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.

How to Prepare for an IPO

You’ve been working for a startup for a while now, and there have always been rumors about the company going public, but now it’s actually happening! What the heck should you do about it? How should you prepare? What’s the big deal with IPOs anyway?

What is an IPO and why do people get so excited about them?

An IPO, or initial public offering, represents the first time a private company is listed on a stock exchange, which means anyone can buy stock in the company. When a company is private, the stock is typically only held by employees, founders, and private investors.

“There have been 5,744 IPOs between 2000 and 2021. The least was in 2009 with only 62. The full year 2020 was an all-time record with 480 IPOs, but 2021 beat that record with 1058 IPOs.” ( Not only that, but 49% of high profile IPOs in 2021 are currently trading below their list price on IPO day. 

People get very excited about IPOs as there’s often a lot of money to be made in the early days of trading. If you can purchase this new stock at a relatively low price and benefit from explosive growth, doing so around an IPO might be the most likely time for that to happen. The potential IPOs we’re looking forward to in 2022 include Stripe, Outreach and Qualia.

A company might go public for a variety of reasons, from raising capital to cashing out early investors or raising the profile of the brand. So how does all of this impact you?

How to prepare for an IPO

Know what type of stock you have prior to IPO day

Is it restricted stock or stock options? How is the vesting structured? It is critical that you have a basic understanding of what your situation is. Stock options (incentive or nonqualified) are treated very differently from a tax perspective, and restricted stock units are unique in their own right.

Once your company establishes a plan to go public, they will likely have a number of information sessions for employees. I highly recommend attending as many of these as possible. The sessions will help you get a good understanding of the type of equity you have and how the IPO is going to unfold. Keep an eye out for restrictions on selling stock, lockup periods, and so on. 

Get to know your trading platform

These platforms tend to struggle on IPO day with lots of employees using the site at the same time. Be prepared for hiccups, but also know how the platform works in advance so you are less impacted by any glitches.

Consider working with a professional

It should come as no surprise that I highly recommend working with a financial planner and/or CPA to help you navigate this process. The sooner you start, the better. They’ll help you explore things like: What is the potential money for? How will you use it? Do you “need” it for a house down payment or is it truly “extra”? What are the tax implications of the IPO and selling/exercising shares? Note: the taxes around an IPO can be incredibly complex. With some strategies, you may need to have funds available to exercise options or pay taxes before you are able to sell shares. It is very easy to make a mistake here and a professional who knows what to look out for is well worth it!

Devise a strategy for diversifying out of this stock

IPOs often result in a very significant portion of your net worth being tied up in a single stock. A financial advisor will help you devise a strategy for diversifying out of this stock; having so much of your net worth focused on one stock is a huge exposure, particularly when that stock happens to be especially volatile as a recently public company’s stock generally is.

Be comfortable with uncertainty

Things change all the time with potential IPOs. Until your company files their S1 (the official filing with the SEC), you probably won’t know when it’s happening or what it will look like. Even after an S1 has been filed, there are still a lot of unknowns, and there’s no guarantee the IPO will even happen. You may have heard about the failed WeWork IPO in 2019. They finally went public in 2021 at a valuation of 80% LESS than it was worth in 2019.

Get used to the idea that things will change. IPOs are volatile and unpredictable so the sooner you accept these facts, the better equipped you’ll be to handle them.

Plan for as much time “away” as possible; from co-workers, the company Slack channel, and so on

IPOs are incredibly exciting and emotional and you will absolutely need time to decompress. Breathe, drink water, “try” not to obsess. I suggest to my clients that they allow themselves a certain amount of time to check the stock price or read the latest updates on the stock. The rest of the time, turn off notifications and try to avoid looking at the activity throughout the day. Doing so is a sure way to increase your anxiety.

IPOs are a wild ride, to be sure, and can absolutely provide you with a life-changing amount of wealth. Buckle up, and good luck!

Introduction to Equity Compensation (aka Alphabet Soup)

If you’re new to the tech industry, the world of equity compensation might be unfamiliar with all the types of stock/stock options. It is, in fact, fairly complex and the terms and acronyms can seem like a ​​foreign language. To be honest, it often just takes time to get comfortable with the various concepts. In any case, I’d like to present an overview of the most common types of equity comp and how you can think about those.

I think it’s worth taking an even bigger step back and defining the word equity, as used in this context. Equity, at the most basic level, is a form of ownership. Stock is a type of equity and is used by many tech employers to make employment more compelling. When an employer grants equity to their employee, not only are they providing a better overall compensation package, they are typically hoping the employee will be more engaged and work harder as the individual stands to benefit from any increase in the value of the company.

Restricted Stock Units (RSUs)

If you work for a public tech company (and especially one of the FAANG companies) it’s very likely that you will be granted Restricted Stock Units (RSUs). RSUs are perhaps the easiest to deal with, both from a tax perspective and also from a decision-making point of view. As in, there are fewer decision points when it comes to RSUs. I wrote a more detailed explanation of them here.

With RSUs, your company will give you a grant of, say, 500 shares of their stock. But they don’t give them to you outright, they come with a vesting schedule.

