There is no path to happiness; Happiness is the Path – Buddha
The BITA household has had a stellar November, both financially and otherwise. As I write our monthly update on all things financial, I feel an odd mixture of pride, shame and gratitude. I am proud of all the financial progress we’ve made this month (spoiler: some of the numbers contained in this post are rather on the large side). I am, paradoxically, also ashamed of how large the numbers are. I know, I know that this is what a free market looks like, that the market determines our value and how much we get paid, but it feels undeserved. Most of all though, drowning out the pesky voices of both pride and shame, gratitude roars in my soul.
Adding cash to the financial independence stash
We added $34,993 in new investments to our stash.
- We continued to contribute after-tax dollars to Mr. BITA’s 401k and then shove them through the mega backdoor into our Roth IRA. This month we sent $2800 through that sizeable door.
- We saved $9000 from our paychecks. This is more than I was expecting because Mr. BITA was awarded an unexpected spot bonus at work this month for helping out another team.
- Mr. BITA had some RSUs vest.
- And finally, the big one. $18,645 from my participation in my company’s employee stock purchase program (ESPP). I’m going to show you the pretty graph first and then talk a little bit about how my ESPP works.
How does my ESPP work?
- We are allowed to enroll in the ESPP (join the program, or leave it) once every 6 months. This is called ‘open enrollment’. You can decrease your contribution one time outside of the enrollment window, but you can increase it only during the ‘open enrollment’ period.
- When you enroll in the ESPP, that counts as the start of your ‘offering period’. An ‘offering period’ is 24 months long. Why does this matter? We’ll come to that in a bit.
- We can contribute up to 10% of our gross salary to the program in 1% increments. Contributions are held by the company in a non-interest bearing account.
- Contributions are after-tax dollars.
- Your contributions are used by the company to purchase company shares on your behalf on the last day of May and on the last day of November (i.e. twice a year).
- The purchase price of the shares is calculated as follows:
.85 * min(FMV on purchase date, FMV on enrollment date of ‘offering period’)
where FMV means fair market value
An example might help. Assume that I enroll in the ESPP during open enrollment in May 2015. My ‘offering period’ now runs till May 2017. The FMV of the company shares on June 1st 2015 is $20. Let’s say that from June 2015 – November 2015 I contribute $500 to ESPP. On Nov 30th 2015, the FMV of the shares is $25. Here is how my purchase price would be calculated:
.85 * min($25, $20) = $17
So, my $500 would be used to purchase shares at $17 and I can sell them on the 1st of December for $25 (assuming the stock price doesn’t tank overnight), locking in a pretty hefty profit. The $20 value is ‘locked in’ until the end of the ‘offering period’ and will then automatically reset to the value at the start of the next offering period.
Our ESPP program is very generous and I am grateful for it. On November 30th, our share price was about ~46% higher than the FMV at the start of the offering period. I then got an additional 15% discount on the offering period price. So that explains the hefty $18645 in the graph above.
Now let’s turn our attention to how the markets treated us this month.
Combining our new investments and market growth our NW went up by $43,229 this month.
And guess what made me happier than this giant bump to our NW? Being featured on RockStar Finance. Knowing that people were reading what I wrote, people from countries all over the world, well, that was the highlight of my month.
The financial independence plan vs. reality
So, how are we doing with respect to the Plan?
According to the Plan, we need to save $20,000 by the end of 2016 (starting in October 2016). Last month we saved $19,516.63. Add to that the $34,993 we saved this month, and we’ve crushed that goal.
Did I set us a too-easy goal just so that I could crush it publicly on this blog and then, displaying very little in the way of good taste, dance on its graveyard? Did I set this up so that I would look like a financial superhero? It may look that way, but no, that isn’t what happened. These are the factors that I didn’t take into account when I made the Plan for 2016:
- We got a tax refund in October that I wasn’t expecting.
- Mr. BITA got a spot bonus that we weren’t expecting.
- (whispering) I…um… forgot about ESPP when I made the plan.
I: What? What was that that you mumbled quietly to yourself there Mrs. BITA? Want to share with the class?
Me: I forgot. Ok. I just clean forgot. The laughter and mocking may commence now.
I: You can’t be the author of a personal finance blog and ‘forget’ to plan for ESPPs.
Me: Who is going to stop me? You? I’m blogging right now.
I: Stop it!
Me: Blog blog blog.
I: You can be a real dick sometimes Mrs. BITA.
- We owe taxes on the ESPP sale, and on the other stock sale that we executed in September, so these savings numbers are somewhat exaggerated.
Financial independence status: On Track. Wheeeeeee.