Monthly Archives: August 2013
If you work for a public company, you may have a worthwhile benefit called an Employee Stock Purchase Plan (ESPP). These plans are offered to all employees just like healthcare or holiday pay is applied across the board, and it might be a very smart move to funnel some money into one. An ESPP allows employees to purchase the company’s public stock through payroll deductions (after taxes) and usually at a discount to the market price. The discount varies, but usually caps out at 15%. So here’s the main question: should you invest your hard-earned paycheck into your company’s stock?
You can answer that question by asking yourself the following:
- Do I know where the company is going? Do you understand the financial outlook of the company? Is it a mature company that is not likely to see a lot of growth? Is it a growing company that is expanding rapidly but still showing losses? Do you really understand the business? Because the last thing you want is for this thing to implode Enron-style.
- Do I believe the company’s stock is fairly priced? You may work for a great company, but what if you work for a really great company, the Googles and the Apples whose stock are closely followed, traded at high volumes, and perhaps overvalued due to all of the speculation and enthusiasm? Sometimes too much enthusiasm can backfire. On the other hand, before Marissa Meyer joined Yahoo! and the stock price climbed about 70%, Yahoo! shares were significantly undervalued, at one point trading for less per share than what the value of all of Y!’s cash assets were (including its Alibaba stake). But Yahoo! wasn’t sexy then, which is exactly when an employee purchasing stock at a discount to market could have been making a very good investment.
- Would I purchase stock on my own without the ESPP? Would you? Would you take the time to buy shares on your own, without the discount? Remember, just because it’s on sale doesn’t mean you have to buy it.
- Have you calculated the cost and benefit? For example, let’s say your company’s shares trade at $10/share. You set aside $1000 from your paycheck to purchase shares. On the open market, you would have received 100 shares, but thanks to your $8.50 share price, you can purchase 117 shares and have a few bucks left over to buy a Coffee Bean Ice Blended Hazelnut drink (or a margarita at happy hour). Or you can decided to just buy those original 100 shares for $850 instead of $1000. When it comes time to sell those shares, here’s an easy reference on how the proceeds get taxed.
ESPPs are a great way to start investing, especially if you understand your company and its prospects for growth. If you work for a blue chip company, the ESPP may simply be a nice way to invest in a solid stock at a discount to the market. There are usually not that many rules attached to when you can sell these shares since you are paying for them with your own payroll deductions, so maybe there are even some short-term opportunities to make money (but your company may not encourage that!).
Have you ever invested through an ESPP? Did you get really, really rich? Tell me about it!
Just like two minutes ago, I scheduled the last $410.50 payment towards my Discover balance. I have no more consumer debt. From May 2011 to just over two years later, I paid off a car ($6K), a grad school loan for a program I didn’t finish ($8K), Lasik surgery ($2.6K) and most of all, a ridiculous amount of credit card debt ($25K). I was in debt for most of my twenties, from about 2005 to four minutes ago :). At my worst, I had about $46,500 in debt, in June 2010.
At this moment, I don’t feel any euphoria as anticipated, but just a calmness and sense of relief. Phew, that’s over, now what the hell am I going to do next? But first I want to talk about why I wanted to get out of debt and why, even though it took over two years to do it, it was worth it and I am excited about living a life with no consumer debt, by which I mean interest-bearing loans for expenses and consumer goods. I had so much debt I felt stuck. I lived every month calculating and re-calculating the hopeless numbers. I had way too many bills. I stressed out Ryan and delayed our future plans because I didn’t want to get married in debt. It was so crappy and even though I never missed a payment and tried to pay extra on my bills, I was getting nowhere.
As I’ve said before, the blogs saved me. I started reading and couldn’t stop. I am lucky (or cursed) to have tunnel vision (some call it being “results-oriented”) and nothing was going to stop me from paying off all this debt and managing my money responsibly. I wrote down my goals, started blogging about it, and made progress each month towards paying off all my debt by 30.
Tenets of Basic Personal Finance
If you’re reading this, you’ve probably also read approximately 13,456 other personal finance posts and ALL have at some point addressed some ideas about what you should do when you’re in debt. Let me tackle those issues right now.
- Emergency Fund: For most of this debt payoff journey, I had almost no emergency fund (less than $1,000). At one point, it got to be more than that, and I decided to use all of that money to pay off my car loan. I felt pretty comfortable that I was going to employed and could expect a regular paycheck, so I took the risk of having no backup funds and I was fine.
- Pay the Smallest Balance or the Highest Interest: Duh, no brainer, pay the highest interest rate accounts first. I did this for all but my first account, the Lasik surgery. It was my smallest balance but had a big monthly payment, and would have had a balloon interest payment if not paid off in 24 months. So I took care of that lady first to avoid the interest, then began paying the rest of the high-interest accounts, from 10% credit cards to a 3.9% car loan.
- Make More Money: I increased my income significantly over the past two years: changed jobs twice, grew an eBay business, and did consulting and other side projects whenever I had time. At first, it felt like finding new sources of income was impossible. Eventually, many new avenues opened up as I kept going, kept researching and kept trying different approaches.
