical and financial decisions for yourself. It’s much better to have control over what happens to you, your belongings and your dependents. So why wait and risk the chance of giving that up?

Should I still participate in my company’s Employee Stock Purchase Plan- Even When the Stock Price is Trending Down?

Tech stocks have had a terrible year thus far. So far this year, the tech-heavy Nasdaq Composite Index is down 23%. Among the worst-hit have been Amazon.com (-25%), Tesla (-32%), Meta (-42%), Zoom (-40%), and Shopify (-74%). We’ve been hearing from so many of you about whether to continue to participate in your company’s employee stock purchases plan (ESPP) when the company stock is declining.

Using the Apple ESPP to illustrate how it works

Essentially, a company that offers an employee stock purchase plan is giving its employees the option to buy the company stock at a discount. Let’s use the Apple ESPP as an example. Suppose your base salary is $200,000. You can contribute up to 10% of that salary – in this example up to $20,000 (ESPP contributions are capped at $25,000 per year, based on the full fair market value of the stock). 

At the start of each purchase period, which goes for 6 months, Apple will withhold the percentage you elect. At the end of each purchase period, they will use the funds withheld over the prior 6 months to purchase stock at a discount. The amount you pay for the shares is the lower of two prices—the offering date price or the purchase date price—plus an additional 15% discount. Apple has their 2 purchase dates as January 31st and July 31st. 

The amount you pay for the shares is the lower of two prices—the offering date price or the purchase date price—plus an additional 15% discount.

Here is an illustration that shows what the timeline for Apple’s ESPP looks like.

Note: Apple’s offering period and purchase period are the same, though that’s not always true. 

In this example, if you had participated between August 1st, 2021 and January 31, 2022, you would be purchasing at a discount on the lower price from August 1st. On January 31, Apple would use the $10,000 withheld and purchase Apple stock at 15% less than the August 1st price of $145.52 (80 shares of AAPL. Note: Apple does not allow the purchase of fractional shares in their ESPP). 

If you sell immediately, at the market value on January 31st ($174.78), you gross roughly $14,000. You’ve immediately gained almost $4,000, which will be taxed at whatever your ordinary income tax rate is. For the sake of simplicity, I’ll assume you’re in the 35% tax bracket, so you’ve netted a little more than $2,500. Not bad!

Money withheld from your paycheck$10,000
Share price on August 1, 2021$145.52
Share price on January 31, 2022$174.78
# of shares purchased on January 3180
Sales proceeds (80 shares x $174.78)$13,982
Gain$3,982
Estimated tax @ 35%$1,394
Net proceeds$2,588

What if the stock price had actually gone down from August to February? 

You would still get a discount on the lower stock value, but it would be worth less when you sell and you would only gain the 15% discount. Let’s imagine the stock prices were reversed- $174.78 on August 1st and $145.52 on January 31st. You would still receive 80 shares of AAPL stock, but you would only be able to sell it for about $11,600. Again paying 35% tax on the gain, you would net about $750. Still better than nothing but quite a bit less than the first example.

Money withheld from your paycheck$10,000
Share price on August 1, 2021$174.78
Share price on February 28, 2022$145.52
# of shares purchased on March 180
Sales proceeds (80 shares x $145.52)$11,642
Gain$1,164
Estimated tax @ 35%$407
Net proceeds$757

In a market where your company stock is trending down, the maximum gain you would realize over a 6-month period is $12,500 (50% of the annual IRS limit) less $10,625 (50% of the maximum annual contribution, assuming a 15% discount) or $1,875- and that’s before you pay taxes.

Tax Implications: Selling the shares immediately

In the above examples, I assume you sell the shares as soon as you’re able (which is very close to immediately after the end of the offering period). This is considered a non-qualifying disposition, and you’re required to pay ordinary income tax rates on whatever the discount amount is. 

Tax Implications: Holding onto to the stock for more than a year

If you hold the stock for a full year from the purchase date, and 2 years from the beginning of the offering period in which you purchased shares, then the stock would be eligible for a qualifying disposition. In this instance, any gain would be taxed at long term capital gains rates, which are more favorable than ordinary income tax rates. Many people are enticed by the possibility of paying lower taxes, but holding the stock for longer is risky, and you might have no gain at all, or even a loss.