It generally works something like this:

Beginning on 11/1/21, your shares will vest quarterly, 1/16 per quarter (or in this example ~31 shares per quarter). Or they might use something called cliff-vesting; the most common version being 4 year vesting with a 1-year cliff. In this example, 1/4 of the shares vest after 1 year and the rest vest as above, 1/16 per quarter for the remaining 3 years. In this case, that would be 125 vesting on 11/1/22 and then ~31 shares quarterly thereafter.

What exactly does vesting mean?

Essentially, it means the shares are now yours to do with as you choose. You can either sell them and use the cash for something else OR you may choose to hold on to them if you think the company’s future prospects are strong. It also means that the value of the shares on vest date is added to your taxable income for that year.

When you start a new job, you will typically be awarded an initial grant. In subsequent years, you may be offered a refresher grant, but the number of shares could be quite a bit less than the initial grant. This leads to a lot of “job hopping” as employees are not incentivized to stay after the initial grant has fully vested and their total comp declines.

There are multiple variations on how RSUs can work and the above examples are the most common. Recently I’ve seen companies shifting to an award that is based on dollar amount vs number of shares. Stripe recently shifted to this model (to the consternation of many employees) and now, instead of a specific number of shares vesting, you will be awarded a set dollar amount (say $5,000). Stripe will then calculate how many shares that is equivalent to on the date of vest. The downside with this structure is that there is less upside potential for the employee. If you hold the RSUs after they vest, they can always increase in value, but you have less opportunity to reap the benefits between grant and vest date.

Incentive Stock Options and Nonqualified Stock Options (ISOs and NSOs)

Another common type of equity compensation is stock options. Unlike RSUs, with stock options you’re not granted actual shares of stock, but rather the right to purchase stock at a certain price. Like RSUs, stock options are typically granted with a vesting schedule. There are two types of stock options- Incentive Stock Options (ISOs) and Nonqualified Stock Options (NSOs). The primary difference between the two types is in how they’re treated from a tax perspective. 

Stock options are far more complicated than RSUs. Along with the decision about when to sell, they have an added decision-making component- with stock options you have to decide if/when to exercise (aka buy) your options AND when to sell. With RSUs, your only decision is when to sell.

How Stock Options Work

Your company might issue you stock options at a certain exercise price (i.e. the price you pay for the stock). For example, you might be issued stock options with an exercise price of $5/share. If the current value of company stock is $15/share, you can imagine these options being attractive! You can buy a share for $5 and then turn around and sell it for $15. Not a bad deal. This is where it gets tricky- the difference between the exercise price and the fair market value (also known as the “bargain element”) is taxed. In this example, the bargain element is $15 – $5, or $10. And the amount of tax you pay depends on the type of stock option and how long you hold the stock once you buy it.

Exercising ISOs

When you exercise ISOs, you trigger something called Alternative Minimum Tax (aka AMT). The mere idea of triggering AMT causes many people to panic, but not many people fully understand how AMT works (and I’m not going to explain it in detail for this article). But if you exercise and sell in the same calendar year, you simply pay ordinary income tax on the bargain element. Easy right? Not exactly.

If you plan to exercise and/or sell stock options, it is HIGHLY recommended that you work with a CPA who has knowledge in this area. The tax implications are significant and it’s very easy to make a mistake.

ESPP, PSUs and other forms of equity comp

RSUs, ISOs and NSOs are far and away the most common types of equity comp. There are others, however, and the Employee Stock Purchase Plan (ESPP) is one that has become increasingly popular.

Employee Stock Purchase Plan (ESPP)

The basic idea with an ESPP is that your employer allows you to buy the company stock at a discount, which you can then sell for a profit. The company withholds an amount from each paycheck for 6 month periods. At the end of each period, they take all of the accumulated contributions from your paycheck and purchase the stock for you. They’ll use either the price on the first day of the 6-month period or at the end of the 6-month period, whichever is lowest, and the discount gets calculated off the lower price. I wrote a detailed example of how this works here.

Restricted Stock Awards (RSAs)

Yet another type of equity compensation is Restricted Stock Awards (RSAs), which are NOT the same as RSUs. RSAs are generally issued by very early stage private companies. The shares are issued at grant and held in escrow until they vest. RSAs are eligible for something called an 83(b) election which allows you to pay tax on the “gain” (usually 0 or very close to it) up front, thereby enabling you to pay future gains at your capital gains tax rate.

Performance Share Units (PSUs)

You might be granted something called Performance Share Units (PSUs) which function much like RSUs but are tied to performance, not a traditional vesting schedule. The tax treatment of PSUs is the same as RSUs; in other words, the value of the shares on the date of vest is part of your taxable income.

Final thoughts

If you’re lucky enough to be granted some form of equity compensation, you’re likely recognizing some benefit from the value of your company’s stock. I’ve worked with clients who had 4 different types of equity compensation from their employer which gets incredibly complex. There are a host of considerations; from taxes to if/when to exercise and sell and what the proceeds will be used for. It’s incredibly useful to work with both a financial planner and a CPA who have expertise in this area.

