Today I reached another milestone in my quest to reach financial independence and retire early. Step number 3 in my Get Rich Quick’ish strategy is ‘Take Advantage of Free Money.‘ As of this moment I’m officially all-in on my employer’s ESPP program.
It has taken a while to get to this point (two years to be exact), but it means that between my Employee Stock Purchase Program and my 401(k) match, I’m finally grabbing 100% of the free money that my employer offers.
Before I go on, let me quickly answer two questions that you might have:
- What is an ESPP?
- Why did it take me two years to grab free money?
First – an Employee Stock Purchase Program (ESPP) is a workplace benefit that allows employees of a publicly traded company to purchase company stock at a discounted price. For example, if your company stock is trading on the market at $10 per share, an ESPP allows you to buy it for $8.50.
There are other potential discounts on top of that as well, but at a minimum this is usually an immediate 15% gain on your investment and that’s why I call it free money. Check out my ESPP post for an in-depth look and explanation of what a good ESPP program looks like.
The next question is a good one, and it’s the reason I’ve written this post: why did it take two years to grab this free money???
It Takes Money To Make Money
In an odd (and often frustrating) twist, it actually takes quite a bit of money to take advantage of all this free money. To go all-in on my ESPP meant that I needed to funnel 15% of my taxable income into the program.
That’s money I simply didn’t have, especially when I’m already diverting a sizable percentage of my paycheck into our 401k.
If you don’t make a lot of money, sometimes you just can’t afford to take advantage this “free money” and it can be very frustrating to sit on the sidelines and watch others benefit while you’re not yet in a position to do so.
For a family of six that’s trying to get by on a single income and save for an early retirement as well, finding an extra 15% in our budget wasn’t easy.
In fact, it was impossible. There simply wasn’t that much money lying around to pour into our ESPP.
I suspect that many of you reading this blog would also have a hard time diverting an additional 15% of your paycheck into a savings or investment account. If you can afford to save that money then you’re probably already doing so.
Maxing out my participation in our ESPP meant that I had a problem to overcome: how can I claim this free money if I can’t afford to participate in my ESPP?
Using my 3 solutions rule, my wife and I came up with a few ideas for how we could find that money in our budget. Some of those options included:
- Eliminate all unnecessary expenses in order to free up cash and to find the 15% wiggle room in our budget that we needed. This would include things like cutting cable, downgrading our cell phone data plans as well has our home internet plan, eliminate our weekly date night, etc. etc.)
- Make more money on the side to replace the 15% that would be going to the ESPP. We kicked around ideas like making extra money through a side hustle like this blog, or by selling things on eBay or Craigslist.
- Don’t participate in the ESPP.
- Save up enough money to subsidize the 15% paycheck reduction.
Of these options, which one would you have chosen? Maybe you can think of other ways to cover a missing 15% from your budget? I know of a few coworkers that borrow the money from their parents just so they can participate in the ESPP, so I guess that’s another option we could have considered.
Saving Money To Save Money
We want to Get Rich Quick’ish and retire early, and that means ‘taking advantage of free money’ so we immediately scratched ‘don’t participate’ from our list of options.
Our budget is already pretty lean and we didn’t want to cut back more than we already have, so we decided against cutting more expenses.
We don’t keep a lot of crap around the house that we could sell. We’ve either already sold the valuable stuff that we don’t want, or we want to keep our things – so selling items of value was also off the table.
The option we settled on was to save up enough money to fully participate in the ESPP, and it has taken us about two years to do that. Thanks to a bonus that I recently received at work, we’re finally over the top and can now afford to max out our participation in the ESPP by contributing 15% of our taxable income.
Here’s how we got to this point, and what happens next.
The Dirty Details
What it boils down to is we’re subsidizing ourselves. Rather than borrowing money from our parents, we just saved up the money we needed to offset the 15% payroll deduction. Now, every payday, I’ll just transfer some of our saved up money from our savings account into our checking account to cover the money that we’ve put into the ESPP.
Over the past two years we’ve saved whatever money we could and also took advantage of ‘windfalls’ like bonuses and tax returns to save the rest in order to participate in this ESPP and take advantage of the free money.
If you want to max out your 401(k), or a Roth IRA, or participate in your own ESPP but can’t afford to do so because the money just isn’t there – why not save up money so that you can save money? It might take a while, but better late than never, right?
Do you think saving to save is a viable option for you or anyone you know? It’s not a quick solution to the problem, but it is a solution. What do you think of it?