There is very little risk involved in participating in an ESPP if you sell the stock right away. If you hold the stock, your risk increases significantly.

Factors to consider

One of the most relevant issues here is- can you afford to have that reduction in every paycheck for the 6 month period before reaping the benefits at the end? For some folks, this is a fantastic way to automate savings. It enforces a certain behavior and then at the end of 6 months you can sell your company stock and invest how you see fit. In other cases, you just can’t afford to take a reduced salary. Given the limited benefit when the stock is trending downward, if the regular paycheck deductions present a challenge, I would likely not participate in the ESPP.

The other consideration is having too much exposure to your company stock. If you’re already receiving Restricted Stock Units or stock options, you may have a large portion of your portfolio in one stock. Add to this the fact that your salary and benefits are tied to this same company, it can get pretty risky.

How should I decide?

To recap, some pros of participating:

  • Enforced savings
  • Free money! Admittedly, LESS free money when the stock price is on a downward trend.

And cons:

  • Concentration risk
  • Increased tax complexity
  • Reduced cash flow
  • Potential volatility if you hold the stock
  • The manual process of selling and then reinvesting into some other vehicle (or as I like to call it, the “hassle factor”).

I have a bit of a love-hate relationship with ESPPs, but they are often worth doing, even in a down market. The potential benefit is quite small, but if you can afford to participate, it might be a good idea regardless of the way the stock is trending.

Tech companies with unique employee benefits

Given the great resignation, people increasingly want to work at places that not only offer flexibility but also for a company whose values align with their own. Tech companies are facing a shortage of qualified workers, and have upped the ante with a host of new benefits to entice top talent. 

Tech companies are well known for their nontraditional perks of employment, like ping pong tables, free food, and modern offices. They’re also known for generous salaries and equity compensation, but what are some unique benefits beyond that? 

Here are some tech companies to work at if you value…

Travel

If traveling and creating experiences with family/friends is a significant priority for you, then finding companies that offer travel perks may be best for you. 

  • Google gives its employees the option to take a sabbatical, work remotely, and covers travel insurance for personal trips. 
  • Airbnb offers a travel stipend of $2,000 per year along with a generous vacation policy.
  • REI offers their employees 30% off their trip if they book with REI Adventures. 
  • MOZ encourages its employees to go on vacation by covering vacation costs of up to $3,000 annually. 

Starting a family

If you’re planning on starting a family, taking time off to recover and bond with your new child is essential. While the government only requires companies with 50 or more employees to offer 12 weeks of unpaid family leave, tech companies are known to go above and beyond those limits. 

  • Netflix offers the longest paid family leave (52 weeks) out of all the tech companies. You’ll have to be an employee for 12 months in order to take advantage of this. 
  • Spotify and Adobe offer 26 weeks of paid parental leave.
  • Google, Amazon, and Microsoft each offer 20 weeks of paid parental leave. 
  • Twitter offers breast milk shipping. If you’re traveling for work and need to ship milk back home, Twitter’s got you! 
  • Both Google and Facebook offer an on-site clinic & mother’s room, and free on-site laundry. 
  • Facebook gives its employees a $4,000 baby bonus for each new child and a $3,000 reimbursement for child care. 
  • Google will reimburse you up to $40,000 of surrogacy fees; one of the highest amounts compared to other companies. 

Want to see what other tech companies are offering? Check out this list of parental leave in tech. Other common benefits include fertility support, such as egg freezing, adoption assistance, and surrogacy fee reimbursement. 

Financial wellness 

Carrying student loan debt can feel like a huge financial burden and may be stopping you from achieving your other goals. Luckily, it’s becoming more common for employers to offer student loan assistance to retain talent. 

  • Google will help you with student loans by matching 100% of contributions up to $2,500 per year. The amount will be applied to the principal balance, making an even more significant dent in the loans. 
  • Doma offers an even higher contribution towards your student loans of up to $5,250 per year. 
  • Slack offers legal services at no cost. This benefit is huge if you have yet to complete your estate planning documents or need to make updates. 
  • Duolingo offers a mortgage benefit of up to $10,000 for your first home in Pittsburgh.  
  • Google offers a one-on-one financial coaching program. 
  • T-Mobile offers a coaching program called LiveMagenta. They also provide gender-affirming services, including surgery and autism coverage, including Applied Behavioral Analysis services (ABA). 

