JW’s Financial Coaching Podcast Lesson #147-Looking at your employee benefits-Employee Stock Purchase Program

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  • New series on looking at your employee benefits
  • What is an Employee Stock Purchase Plan
  • How I use mine as a way to earn some quick cash
  • What to consider before you participate in your companies plan
  • Quote of the lesson from Warren Buffett

One of the most overlooked areas when it comes to our finances, is the area of benefits supplied by our employer. The reason is it is overlooked is because they are usually discussed very briefly on the first day you start the job, and all the information is in a packet that you just put in the corner of your desk . . . never to be seen of again.

But depending on your employer the benefits package can be a big boost to your overall finances. Some of the things that could potentially be included in your benefits package are:

  • Health Insurance
  • Life Insurance
  • Long Term and Short Term disability
  • Adoption assistance
  • Retirement funding
  • Employee discounts for services like phone, moving, car and hotel rentals

Today on the show we are going to start a new series on looking at some of those benefits and make you aware of other one’s that you may have overlooked.

This lesson we are breaking down Employee Stock Purchase Plans or ESPP.  I did a recap of my experience with ESPP’s back in 2011, but I thought today I would do an updated one and discuss the pro’s and con’s of each and if they are a good fit for you.

ESPP’s are company run programs that allow employee to purchase shares of that company at a discounted rate, usually anywhere between 5-15%. The employee contributes money through payroll deductions each pay period. After a specific period that money that you have been accumulating is taken and purchased shares of stock at a discounted rate.

They can be a benefit to you in either one of two ways. The first is through a long term investment tool and the second as a way to earn some quick cash, as long as there are no restrictions on when you can sell your stock.

What I currently do at my employer is I contribute $5,000 a quarter ($1,667 a month) into my ESPP. At the end of each quarter (4 times a year) that $5,000 is taken and used to purchase shares at a 10% discount. So for example is the stock closes at $20 at the end of the quarter the $5,000 will buy 277.78 shares of company stock ($20 x 90% prices equal $18 a share, $5,000 divided by $18). After it is posted to my account, I then turn around and sell the stock for a profit.

So for example I sell the 277.78 shares at $20 and have a gross of $5,555.56 (277.78 X $20). After you take out my basis of $5,000 you are left with a nice $555.56 profit. I then take that original $5,000 and put it back in my operating account, so in essence I’m really not contributing $20,000 of my pay into the stock, it is really $5,000 continually recycled.

So that’s how my companies program works, but what are the downsides. The first you need to know is what the period between when you can buy and when you can sell. For me it takes about 3 business days for the stock to be purchased to when it posts to my account and I can sell it. That is a small enough risk that there isn’t a lot of volatility. But I do know of some companies that require a holding period in terms of months of when you can sell. For me if that period is anything more than a week, I’m passing because I don’t want to take the risk.

Also the higher the percentage discount the better. Since my discount rate is 10% that is not as bad of return. But at 5% the return isn’t worth the risk in my opinion.

Before you consider whether or not this is right for you, take into account these considerations:

Investment Tool

I use my companies ESPP as a way to get quick cash, but theoretically I could use this as an investment tool. In that case I wouldn’t sell right away, I would just instead lower my contribution amount, I can’t afford to purchase $20,000 worth of stock a year, and just let the stock value appreciate.

But for me that is too much risk. I don’t like having investment in single stock as they are usually pretty volatile. But if you do go this route, I’d recommend it being no more than 10% of your total investment portfolio. Also depending when you sell you may be taxed on any gain so make sure you understand the tax consequences before you sell.

Be out of debt

You are contributing money up front in advance of the purchase, so if you are in debt I wouldn’t recommend doing this because the money could be better used towards paying off any debt you may have.

In addition you are also balancing money so I’d be out of debt and make sure I had a strong control of my finances before trying to juggle money around.

Have an emergency Fund

Like I mentioned earlier, you are contributing money upfront before you make a purchase and I don’t want my emergency fund hung up in the stock market. I want it where I can get it if a financial emergency actually occurs.

If you do participate in an ESPP, this should be taking a risk money, not emergency fund cash.

