Why You Should Max Out Your ESPP

how's it going everybody this is beat the bush and today we're going to talk about Employee Stock purchase plans ESP is a plan where your employer allows you to purchase stock at a discounted rate early on when I was working I talked to some co-workers and often times they would be a little edgy about buying stock they're not sure if they should contribute to it or not it might lose value so then they're a little iffy about it ESP works like this you have maybe 3 months and perhaps a stock would go up and down like that so if your stock price began this period at 100 and it ended at 50 you can actually buy it for 15% off 50 $7.50 off so it's 4250 if you take all people in the United States and pick the middle guy he will earn about $50,000 a year uh as a household you can usually contribute 15% of your yearly salary at maximum to this plan so this would mean you can contribute $7,500 it's quite a lot of money so sometimes people would actually not contribute because they need the money to pay bills they're living paycheck to paycheck and you just cannot afford to take a little bit out the thing with this is if you can afford to do it just hold off off for maybe 1 month or 3 months and just sell it every 3 months you would actually make quite a lot of money from this if you happen to buy the ESP and sell it right away right when invest there is zero risk really really zero risk because whatever money you put in to buy the stock if you sell it the same day you will essentially get a 15% discount on the stock so let's just take this hypothetical value here $7,500 you can buy it at 4250 that means you get 176.50 shares you turn around on the same exact day 176.50 shares time $50 you sell it immediately means you get $882 3 15% discount is uh pretty pretty normal uh from what I've seen uh the difference in different company is the the duration some of them do 1 month some of them do 3 months some of them do 6 months the structure at which you buy and sell these shares might differ a little bit from company to company but most of the time the 15% is a sure thing it's not like buying a stock and you're hoping for it to go up or down you buy it you already made 15% right there you can choose to hold on to it but when you choose to hold on to the stock you're taking the risk if you s sell it right when it vests you are taking zero risk that's a very important point there because the zero risk translates to actually 17.6% gain in whatever amount that you're you have for sure with zero risk a typical company would allow you to contribute anywhere from 0 to 15% of course you want to Max it out in order to maximize this benefit so you max out your 15% which means you are spending $7,500 a year on shares you sell it every single quarter so there's a holding period of 3 months every single quarter you invest and then you uh sell it and by the end of the year you would get 8,823 which translates to a $1,323 gain now what is the percentage gain from this over that is actually 17.6% this percentage is Great and all but you really want to look at the actual dollar value you get which is over $11,000 so my advice for those young people out there that just started at a company and uh they have the ability to buy shares you should definitely Max it out if you don't want to take any risks in the stock market Max it out and sell it every single time that it invests and you would quick Qui right there you made uh 17.6% gain some of the arguments against doing this that I've heard is that some people they may not have the cash flow to spend this extra money because you know if your paycheck suddenly shrinks because you're contributing to this plan uh you got to make do if you need the money in your paycheck and you cannot take that out well that's that's the way it works you if you can't do it then you can't get the benefit but think about this if you do it you would essentially make $330 every single quarter every 3 months so the drawback here is you have to take some money out of your paycheck in order to put it into this little pot where it accumulates a little bit more a little bit more every month until until the vest date and then the company would buy those shares for you and then it'll invest essentially contribute 1,875 per quarter which means every paycheck every month paycheck you reduced your take-home pay by $625 that's quite a lot of money however if you check out my other video on how to manage your cash flow you should be able to have enough money saved up in your savings to weather this big expense this is the amount that you have to put up and let it kind of sit there and it's making you $330 just you put this in there and it makes you $330 $ on top of that I mean to me it's a no-brainer you should definitely max out your ESP I hope I've convinced you enough and especially for the young people that just got a job and have the option of ESP uh you might be a little shy about it oh you don't have the money you rather have a bigger paycheck but you really should Max it out every chance you get even early on you Max it out and sell it every quarter and then you'll get more income not everyone can do this only people that have this cash buffer of about $625 you can allow your income to reduce by that much every month then you would get you know 18% uh gains this is a pretty significant amount of income here for essentially zero risk but you have to put up money up front as soon as you do it for the first 3 months it's like you don't really need to keep on having this reduced income you just do it for the third first 3 months and then you sell it right and then you can use that money and divide it over the next 3 months that's my spew about ESP should definitely contribute to the max to it yeah it's free money T-Rex here also has ESP and he contributes 15% maximum so I noticed in my comments a lot of you viewers really like my finance videos in fact a lot of you subscribe because of some of my finance videos so I hope you like this video about ESP do me a favor if you actually contributed less than 15% and because of my video you Max it out or maybe you you uh had 0% contribution and then you suddenly Max it out and get you know $1,000 per year because of me please let me know I would get a kick out of it so thanks for watching this video don't forget to click like somewhere over here leave a comment down below if you have a question or if you argue against maxing this out and don't forget to subscribe some over here thanks for watching

Channel: BeatTheBush

Views: 45,899

Keywords: Employee Stock Purchase Plan, espp, espp explained, espp tax, when to sell espp, how does espp work, employee stock purchase, employee stock purchase plans, espp sell, etrade espp, sell espp, selling espp, delta employee stock purchase plan, espp plan, how a espp works, espp selling stock, espp stock video, what is espp, employee share purchase plan, espp stock, explain espp, how espp work, should i sell my espp, espp benifits

Id: 2RPc7HPnLW0

Length: 8min 2sec (482 seconds)

Published: Thu Sep 24 2015