Giving back

If giving back either with your money, time, or both is important to you, here are some benefits to factor into your charitable planning strategy. 

  • Google and Apple employees receive a 100% match of charitable contributions up to $10,000. 
  • Microsoft and Linkedin match charitable contributions up to $15,000. 
  • Netflix will double your charitable contributions up to $20,000!
  • Salesforce employees are eligible to take up to 7 days of paid volunteer time off per year. They also have the ability to win a $10,000 grant to give to the nonprofit organization of their choice (if they rank as one of the top 100 volunteers). 
  • Microsoft and Apple employees receive $25 per hour to volunteer.  

Other unique benefits 

  • Google, Linkedin, and Microsoft offer on-site car washing and detailing. You can go into work with a dirty car and leave looking fly. 
  • If you just got a new pet and want to take some time off, Reddit offers one week of paid leave to spend time with your new pet. 
  • Need assistance completing all your errands? Slack offers concierge and errand running while you work. 

Tech companies will offer extensive benefits and perks to retain top talent and stay competitive. If you’re evaluating job offers, make sure to look at the full benefits package. You can use this information to compare competing offers during your negotiations. 

Source: Levels.fyi 

What Should You do with Extra Cash?

One of the questions we get asked all the time is “where should I keep my emergency reserve (aka rainy day fund)?” or “What should I do with my extra cash?”

How Can I Get My Cash to “Work for me?”

If you haven’t already, I suggest setting an emergency reserve target. I generally recommend establishing a target of 3-6 months of living expenses. Although, like with all things related to personal finance, this is a highly individual decision and there is no right answer. There are many factors that can influence the target, including whether you are a single-income household or have highly variable income.

Before we move on, let’s establish up front that you’re already in good shape with regards to consumer debt (i.e. you don’t have significant credit card bills). That said, it bears mentioning that it is possible to build your emergency reserve and pay down high interest debt at the same time.

Where to keep your emergency reserve

High Yield Savings

My top recommendation for an emergency reserve (as of this writing) is a high-yield savings account. I always check bankrate.com for the best rates and as of April 2022, most banks are offering something like .60% – .70%. I prefer this account being separate from whichever bank you use for your checking account; I like the idea of it being ever so slightly harder to access these funds. Please do not be fooled by Bank of America (and some of the other big banks) whose “high yield” savings account actually only earns .05% interest. Don’t get me started on the inaccuracy of that claim!

CDs

In the past, CDs were a reasonable option for an emergency reserve. I, myself, used to have laddered CDs that came up each quarter, which I would then renew. Based on the current rates, CD rates are only fractionally higher than high yield savings accounts, so there’s no compelling reason to have your money “tied up” in a CD.

I Bonds

I bonds are all the rage the past few months. Rates are at 7.12% through April 2022 and will increase to an estimated 9.62% in May which is frankly jaw-dropping! 

There are a few stipulations that you should be aware of: 

  • The rates reset every 6 months. The current rate is good on new I bonds purchased through April 2022. 
  • You can only buy $10,000 in I bonds per individual, per year. Depending on how much your emergency reserve target is, there’s a good chance you won’t be able to buy enough I bonds to hit that target, but you could always supplement with a regular high-yield savings account.
  • Note: You can cash the bond in after 12 months. However, if you cash it in before it is five years old, you lose the last three months of interest. So it’s not quite as liquid as a traditional savings account. 

Finally, in my opinion, it’s quite a bit of work! But if you’re up for the extra logistical steps required, you can buy bonds directly from the US Treasury.

Beyond the emergency reserve

Ok so you have a high yield savings account set up for your emergency reserve. Go you! What about any extra cash? How and where should you keep it?