The key in all of this is to know the type of plan your companies ESPP is. Find out what the discount rate it, the amount of times a year you purchase stock, and how long before you can sell the stock without penalty are key things to determine before you do any work.

With that being said, I normally make an extra $2,000 a year in cash by doing this. Yes I have to sit aside $5,000 but the ~$2,000 a year gain equals out to be an approximate 40% return on that money. You really can’t beat that. But again it is because my companies ESPP works for my situation, we don’t have any debt, and we have a full emergency fund.

Other resources mentioned on the show:

To send in your questions email me at Jon@JWFinancialCoaching.com

Today’s quote of the lesson is brought to you by Audible.com

“Don’t put all your eggs in one basket” ~ Warren Buffett

Enjoyed this lesson? If so, please consider taking a few minutes to leave a review of the show either in Stitcher SmartRadio, or iTunes. For a step by step video of how that works, please watch this video on how to leave a review in iTunes.

You can subscribe to future podcasts through Stitcher SmartRadio or iTunes, Google Play or by downloading the iPhone app. Or you may listen to the podcast on the JW’s Financial Coaching Facebook Fan page.

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JW’s Financial Coaching Podcast Lesson #146-Why we end up with so much credit card debt

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  • In research for my upcoming book, been looking at statistics on credit card debt
  • Why credit card debt is not just an income or age issue
  • 3 ways to avoid credit card debt
  • Why I don’t own a credit card
  • Quote of the lesson from Mark Cuban

In doing some research for my upcoming book, on how debt free people think, I’ve been doing a lot of research lately on debt statistics. Recently I did some research on credit card debt and the recent surveys and statistics coming out in regards to credit cards and their usage are quite startling.

  • Gallup found in 2014 that 71% of Americans own at least one credit card [1]
  • As of March 2016 38.1% of households that have a credit card have a balance at the end of each month with an average debt of $16,000 [2]
  • Among all US households the average credit card debt as of 2016 is $6,184.16 [3]
  • Among those who carry a credit card balance the average household will pay $1,292 in interest [4]
  • Total Outstanding US Credit Card is $762 billion[5]
  • Credit card ownership by Age:
    Age Range    Percent that own a credit card
    18-24               67%
    25-34               83%
    35-49               76%
    50+                  78%
  • 56% of Undergraduate students owned a credit card in 2016
  • Credit Card Debt by Age as of 2016
    Age Range    Average Credit Card Debt
    18-34               $5,808
    35-44               $8,235
    45-54               $9,096
    55-64               $8,158
    65+                  $6,351
  • Average Credit Card Debt by Income as of 2016
    Income Range           Average Credit Card Debt
    < $25,000                    $3,000
    $25,000 to $44,999    $3,900
    $45,000 to $69,999    $4,900
    $70,000 to $114,999  $5,800
    $115,000 to $159,999 $8,300
    $160,000+                   $11,200
  • Average annual credit card interest cost by household income in 2016
    Annual Income Range    Average annual interest paid
    Less than $21,432                   $677.43
    $21,432-$41,186                     $839.60
    $41,187-$68,212                     $1,135.91
    $68,213-$112,262                   $1,303.76
    $112,263-$157,479                 $1,882.85
    More than $157,490                $2,515.05
  • Annual credit interest paid by employment status in 2016
    Employment Status        Average annual interest paid
    Employee                                $1,210.58
    Self-employed                        $1,630.84
    Retired                                    $1,321.84
    Other, not working                  $1,554.57
  • Average Credit Card Debt by Gender
    Gender        Average Credit Card Debt
    Male            $7,407
    Female        $5,245

What does this information tells us? What I noticed was that credit card debt isn’t just a thing for those who don’t make a lot of money or are young. There are people in their 50’s and 60’s and those make well over six figures that have credit card debt.

The fact that we as a nation have $762 Billion in credit card debt is absurd. So today’s show I share ways to avoid credit card debt in the first place. On the surface they might seem basic, but a lot of times when it comes to personal finance, basic is usually the best answer.

