How Can Tech Professionals Achieve Financial Success? Part 1

This is Part 1 of a 3-part series on how tech professionals can create and sustain financial success while avoiding potential traps.

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Step 1: Clarify Your Priorities, and Set Clear Life and Financial Goals 

A personalized financial plan is essential to align your goals, whether that’s financial independence, early retirement, supporting your family, or philanthropic giving. 

As a tech professional, your financial success is driven by more than just your income, it’s about having a clear understanding of what matters most to you. Whether your goal is achieving financial independence, retiring early, supporting your family, or giving back through philanthropy, a personalized financial plan is essential. 

By clarifying your priorities and setting clear financial goals, you can create a roadmap that aligns your wealth-building strategies with your life’s ambitions. This approach ensures that every financial decision you make, from investments to tax strategies, serves a specific purpose and keeps you on track to meet your long-term objectives. 

So, before putting the financial architecture in place, it’s critical to invest time to gain clarity on where you are at and where you are heading. Take a temperature check of your current situation. And consider what may be coming up in the future. 

Start by Considering These Questions: 

• What’s most important to you? What are your core values? 
• What is your purpose? 
• On a scale (1-10), rate your current financial life satisfaction? 
• What do you want to improve or change? 
• What are your possibilities and dreams? 
• What big life events are you anticipating, regarding life, work, finances, or legacy? 
• How do you feel about giving and philanthropy? 

Once you know where you are at and where you are heading, the next stage is to review and understand your finances. Afterall, your money is there to support your life, not the reverse!

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Step 2: Maximize Your Equity Compensation 

Unlock the full potential of your equity awards by understanding vesting schedules, tax implications, and how to diversify to reduce risk. 

Equity compensation is likely a significant part of your overall financial package. Whether in the form of stock options, restricted stock units (RSUs), or other equity-based awards, understanding how to maximize these assets is crucial to unlocking their full potential. 

This starts with knowing the type of equity awards you have. RSUs and restricted stock are different from stock options in many ways, including ownership and taxation. There are considerations such as early exercise or delayed vesting. Each type of award has specific details, and understanding the implications is critical. 

“Only 38% of equity comp recipients are very or extremely confident they know how to maximize the financial benefit from their equity awards.”

‍Get organized by creating a spreadsheet with all your grant letter and plan data - grant ID/type/date, vesting date, exercise date and price, etc. This will allow you to view and compare your awards all in one place, which can help you make more informed decisions. 

Then, you must have a solid grasp of your vesting schedules, knowing when and how your shares become yours to own and sell is key to timing your financial decisions effectively. Failing to plan around vesting dates could result in missed opportunities or unintended tax consequences. 

‍Understand the tax treatment of your equity awards. For example, restricted stock and RSUs are generally taxed as ordinary income at vesting. However, ISO stock options may qualify for capital gains treatment if specific holding periods are met. A CPA and a qualified financial planner with specialized knowledge can help you assess various tax scenarios. 

Gain understanding of how your Employee Stock Purchase Plan (ESPP) works. ESPPs usually offer significant benefits by allowing employees to purchase company stock at a discount, often up to 15% off the market price. Some companies have a lookback provision, which bases the discount calculation on the stock price at the lower of the beginning or end of the stated period. This discount provides an immediate return on investment and the potential for long-term capital gains if the stock appreciates. 

Know what will happen if you separate from your employer. Job separation does happen, sometimes involuntarily. It could be due to a layoff, firing, disability, death, retirement, or a job change. Be sure to know what your grant letter indicates regarding vesting for these various events. With restricted stock and RSUs, vesting typically stops if you lose your job. Death or retirement may accelerate vesting. Stock options will generally expire after 90 days from a job loss.

Maximizing your equity compensation requires a proactive, informed approach. By understanding vesting schedules, tax implications, and diversification strategies, you can turn your equity awards into a powerful wealth-building tool that aligns with your long-term financial goals.

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Part 2 of this series will discuss tax planning and making the most of employee benefits.

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The foregoing content reflects the opinions of TwoTen Planning and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as financial, legal, tax, or investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. All investing involves risk, including the potential loss of principal. Quote Source: 2022 Morgan Stanley Annual Stock Plan Participant Survey. Article constructed with assistance of ChatGPT.