Cash for short-term needs

Here’s where we start to talk about timing. Let’s take a step back and revisit your goals. What is that cash for? Are you earmarking it for something in the next, say, 3 years? (Think new car, big vacation or significant house project). If so, you should probably keep it in cash. The above ideas are still great options for anything you’ll need in the next 3 years. I know, I know, you really don’t want your cash “just” sitting there. I get it. However, this is where I get to put on my financial planner hat and remind you that investing in the stock market is inherently risky. If you invest excess cash (which you know you’ll need in the short term) and the market takes a nosedive, you could be in a real bind. In other words, you may have to sell for less than what you put in and/or less than you need.

FDIC Insurance

I’d be remiss if I didn’t also mention FDIC insurance, and the importance of making sure your emergency reserve (and other cash) is fully insured. Federal limits provide FDIC insurance of up to $250,000 per individual, per institution. If you’re single, that’s pretty straightforward: $250,000 per bank. If you have more than $250,000, be sure to open an additional account at a different bank to make sure all your funds are insured.

If you’re married, you can have up to $500,000 per bank (assuming joint accounts). As above, if you’re keeping more than $500,000 cash, spread the money across banks to make sure you’re fully insured.

Cash that you don’t need within 3 years (long-term needs)

For cash that you don’t need in the next three years, you’ll definitely want to have a conversation with your financial advisor. Depending on your risk tolerance, goals, etc. it’s likely that investing anything “extra” makes good sense. If the cash is for very long-term goals (such as retirement), you could invest and there are a variety of account types that may or may not be available to you (such as a brokerage account or Roth IRA).

There are also options like paying down your mortgage or other debt (I’ve already assumed you don’t have significant consumer debt, such as credit card debt). Using a combination of several strategies mentioned above will help you make the best use of your cash. There are so many factors at play here, it’s impossible for me to give a general recommendation. The good news is, if you have your emergency reserve fully funded and still have extra cash, you have plenty of options!

Organizing your financial life: Beginner’s guide

Last month on our IG Live, Danika and I talked about negotiating job offers, why you should do it, and how to go about it. In case you missed it, you can view it here.

Now that you’ve landed your dream job, advocated for yourself, and got the salary you deserved, what now? First off, way to go. Great job!

Take some time to celebrate your success in a meaningful way and set aside some time to organize your finances. Yup, you read that right, celebrate and finance in the same sentence. 

Getting your financial house in order is an act of self-love. What better way to celebrate than setting yourself up for long-term success? It’s not going to happen overnight. So give yourself some grace, and if you’re reading this, you’ve already made that initial step of seeking guidance. Below, is a 6 step guide to begin organizing your financial life.

How to get started:

Step #1: Know your financial flow

“Budgeting” gets a bad rap, but we think it’s vital whether you’re just scraping by or earning six figures. If you don’t know where your money is going, how can you make the most informed decision with everything else? 

I’m not going to sugarcoat it. Budgeting is a huge challenge for most people. Danika writes about this phenomenon and how to handle cash flow here. You may also find it surprisingly empowering to know exactly where your money is going.

Be kind to yourself. Don’t judge yourself for the financial decisions you may or may not have made. Instead, ask yourself if your past holds you back from building healthy financial habits moving forward? If someone ever does shame you about how you spend your money, especially if it’s a financial professional, it’s time to reassess that relationship.  

Action steps:

Have a recurring money date (alone or with your partner if you have one). Set an hour aside. Pour the tea. Pick out the playlist. Spend time looking over your spending history from the last few months.

Ask yourself these questions:

  • Is there anything you spent money on but don’t enjoy?
  • Is there anything that looks off (i.e. an amount that is too high/low or doesn’t make sense)? 
  • What is one small thing that you can do today to improve my spending picture?

Step #2: Take advantage of your employee benefits

If you’ve just started working at a new company, you’ll be eligible to choose your benefits. However, keep in mind that after the initial 30 days or so, you can’t make any changes until the next enrollment period; pick wisely. 

Action steps: 

Obtain your employee benefits booklet and all necessary information to make an informed decision. Don’t hesitate to reach out to your employer for clarification or seek out professional advice. 

