How Minimizing Your Paycheck Can Maximize Your Savings

As beautiful as Ben’s smile may be, whisk him away into savings and you’ll be happier than ever. The old man himself agrees with me: “A penny saved is a penny earned!”

You just got that big promotion, or that new job, or that solid yearly raise. “Score!” you exclaim. “Now I can buy all the junk I ever wanted!” But taking a step back, you realize that while a small amount of that money can be used to buy that fancy new video game or purse, most of it should probably be saved toward the bigger things in life. But it’s so tempting seeing those extra couple Benjamins hanging out in your checking account…

In this post, I’ll show you how to shrink your paycheck so you’re never tempted to spend money you should be saving. Make yourself feel poor so you can get rich!

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Employee Stock Purchase Plans (ESPP) — Guaranteed returns!

Don’t worship your company so much that you are blinded to the risks of putting all your eggs in one basket!

A whole lot of companies in the tech space offer Employee Stock Purchase Plans (ESPP). These are programs which incentivize employees to buy the stock of their employer company, often at a steep discount. As an engineer just starting out, you may see this and think: Awesome! I love my company and believe in what they’re doing, this is a chance for me to invest in their success. But have you thought about what happens if their stock takes a dive? You not only lose the value of your stock, you also might lose your job! Or maybe you HAVE thought about that, to the extent you’re afraid to participate at all! This is also bad, as some well-structured ESPP programs can yield a guaranteed return well above that of the stock market at large.

I’m going to do some explaining and simple calculations using an example ESPP which is very, very similar to the ones I’ve seen at companies where I’ve worked or interned in the past. This will show you that:

  1. You should almost definitely participate
  2. You should almost definitely sell as soon as the stock is in your hands

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