The real fun begins when we start to discuss what opportunities you have available to you if your equity compensation ends up significantly changing your financial situation, as it very often does. 

Negotiating Job Offers

Woman Shaking Hands

If there’s one thing I love, it’s negotiating. I know it can be intimidating and scary, but I tend to see it as a game to be played. I’ve negotiated every single job offer I’ve received (some successfully, and others less so!) as well as various car/house purchases and so on. I am by no means an expert, but I’ve learned a few things, and have helped both friends and clients with the process.

WHY should you negotiate?

I’m not going to get into reasons for the gender disparity here, but suffice it to say women are less likely than men to negotiate. Women are also more likely to face blowback when they do negotiate. That said, if you don’t negotiate, you’re facing a long term reduction in salary and benefits that can compound significantly over the course of a 30+ year career.

Given the potential for a negotiation to go sideways, a lot of people simply accept the offer as given. A couple reasons to consider asking for more include:

  • More money (or other benefits, such as more PTO)! Of course, an increase in pay is the most likely ask. The vast majority of offers presented are in a range. The company giving the offer to a prospective employee rarely presents an offer at the top of the range to start. If the salary range is $100,000 – $120,000 they might offer $105,000 (for example). The company generally expects you to negotiate. It’s built into the process and their initial offer.
  • Depending on the type of role, your negotiating skills can be seen as a tremendous asset. Showing your ability to have the conversation and successfully bargain can be a huge benefit. When my sister, an attorney, was offered a job recently, I coached her through the process and her prospective employer was incredibly impressed with her bargaining skills. Not only did she get more money, but they were even more pleased about their hiring decision.

How to go about the process

The absolute most important thing you can do is PREPARE. I definitely do not recommend just categorically asking for additional salary with no basis for the request.

  • Do as much research as you can. Use sites like Salary, Glassdoor and Indeed to find out what typical ranges are for the role. For tech roles, I especially like as a reference. Also, feel free to share some of the things you have successfully achieved in the past and how you might bring your skills to the new role. For instance, “I can bring value to this organization by implementing XYZ.”
  • Do not demand more money or threaten the hiring manager. I view this as part of the process and the ultimate best outcome for both sides is a mutually satisfactory job offer. The goal is for you to be compensated appropriately, not to extract as much money as you can from the company such that there are unrealistic expectations or any financial burden on the employer’s part.
  • I prefer to have this conversation a bit later in the process. It’s helpful to know what their range is, as early as possible. If you’re expecting $120,000 and find out after 3 interviews that their range is $90,000-$100,000, then you’ve wasted a lot of everyone’s time. But if the range is in line with your expectations, I wouldn’t throw out a number too early. That said, if there’s something else you’re very attached to, I think it’s fair to signal that to the employer on the early side. Don’t wait until you’ve been offered a role to mention that you only want to work part-time or need to work from home 50% of the time.
  • PRACTICE!!!! If you’re at all nervous, practice with a friend or family member by role playing. Have a very good idea what you’re going to say and how you’ll respond to the possible answers. You should know ahead of time if there’s a number you just won’t go below. Also, be prepared for them to essentially say, “No, this is the best we can do.”  Again, I know this part can be scary but it doesn’t have to mean you’ve botched the whole process and ruined your prospects. This has happened to me and I have typically responded with something like, “Well, I’m disappointed but I’m still very excited about the opportunity and I look forward to working together.”

What exactly should you negotiate FOR?

Salary is the most typical thing to negotiate for but there are plenty of other things to consider. Not everyone cares all that much about a few extra thousand dollars. You might prefer extra PTO, flexibility in your work schedule or even a different title. What are the options? Again, it depends what your priorities are, but you could consider negotiating for:

  • A higher starting salary
  • Equity in the business (or a path to equity)
  • A signing bonus
  • An extra week or two of PTO per year
  • The ability to work from home
  • Flexible work hours
  • Travel expectations (how often, what level of travel)
  • Professional development/continuing education budget
  • Frequency and timing of reviews 
  • Bonus terms and target (i.e. X percentage of salary)
  • A different title or other modification to the job duties

Some final thoughts

I recently had a conversation with some other financial planners on this topic and there were some great gems from our discussion.

  • Consider interviewing for a job you do NOT actually want. It’s great practice and can give you more confidence negotiating as there’s not a big risk.
  • Remember that there is a LOT more to your success in a role than the money. 
  • The skills used in negotiating are transferable to so many other areas of our lives, both professional and personal. Take the opportunity to work at advocating for yourself in as many settings as possible. Again, not just for the sake of it, but because it’s great practice to be able to voice what you need and why.

I will always make myself available to women who are struggling with this. If you ever want to role play or ask me a question, please email me: danika@

Being flexible in life, and in financial planning

If there’s one lesson we’ve learned from the pandemic, it’s how to be flexible. Whether your life was completely upended, or barely impacted at all, there’s no question that the world around us has shifted dramatically in the last 13+ months. When this all began, many businesses and even industries were forced to pivot and engage with their audiences in a new way.