  1. Enroll in the 401(k) and contribute at least as much as the company matches (free money!) One of the fastest ways to build wealth is by taking full advantage of your company’s match. 
    1. If you have a 401(k) from a previous employer, consider consolidating it into the current 401(k). See Step #6. 
  2. Evaluate the health insurance options. If the plan offers an HSA, consider choosing a High Deductible Health plan. Why? Read here. 
  3. Opt into life insurance, short-term disability (STD), and, most importantly, long-term disability (LTD). 
  4. Check to see what other perks you’re eligible for. Some companies offer access to legal help and even financial planning! Other unique perks we’ve seen include reimbursements for fertility treatment, health club costs, and travel stipends, to name a few. 

Step #3: Build a rainy day fund

Emergency savings is a must-have and is non-negotiable. It can make a big difference in handling life’s unexpected moments without moving further away from your financial goals.  

The rule of thumb is to set aside between 3-6 months worth of living expenses. However, if you’re single, we recommend aiming for the 6-month mark as you don’t have the buffer of a partner’s income. 

You don’t have to fund an emergency reserve all at once. Start putting aside a small amount each month until you hit the target. If you have high-interest debt, you should still fund your emergency savings. The last thing you want to happen is an unexpected expense where you don’t have the cash on hand and have to put it on your credit card, resulting in more debt payments. 

Action steps:

  1. Open a high yield savings account earmarked for emergency savings. Then, start putting aside as much as you’re able to until you hit your target.  
  2. Automate savings. Consider setting up an automatic transfer to the emergency reserve each month.

Step #4: Break the debt cycle

If you have significant credit card debt or other consumer debt, you’ll want to devise a plan for paying it down. There are multiple ways to go about paying off credit card debt. Some key ways include: 

  • Stop using your credit card(s). Shred it if it’s too tempting seeing it in your wallet. Use debit cards for purchases moving forward until you get a handle on your debt. 
  • Come face to face with your debt by making a list of the account(s) that carry a balance. Note the balance, minimum payment, and interest rate. 
  • Look at your budget and determine how much more money you can allocate towards the monthly payments. Ideally, you will pay off anything with high interest as aggressively as possible.

Action steps:

  1. If you carry a credit card balance, stop using your card. 
  2. Make a plan to pay off your high interest debt. If you don’t pay more than the minimum, your debt will only increase. 

Step #5: Set your money intentions

You can afford anything but not everything. Get clear on what you want and why you want it. It’s okay if you don’t know precisely what you want yet. Be flexible and understand that goals change all the time. Values, on the other hand, tend to change less frequently. Start by deciding what truly is essential to you. 

Action steps: 

  1. Write down what your goals are. Be specific and determine whether they are short-term (less than 5 years) or long-term (5 years+) goals. Ask yourself these questions: 
  • What’s important to you? 
  • What do you value?  
  • Where do you want to be in 5-10 years?
  1. Make a plan to invest towards your goals. Whether it’s buying a house, starting a side hustle, or simply growing your net worth, start saving as soon as your emergency reserve is fully funded. 

Step #6: Keep track of your account(s) 

Making sure you know where all your accounts are might be an obvious point. However, life gets busy, and before you know it, thirty years have passed, and you can’t recall where that 401(k) from your first job out of college is, or that you even had one to begin with. If you get into the habit of organizing your finances now, your future self will thank you. 

One easy step you can complete today is to start a finance folder (physically or electronically). Label it however you want; Finances, My Rich Life, Financial Stuff. I labeled mine S.H.I.T.: Salary, Home, Investments, Taxes. The point is to have fun with it. Finances don’t have to be boring unless you want them to be. Store any financially related document in there. Think tax returns, insurance policies, estate documents, budgeting worksheets, etc. 

Action steps:

  1. Set up a secured online folder to store all your financial information.
  2. Know where all your accounts are and make sure you have access to them. I strongly suggest using a password manager like 1Password or LastPass to keep track of login and passwords. 
  3. Consolidate 401(k)s from former jobs into your current 401(k) or a rollover IRA. 

Getting your finances in order is an excellent way to set yourself up for future success.

Incentive Stock Options, AMT and Qualifying Dispositions- Oh My!

If you have incentive stock options (ISOs) from your employer, you’ve likely considered when to exercise your options, and whether that will trigger the dreaded AMT. 