  1. Don’t have a credit card in the first place.
  2. Do a monthly budget
  3. Have an Emergency Fund

We break down each of those ways further and share why whether or not you carry a balance on your credit card is not a good measure of whether it is wise for your to use one.

Other resources mentioned on today’s show

To send in your questions email me at Jon@JWFinancialCoaching.com

Today’s quote of the lesson is brought to you by Audible.com

“Credit Cards are the WORST investment you can make” ~ Mark Cuban

Enjoyed this lesson? If so, please consider taking a few minutes to leave a review of the show either in Stitcher SmartRadio, or iTunes. For a step by step video of how that works, please watch this video on how to leave a review in iTunes.

You can subscribe to future podcasts through Stitcher SmartRadio or iTunes, Google Play or by downloading the iPhone app. Or you may listen to the podcast on the JW’s Financial Coaching Facebook Fan page.

[1] http://www.gallup.com/poll/168668/americans-rely-less-credit-cards-previous-years.aspx

[2] https://www.valuepenguin.com/average-credit-card-debt

[3] https://www.nerdwallet.com/blog/average-credit-card-debt-household/

[4] https://www.nerdwallet.com/blog/average-credit-card-debt-household/

[5] https://www.valuepenguin.com/average-credit-card-debt

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JW’s Financial Coaching Podcast Lesson #145-Are you worshiping money?

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  • Three signs that you are worshiping at the altar of money
  • Why the worship of money is not a physical worship
  • How we can worship money no matter what our financial situation is
  • Money just makes us more of what we already are
  • Quote of the lesson from Andrew Carnegie

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JW’s Financial Coaching Podcast Lesson #144-Answering your questions on bi-weekly mortgage plans and how to encourage your spouse to care

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  • Are bi-weekly mortgage programs worth it?
  • Why you don’t need to pay a fee to have your mortgage paid off sooner
  • Getting your spouses head out from the sand when it comes to money
  • Why it is important to focus on the why and less on the what
  • Quote of the lesson from Charles A. Jaffe

 

 

 

 

 

 

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JW’s Financial Coaching Podcast Lesson #143-Spring cleaning with our finances

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  • What are some small things we can do to have a big impact on our finances
  • Why physical de-cluttering saves us money
  • How much of a refund are you receiving this year?
  • Are you diversified enough
  • Quote of the lesson from Charisse Ward

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JW’s Financial Coaching Podcast Lesson #142-The 5 Day Money Challenge with Guest Greg Pare

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  • Coach Greg Pare is back on the show
  • Why he is doing a 5 Day Money Challenge
  • Who will benefit from the program
  • The common money issues Greg sees when he is speaking and coaching
  • Quote of the lesson

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JW’s Financial Coaching Podcast Lesson #141-Lessons Learned from coaching: Trying to do 10 different things at once

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  • Continuing our series on lessons learned from coaching clients
  • What happens when we attempt to do several things at once with our money
  • The power of focus with our money
  • Why I love the Baby Steps so much
  • Quote of the lesson from George Horrace Latimer

 

 

 

 

 

 

The Problem

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JW’s Financial Coaching Podcast Lesson #140-Lessons Learned from coaching: Financial decisions today impact our available options tomorrow

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  • Continuing our series on lessons learned from coaching
  • How are decisions impacts our future
  • Why it is hard to look forward in our instant gratification culture
  • What our options will look like if we make these decisions today
  • Quote of the lesson from Nathan W. Morris

 

 

 

 

 

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JW’s Financial Coaching Podcast Lesson #139-Lessons Learned from coaching: You want me to cut back on retirement?

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  • Continuing our series on lessons learned from coaching
  • When to cut out retirement savings
  • What to do with the money instead
  • Why the key word is TEMPORARILY
  • Quote of the lesson from Mark Twain

 

 

 

 

 

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JW’s Financial Coaching Podcast Lesson #138-Lessons Learned from coaching: The impact of debt on our life

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  • Continuing our series on lessons learned from coaching
  • Learning the impact of what debt does to our life
  • The normalization of debt in our culture
  • Actions to take the realize the impact of debt on our life
  • Quote of the lesson from Publilius Syrus

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