And as individuals, many of our lifestyles changed significantly. We may have experienced one or more of the following:

  • Working from home 100% of the time, which for many people led to the purchase of a bigger home or renovations of an existing home.
  • Radical changes to spending, such as reduced/eliminated travel, gas, parking, eating out and entertainment costs.
  • Perhaps most profoundly, a reexamination of what is most important to us and whether we want to make any shifts, professionally or personally.

How does this relate to financial planning?

There are a couple of parallels here. You may have noticed that I do NOT offer a standalone/one-time financial plan. Why not? It’s TOO STATIC! One of the primary reasons I structured my engagements with clients to meet on an ongoing basis: life changes ALL THE TIME. 

In the last year, how many of these things have you experienced?

  • Major house repairs/renovations, 
  • A large bonus or salary increase, 
  • A job change or new business opportunity,
  • Significant changes in your spending (see above, but largely travel/entertainment=down, home improvements=up),
  • A refinance of your primary mortgage, reducing your monthly payment amount,
  • An IPO, merger or other significant change at your employer,
  • Hiring a nanny/educator or beginning private school for your child(ren).

There’s certainly some value in a one-time 75-page plan, but it’s fairly limited, in my opinion. I prepared some of these standalone plans for clients in January and February 2020 (at my former firm). Many of these were totally obsolete within a couple months.

The process of financial planning is just that: a process. And a highly dynamic process at that. The exercises I work through with new clients, around goal-setting and defining values, are likely to be revisited and reviewed every single year. While some people are unwavering and single-minded in their focus, the vast majority of people I’ve worked with have shifting priorities.

Walking the walk

If anyone had told me 18 months ago that I would quit my job (which I very much enjoyed) to launch my own firm, I would never have believed them. Here I am, almost 9 months in with nearly 50 clients and tremendous growth; you better believe my situation is different. My cash flow has changed profoundly, and I’ve had to thoroughly revise my plans for everything from work-life balance to retirement. And that’s OK! In fact, it’s more than OK. Among other things my job satisfaction is dramatically improved. As I said, I liked my former job, but the ability to create something from the ground up is satisfying on a different level. 

My financial situation has changed and I’ve had to incorporate those changes into my “plan”. Again, I don’t love the idea of a static plan, but having something that one can adjust as needed is much more impactful. Imagine working with a planner and having an annual meeting cadence. In my case, my life a year ago could not look more different. Would my planner be able to adapt to my changing circumstances mid-year? Or would that have prompted a response like “we’ll review the changes at our next meeting” (in, say, 9 months)?


If you’re looking for a financial planner, I’d encourage you to consider working with someone who has this mindset around the dynamic and flexible nature of this work. Financial plans are not set in stone. If the planner or firm doesn’t have a mechanism to easily manage updates and changes to “the plan”, I’d consider continuing to search. 

If you already have “a plan”, remember that, while useful, it is likely to need regular updates and modifications. As planners, we make assumptions all the time: about inflation rates, and longevity and all sorts of things which are ultimately “unknowable”. Our job is to react to changing information and help you continue to move forward with confidence and reassurance that your money is set up to help you live your most fulfilled life.

Getting a handle on cash flow, and why it’s so important

Cash flow, or budgeting, is one of the biggest challenges facing both financial planners and their clients. How can you get a handle on your spending needs, and why does it even matter?

I have conversations with my clients all the time about this topic and it is of somewhat universal frustration. Why is it so hard to understand our spending? What is the best method for tracking? How useful is tracing to begin with? And what difference does it make if I spend $6,000 per month or $8,000 per month?

Why should you care?

As a financial planner, I am here to tell you IT MATTERS. How much you spend is one of the single biggest factors in your control. Whether you spend $6,000 or $8,000 per month might mean the difference between retiring at 60 vs. 65. It might mean your money easily lasts to age 90 or that you run your savings down and have to subsist on Social Security income only.

Knowing how much your lifestyle costs is an extremely important variable in terms of long-range planning. When I work with clients on determining what the figure is, I find people chronically underestimate their spending. It’s very much like the experience of tracking what you eat; if you’ve ever used an app to track your intake, or followed a weight loss program like Weight Watchers, you’ll know what I am referring to. You may think you eat about 2,000 calories a day, but as soon as you start tracking and writing things down, more often than not the number is much higher. 

This phenomenon holds true with spending. When I ask clients how much they spend each month (I’m looking for discretionary spending, not things like your mortgage payment or car insurance), I will often get an answer that is, by the client’s own admission, “a bit of a guess”. 

The client may tell me their spending is about $8,000 per month. If I see that their take-home pay is closer to $10,000 per month, but their savings account balance hasn’t increased in the last year, I can logically conclude their sending is probably much closer to $10,000 per month. Most of the people I work with are not terribly intentional about their spending. I frequently hear clients say something like “I really love not having to worry about money and being able to afford the things I want to do.” I get it, I really do. That said, it is a very rare situation where a clients’ spending level isn’t important. In other words, even if you have $10 million dollars, you likely still need to keep an eye on spending. It’s very easy for lifestyle creep to occur, and as nice as it is “not to worry”, I strongly encourage people to have a reasonable idea what their spending level is, and then work with their planner to ensure that level is sustainable.

OK, OK, so it’s important to track, but HOW?