- Don’t Keep Up With the Joneses: I finally got this through my tiny little head! This was my main problem. I lived aspirationally because many, many people I know live aspirationally. This is Southern California, you lease an import whether you can afford it or not. But even though I always laughed at that idea of trying to impress other people with material possessions, in many ways I was trying to impress others with my lifestyle and cool shit I did. When I finally stopped doing that, my expenses fell in line and I was able to start paying off my debt. Not to say I don’t still do some cool shit.
You’ve Just Paid Off All Your Debt! What Are You Going to Do Next?
Disney World is too far and I’ve already been to Disneyland. So what am I going to do now? I don’t know, I’m excited, let’s talk about it!
- I don’t have a net worth goal. It just doesn’t interest me and I don’t think it ever will. Achieving any number (besides zero debt so I could move on with my life) just won’t do anything for me. Yes, I want to make a lot of money. Yes, I know Napoleon Hill says I have to pick a number. But I just can’t bring myself to do it. My life is not a number, it already has a lot of numbers in it, and I’ll just keep upping the number so what’s point? For now, I have an annual income goal for each year, and I am going to make it a reach, just like paying off $40,000 in a little over two years was a reach.
- I want to own real estate. But I realized something as I’ve been getting the daily MLS emails. I’m going to have to invest my money elsewhere. Owning real estate in Orange County is an expensive proposition and most places do not make sense as investments, unless you just have boatloads of cash and want to park it somewhere. So first things first, we’ll both be saving for a down payment for a place that we want to live in, not just a rund0wn place that could possibly be cash-flow positive as a rental. We still want it to be rundown so Ryan can renovate it, but in one of the OC beach cities, that will still be pretty pricey.
- We won’t take on any debt for the wedding. After two long years of paying off debt, we’ll also be saving and hustling hard to have plenty of funds for the wedding. Open bar, dude.
- I want to put my money where my mouth is. I’m going to look at investments now that I won’t be doing any real estate investing. I still run a decent eBay business, but have slowed down my consulting business since starting my new job. I’m fine with that. I don’t want to earn an hourly rate any more, even though it was a good one. I’m going to clean up my stock holdings, dust off my investment account and get back into researching local small businesses for sale. There’s always opportunity out there, it’s just a matter of being willing to do the work.
- Get back to reading. I’m in the middle of Griftopia (Matt Taibbi is this generation’s HST but with more facts and less drugs) and in my new job, I’m surrounded by people who read a ton. I’ve got stacks of books waiting to be read and I still need to get around to The Intelligent Investor…
- Live Free or Die. I never want to feel as shackled as I did by my debt. I have a job but it’s a job I’ve always wanted. I have so much to learn and so much to do and a huge market to tap. This stuff makes me happy. As long as I have the ability to do the things I want to do, live where I want to live and always be open to new discoveries in life, I’ll enjoy doing the work. If the work becomes meaningless, redundant or evil, I’m ready to walk away. And knowing I have no consumer debt and enough side business to cover my barebones monthly expenses makes it that much easier.
Advice for Paying Off Debt When It Seems Impossible
I didn’t come all this way to start saying weird things about debt or turning my nose up at people who have a ton of debt or who write about it and say, “Ewwww, debt/debt bloggers, they have cooties.” Nawwww. It’s better to come from a place of no judgement. It’s not easy, I still judge things everyday, but when people open up or tell you something about themselves, just listen. Don’t judge them, good or bad. Remember that we all have problems. Just because I’ve paid off my debt doesn’t mean 100 brand new issues, situations and ideas have not popped into my head to take over the space vacated by my debt worries. Now I have to pay off my credit card in full every month. Now I need to pay the full car insurance premium so I don’t get hit with pesky $10 fees. Now I need to increase my 401(k) contributions to lower my taxable income. Now I need to finesse the details of a wedding, try not to hurt anyone’s feelings and make something fun, affordable, memorable and personal. Now I need to get better at keeping in touch and make some new friends in my new town. Now I need to study the next 18-24 months of economic policy to see when it will be best to lock in a mortgage rate. See what I mean? Lots of things going on, and that’s just the surface. It’s easy to turn these into worries, and I used to do that, but instead I just let them exist. I’ll think about them but I’m going to lose any sleep over them (yet).
I think you can pay off your debt. If you want to. If you’re willing to make some changes, spend some time thinking about money, what it means to you, and what your big goals are. This makes paying off debt easier. The other basics are:
- Cut your expenses (fees, cable, fast-casual meals with huge markups)
- Track your daily spending.
- Pay your highest interest debts first.
- Set monthly goals for your money.
- Give yourself room to make mistakes and learn from those mistakes. I slipped once or twice.
- Be excited for what comes next.
- Read as much as possible (this is my general life advice).
I still have a lot to write about, so American Debt Project will stick around. I thought I’d have some snazzy quotes for you all when I finally paid off all my debt, but I’ve been debt-free for almost two hours now which means I just need to get some sleep.
Have an awesome weekend and live big my friends!