What are Incentive stock options (ISOs)?

Incentive stock options or ISOs are a type of stock option. A stock option is essentially the right to buy your company’s stock at a set price. They are commonly granted to employees as a part of their compensation package, especially in the tech industry. 

Here’s an example:

Your company grants you 10,000 ISOs with a strike price of $1.00 per share. The current Fair Market Value (FMV) of the company stock is $9.00. This means you have the option to buy up to 10,000 shares of your company stock at $1.00 per share, which is actually worth $9.00 per share. What a bargain! Why wouldn’t you do that? 

Incentive Stock Options (ISOs) at a public company

If, in fact, your company is publicly traded (i.e. anyone can buy the company stock), then you can turn right around and sell this stock for the $9 fair market value. You will be taxed on what is called the bargain element, which is the difference between the strike price and the fair market value. Note: the bargain element is a preference item under the AMT calculation. More on that below.

Incentive Stock Options (ISOs) at a private company

However, if you work for a private company (your company stock is not traded on a public market, like the New York Stock Exchange, it’s more complicated. You can buy those options, but more than likely you will not be able to sell them. So why would you do this? If you expect the value of the stock to increase and especially if the company might go public in the future, you are taking advantage of potentially lower tax rates on the growth of that stock.

That said, this is a highly risky proposition with regards to private company stock. If the company does NOT go public, you may have paid money to exercise stock which is ultimately worthless. 

What about taxes? And what is this dreaded AMT?

The trickiest part of working with ISOs is the tax implications. In particular, when you exercise ISOs, that triggers something called AMT or alternative minimum tax. AMT has been known to cause absolute panic in otherwise level-headed people. It’s not really all that scary, but many have been instructed to avoid “triggering” AMT at all costs. 

As referenced above, when you exercise ISOs, there is no tax due under the normal tax structure, but you will be taxed on the bargain element under the AMT structure. This only impacts you if you exercise ISOs in one tax year but do not sell them in that year. If you exercise and sell in the same calendar year, there is NO AMT. Instead you will pay ordinary income tax on the bargain element. Clear as mud, right? The scenario where you exercise and sell in the same calendar year is considered a disqualifying disposition. It’s not the most advantageous from a tax perspective, but it’s very straightforward.

What is a qualifying disposition?

A qualifying disposition occurs when you sell your stock at least 2 years after it was granted and at least 1 year after it was exercised. If these two criteria have been met, then you will be taxed on any gain at the long term capital gains rate (typically 15% or 20%, depending on your income). You still owe AMT on the bargain element in this case, in the year of exercise.

Many people have strong feelings about holding stock options long enough to have a qualifying disposition. While this is definitely better from a tax perspective, it may not be the best choice for you. By holding your company stock for a full year, you are opening yourself up to potential volatility.

How do you decide what to do?

In addition to tax considerations, as mentioned above, if your company is private, you must decide how much of your money (if any) you are willing to risk by exercising. How much can you afford to lose? This is a complex question and must be considered in conjunction with your larger financial picture in mind.

Additional considerations include:

  • Where will you get the money used to exercise options?
  • How will you pay the AMT tax bill when you file your taxes?
  • What is the general outlook of the company? Are you confident in its long-term prospects?
  • There are additional concepts around leverage and dilution that may be relevant.
    • Leverage refers to the difference between an option with a strike price of $1 (and FMV of $9) as compared to an option with a strike price of $8.50 (and FMV of $9). Which one would you rather have
    • And the percentage of ownership that your shares represent can have an impact, especially as those shares are likely to be diluted if the company issues more shares to other parties.
  • Read your company’s stock plan agreement to look for things like “repurchase rights” and “early exercise” options. You’ll want to know as much as you can about both your rights and the company’s. 

The final word: ISOs ARE complicated and there are a lot of things to bear in mind. It is unfortunately easy to “make a mistake” and end up with a surprise tax bill. Consider working with a financial professional and/or a tax advisor to thoroughly understand the implications of any transaction. And do as much research as you possibly can to understand the restrictions in place from your company. Check out our Instagram Live for more conversation about ISOs.