Way back in the days before I became a financial planner, and before I had kids, I used to track every. Single. Penny. Spent in our household. I used Quickbooks at the time, and I would go through and manually enter every credit card transaction (with detail!). I can tell you every restaurant I ate at in 2003, and every cup of coffee I bought in 2006. Honestly, I found it endlessly fascinating but it was incredibly time consuming. Once we had our first daughter, I abandoned the practice.

As much as I loved having that level of detail, my approach now is far simpler and, while not as detailed, still incredibly informative. This is what I do:

  • Once per year (that’s right, just once!) I sit down with my husband and our year-end credit card statement. Most companies provide this and some call it something slightly different. We use Chase and they call it a “year end summary”.
  • I print it out and then pull out my checkbook/bank statements to make sure I’m factoring in anything that wasn’t paid by credit card. Note: in our house we use credit cards to pay for almost everything (and pay the full balance each month). But there are some things I pay for by check (i.e. house cleaners) and still others that get paid by Venmo or similar.
  • Once I have all that data, I take the TOTAL. Let’s say $72,000 spent on our credit card for the year, plus another $12,000 paid by check or Venmo (I’m using these numbers for simplicity). That gives me a total of $84,000 per year or $7,000 per month.
  • While it’s not necessary for the sake of this exercise, I still look at the categories on my year end summary. Chase does a pretty good job of categorizing things, but there’s an awful lot of “miscellaneous” charges (i.e. everything we order off of I think it’s incredibly important to know where your money is going. But that’s another conversation. For now, I am looking simply for your discretionary spending number.

Many clients do something like this, but they pull out larger expenses. They might say, oh, well we did a bigger trip last year or one of our cars needed some major work so I excluded that. I would caution you not to do that for almost all cases. There is always going to be an unexpected house/auto repair or other one-time expense.

The main exception to this would be expenses related to a wedding or moving houses. There truly are some major items you likely purchase once when you have a child or relocate, and it’s reasonable to exclude these things.

What about Mint or You Need a Budget (YNAB)?

I am all for tracking more regularly then my once/year style. If you have a system that works for you, stick with it! Whether it’s an excel spreadsheet or a software program, the method itself doesn’t matter. If you have the time and inclination, I find this level of detail to be very informative. Is it necessary for you to track on a regular basis? No, but helpful, yes. And I certainly wouldn’t recommend you stop if you’re already doing it.

For those people who are less interested in tracking, something like my system is adequate. An even simpler version would be to look at your savings account balance 1 year ago and compare it to your savings account today. Has it increased or decreased? Compare that with your take-home pay over the past year and you’ll have a very rough estimate of spending. 

For example, your savings account balance on February 15, 2020 was $20,000 and one year later it’s $30,000. Let’s say your take home pay for the prior 12 months was $100,000. You’ve effectively spent $90,000 of that (as your savings account grew by $10,000), thus your average monthly spending is $90,000/12 or $7,500.

But there are so many fluctuations! And my RSUs make it so confusing!

One of the biggest issues around tracking cash flow is that it is always changing. The pandemic has had a tremendous impact on people’s spending habits. Things like travel and entertainment are way down, but home improvement and “toys” (i.e. paddleboards and bikes) are through the roof. Pandemic aside, your spending changes every single month. 

Add to that things like vesting RSUs, which you may be selling to support your lifestyle, and the process gets a whole lot trickier. In addition, if you use credit cards to pay for things and don’t pay the balance in full each month, it’s very hard to keep track of things. I definitely encourage looking at a minimum of 6 months of spending, and ideally 12. Looking at any one month really isn’t terribly informative. Having a strategy around RSUs can also make this process more straightforward. 

Getting on the same page as your partner

One of the things I love about sitting down with my husband and reviewing our spending, is that it usually invites quite a conversation about what we did/didn’t do over the prior year. How much money did we give away to charity? Is there any number we’re surprised about? Is there anything we spent a lot of money on, but don’t enjoy? One of our conversations several years ago was on the cable bill. We looked back over the prior year, realized we’d spent upwards of $1,000 on cable and noted we almost never watch it (and certainly don’t enjoy it). We’re just not big TV watchers. It was a pretty easy decision to cancel it. We’d much rather spend our money on travel.

Having a conversation about what’s important to you and then seeing if that’s where you actually spent money is a vital exercise to help you remain cognizant and intentional about your spending. The vast majority of couples that I work with have slightly different (or significantly different) ideas about how much to spend and on what. This is totally normal. The key is to set some guardrails around spending that each person is comfortable with.

It may sound silly, but I actually like the idea of an “allowance”. Each partner has the ability to spend X dollars per month without having their spouse’s approval. Alternatively, I also love the idea of each couple determining a spending limit whereby each person can spend up to X dollars without running it past the other partner. For example, you might set a limit of $500. If you want to go out and buy some fancy shoes or stereo equipment, you are free to do so within that limit. But if it’s over $500, you would have a conversation together prior to making the purchase.


I could talk about cash flow endlessly. It causes a tremendous amount of stress and anxiety for people. Just the sheer fact of knowing how much you spend is powerful. Once you have that information, you can choose to make modifications, if necessary. Or maybe you’re one of the lucky few whose spending is sustainable. I’ve worked with a handful of people that spend almost nothing and I have to encourage them to spend more! 

The first step is knowing where you are. By working with a financial planner, you can then evaluate any changes that need to be made. Should you be saving more? How much can you afford to spend on house projects? Those are questions that a professional can help you answer.

Should I participate in my company’s Employee Stock Purchase Plan?

If you work at a large, tech company, there’s a good chance they offer an Employee Stock Purchase Plan (ESPP) as one of the company benefits. The question is, should you actually participate and if so, how do you manage it?

I’ll be honest, I have a love-hate relationship with ESPPs. Sure, they are a great benefit and they are essentially “free money”. But darn if they aren’t complicated and they do require some active management. There are plenty of cases where I do not recommend participating, despite the fact that some people think participating is a “no-brainer”.

How does it work?

First of all, I want to explain how they work and what the actual benefit is. Essentially, you can buy your company’s stock at a discount, and then turn around and sell it for the actual market value. The difference is yours to keep (less taxes due). But how it’s actually structured is a bit more complicated. 

Let’s use the Salesforce plan as an example. Suppose your salary + bonus is $150,000. You can contribute between 2% and 15% of that income – Salesforce caps ESPP contributions at $21,250 (or $25,000 stock at Fair Market Value, less 15% discount). Each pay period, Salesforce will withhold that percentage which you elect and hold it until the end of the “offering period”. For most companies, the offering period is 6 months and Salesforce has their 2 offering dates as June 15 and December 15. On these two dates, they use the total amount withheld over the prior 6 months, and purchase shares for you, which are then transferred to an account in your name.

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

In this example, if you had withheld the maximum amount, $10,625 between June and December 2020, the lower price would be that on June 15, 2020. On December 15, Salesforce would use the $10,625 withheld and purchase CRM stock at 15% less than the June 15th price of $178.61 (70 shares of CRM). If you sell immediately, at the market value on 12/15 ($220.15), you gross roughly $15,400. You’ve immediately gained over $4,700, which will be taxed at whatever your ordinary income tax rate is. For the sake of simplicity, I’ll assume you’re in the 32% tax bracket, so you’ve netted about $3,200. Not bad!


Money withheld from your paycheck $10,625
Share price on June 15 $178.61
Share price on December 15 $220.15
# of shares purchased on December 15 70
Sales proceeds (70 x $220.15) $15,407
Gain $4,782
Estimated tax @ 32% $1,530
Net proceeds $3,252

What if the stock price had actually gone down from June to December? You would still get a discount on the lower stock value, but it would be worth less and you would only gain the 15% discount. Let’s imagine the stock prices were reversed- $220.15 on June 15 and $178.61 on December 15th. You would still receive 70 shares of CRM stock, but you would only be able to sell it for about $12,500. Again paying 32% tax on the gain, you would net about $1,300. Still better than nothing but quite a bit less than the first example.


Money withheld from your paycheck $10,625
Share price on June 15 $220.15
Share price on December 15 $178.61
# of shares purchased on December 15 70
Sales proceeds (70 x $178.61) $12,500
Gain $1,875
Estimated tax @ 32% $600
Net proceeds $1,275

But does it make sense?

One REALLY big factor here is- can you afford to have that reduction in every pay check 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. 

The other huge downside is having too much exposure to your company stock. If you’re already receiving Restricted Stock Units or stock options, you are starting to face a potentially 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.

One of the tricks to successfully taking advantage of an ESPP is to manage the risk as much as possible, which often means selling the stock as soon as you’re able. There are also, as you might be wondering, some tax considerations to think about.

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. 

If you hold the shares for a full year, and two years after the plan becomes available to you, you now have a qualifying disposition. In a qualifying disposition, you still pay ordinary income tax rates on the discount amount, but you only pay long-term capital gains tax rates on the growth, if any. Your long-term capital gains rate could be as low as 0% (highly unlikely if you work in tech!) or it could be 20%, but is almost certainly lower than your ordinary income tax rate.

The huge downside to holding the shares in order to receive this preferential tax treatment is- you guessed it- again, too much exposure to company stock. There is always risk withholding any one stock due to increased volatility and in this case, having too many of your eggs in one basket. I almost never recommend that clients hold shares long enough to be a qualifying disposition.

Taxes on ESPP get very complicated and the above examples are a huge oversimplification. If you plan to participate in your ESPP, you’ll definitely want to run it past your tax preparer.

So should I participate or not?

To recap, some pros of participating:

  • Enforced savings
  • Free money! (Who doesn’t like free money??)

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”).

Like I said, I do not consider participation to be a no-brainer and there are definite downsides to be aware of. But ESPPs can be a fantastic benefit if you manage them properly. Consider working with a financial planner to decide if it’s the right option for you.


Life Planning aka “Financial Planning Done Right.”

When I was about 13 years old, my mother attended a weekend spiritual retreat, and I tagged along with her. While on the retreat I had a powerful experience in the woods and these words came to me: “You will become.” 30+ years later, I am reminded of that experience and focused anew on what I will bring to the world.

Over the past couple months, I have had the good fortune of attending two training courses led by the Kinder Institute for Life Planning; first the 7 Stages of Money Maturity and then a four-day EVOKE Life Planning training. To say these experiences were powerful is an understatement. The training process is specifically designed for financial planners and promises to help “uncover your clients’ most exciting, meaningful, and fulfilling aspirations and engage them in the work of creating their own vibrant futures, based on a solid financial architecture.”

One of the key components of the life planning process is to answer George Kinder’s 3 questions:

1) I want you to imagine that you are financially secure, that you have enough money to take care of your needs, now and in the future. The question is, how would you live your life? What would you do with the money? Would you change anything? Let yourself go. Don’t hold back your dreams. Describe a life that is complete, that is richly yours.

2) This time, you visit your doctor who tells you that you have five to ten years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live? Will you change your life, and how will you do it?

3) This time, your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What dreams will be left unfulfilled? What do I wish I had finished or had been? What do I wish I had done?  [Did I miss anything]?

I’ll be honest; I had heard these 3 questions many times before in podcasts and articles about life planning. I didn’t feel particularly compelled by the questions. In the course of the training, I sat down and actually answered each of the questions for myself. It was question 3 that had the biggest impact on me. My answer, simply, was “I’m not done becoming!” Actually there was a bit more to it than that, but the basic message was to continue the work I am doing with Xena Financial Planning and help my clients live their most fulfilled lives.

In the four-day, intensive training each of us was paired with another planner. We spent the next several days guiding each other through the EVOKE (Exploration, Vision, Obstacles, Knowledge & Execution) process. Each member of the group was able to fill the role of both client and financial planner. 

My experience was exhilarating. Every single member of our group left feeling energized and inspired. Not only am I motivated to go live my own life plan, I am thrilled to bring this into practice with my clients. 

Investments, tax planning and cash flow are certainly part of this process; but they are usually less important than your family, friends and true passions. With a more profound understanding of your goals, we can devise finely tuned strategies to help you make those goals a reality.

In our next meetings, I will work with each of my clients to design the life you want to live and take steps to start living it right now.

Where do I even start with my RSUs?

One of the most common issues facing my clients is how to manage their equity compensation, specifically restricted stock units (or RSUs). If you work in the tech industry, there’s a good chance that you receive RSUs as a part of your total compensation package. They can be a huge upside for you, if they are managed well, but they can also be very risky.

What the heck are RSUs?

Let’s start with what RSUs are and how they typically work. For the sake of this article, I’ll be referring to RSUs in a publicly traded company (think Amazon, Facebook or Salesforce). Essentially, your company has awarded you some kind of bonus but you don’t actually get it right away. Bummer. A cash bonus is pretty easy to understand, right? A “bonus” in the form of RSUs just takes a little longer to receive. You have to wait for the shares to vest. If your employer grants you 100 shares of Amazon stock, vesting over 4 years, you don’t have to do anything at all today. You will receive 25 shares of Amazon stock that vest each year for the next 4 years.

In other words, based on the vesting schedule, your RSUs will come to you over a period of time. You don’t have to do anything to get them. In that regard RSUs are a lot more straightforward than stock options. The only decision you really have to make is when to sell them.

An example of how RSUs work:

As mentioned above, your company grants you 100 RSUs vesting annually over 4 years (many companies actually have shares that vest monthly or quarterly, but for the sake of simplicity, let’s assume they vest annually only).

1/1/2020: company grants you 100 shares

1/1/2021: the first 25 shares vest

1/1/2022: another 25 shares vest

1/1/2023: another 25 shares vest

1/1/2024: the final 25 shares vest


When your shares vest, your company will sell a portion of what vests to cover the taxes. In many ways, this is great! They sell some for taxes, pay the IRS, and the rest is yours. Instead of 25 shares, you might receive 19 after taxes. The challenge is that most companies sell only the statutory minimum of 22%. A lot of people get burned by this when tax time comes around. Imagine you’re in the 35% tax bracket but your company only withheld 22% for taxes. You’re going to owe the IRS a chunk of change, which you may not have handy (unless you sell some of your shares). If you have done some tax planning, and you’re prepared for this tax hit, you’ll be fine. But there are plenty of folks who are caught by surprise in this situation. 

Another factor regarding the taxes, is what happens when you decide to sell your remaining vested shares. When you sell your vested shares, you will owe taxes again (either short-term or long-term capital gains) on the growth from the value at vesting to value when you sell. Many people think there’s a long-term tax benefit to holding the shares for 12+ months after they vest. I can almost guarantee one of your co-workers has suggested this to you. However, if you sell your RSUs as soon as they vest, there will be virtually no gain (i.e. growth) from the value at vest. In fact, the longer you hold your RSUs, the riskier they become as the share price is not guaranteed to go up (try telling that to a long-time Amazon employee!).

Why are RSUs risky and how should you think about them?

The reason why holding RSUs is risky, is that your company’s stock price is not guaranteed. It could certainly go up, but it can just as easily go down. If you have a large percentage of your net worth tied up in your company stock, not to mention having your salary + benefits tied to your employer, this could be pretty nerve-wracking. 

One of my favorite ways to frame this for clients is this: “If your employer gave you a cash bonus (instead of RSUs), would you invest it in your company stock?” I have yet to meet someone that says yes. It’s very easy to get caught up in emotions with RSUs, but I find this way of looking at them to be very useful. In many cases, it makes sense to sell them and do something else with the proceeds (invest in a more diverse set of funds, use towards other short/long-term goals), but there is no one-size fits all advice here. I recommend you talk with a financial planner who understands RSUs and ideally also work with a tax preparer who is proficient in this capacity. Together with these professionals, you can devise a strategy for managing your RSUs.

Open Enrollment is Here Again!

It’s October and that means pumpkin spice lattes, Halloween decorations and…open enrollment time. 

For many of us, this is the month when we have the chance to make decisions about our health insurance, life insurance, FSA/HSA accounts and more. How do you sort through all of it, and more importantly, how do you make sure you’re taking full advantage of your employee benefits?

401(k) match and the After-tax 401(k)

First and foremost, I hope you’re taking FULL advantage of your company’s 401(k) match. This is something you can’t afford to miss out on. If your company matches 3%, make sure you are contributing at least that much, or you’re leaving money “on the table”. Of course, I’d like it if you were saving the maximum amount to your 401(k)/403(b) but this is a bare minimum.

Many companies are now offering an after-tax 401(k) option as well: Facebook, Microsoft, Amazon and Salesforce all do (to name a few). I wrote a recent article on how this option works. If you’re already maxing out your 401(k) contributions, I highly recommend taking advantage of the after-tax option (with an in-plan conversion to Roth). 401(k) contributions can be changed at any time, so this one isn’t tied to open enrollment (it’s just a good reminder to double check your contributions).

Health Insurance

You’re faced with multiple options regarding medical, disability and life insurance. The decision around which health care option to choose can be complex, and depends on your health status. That said, if your company offers a high deductible health plan (HDHP), it’s worth considering. If the HDHP is an option, it is usually accompanied by a health savings account (HSA). HSAs are a fantastic way to save and the account balance can be invested with NO future tax due. EVER. Not only that, many companies will automatically contribute $1,000 or more to your HSA every year.

HSAs deserve a post of their own, but if you have access to one, and you’re reasonably healthy it may be a great option. Unlike a flexible savings account (FSA), you do NOT lose the money you contribute if you don’t spend it. If you are using an HSA, I recommend contributing the maximum per year.

Disability insurance

Disability insurance is one that is often overlooked or misunderstood. I sincerely hope your employer offers disability insurance, and if it’s optional, PLEASE opt in. Disability insurance is right up there with health insurance in terms of importance. If you’re young, your future earning potential is one of your biggest (if not THE biggest) assets. Disability insurance, specifically long-term disability (or LTD) protects you in the event you are unable to work for a period of time. 

Disability insurance is fairly complicated and there are all sorts of terms that may sound foreign if you’ve never encountered them- own vs. any occupation, elimination period, percentage of replacement income. In a future post, I’ll dig into those details further. In the meantime, if your company offers LTD, sign up for it! The ideal coverage will include the following provisions:

  • replace 60% or more of your income, 
  • have an elimination period of 90 days, and 
  • cover you for anything that prevents you from doing your own occupation.

One of the local colleges in Seattle (University of Washington) recently offered a special one-time open enrollment for LTD with NO medical review. This is HUGE. It meant that individuals who were previously denied coverage due to their medical history could sign up. If this happens in your company, I cannot stress enough, that you should sign up!

One final thing to be aware of, especially for those in tech who a) have high salaries and b) receive a significant portion of their income from equity comp: your coverage likely will be pretty limited. For instance, if you work at Amazon and your annual salary is $160,000, but you receive another $250,000 in RSUs, the disability coverage is only replacing salary income. If you rely on that $250,000 in equity compensation, you may want to consider a private policy.

Life insurance 

I generally prefer clients to have private term insurance, which isn’t tied to an employer. But your employer provided insurance can be an important component, and often does not require underwriting (in other words, they may not look at your medical history). It’s worth speaking to a financial planner to confirm how much life insurance you need.

Other benefits

Companies are offering a whole range of cool benefits these days, which you might not even know are an option. 

  • Access to legal insurance. This can be a great way to get a basic will completed. 
  • Discounted movie tickets or passes to Disney can also be a fantastic benefit (if and when we ever want to actually GO to Disneyland or a movie again). 
  • If you’re planning to have children, ask about the company’s maternity/paternity leave options. 16+ weeks is becoming more common with everyone from Deloitte to Lyft expanding their leave policies.
  • Financial planning benefit! I might be biased, but I love to hear about companies that reimburse for financial planning (Thanks, Nordstrom).
  • Travel stipend. (hmmmm. Maybe I should get a job at Airbnb!)
  • I recently learned that Goldman Sachs will pay for gender reassignment surgery. I had no idea they were so progressive. Go GS!

While open enrollment is the obvious time to review your company’s benefits, it’s a good idea to ask about the full breadth of benefits any time you are interviewing for a job.