Why you should max out your ESPP | BeatTheBush

Rate of participation is not 100% so people out there are leaving free money on the table. Here I explain why you should max it out and get the maximum benefit. In the worst case scenario, you will still make 17.6% return on your contribution! If the stock doubles? Well you make 135%.

How’s it going everybody this is beat the bush and today we’re gonna talk about employee stock purchase plans esp p is a plan where your employer allows you to purchase stock and a discounted rate early on when i was working i talked to some of co-workers and oftentimes 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 p works like this you have maybe three months and perhaps the 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 percent off fifty seven dollars and fifty cents off so it’s 40 to 50 if you take all people in the

United states and pick the middle guy he will earn about $50,000 a year 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 or maybe one month or three months and just sell it every three months you would actually make up quite a lot of money from this if you happen to buy the esp p and sell it right away right when invests 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 $7,500 you can buy it at 40 to 50 that means you 176.50 in the same exact day 176.50 you sell it immediately means you get eight thousand eight hundred twenty three dollars eighteen percent discount is

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Pretty pretty normal from what i’ve seen the difference in different company is the the duration some of them do one month some of them do three months some of them do six months the structure at which you buy and sell these shares might differ a little bit from company to company but most of time the fifteen percent 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 fifteen percent 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 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 seventeen point six percent gain

In whatever amount that your you have for sure with zero risk a typical company would allow you to contribute anywhere from zero to fifteen percent of course you want to max it out in order to maximize this benefit so you max out your fifteen percent which means you are spending seven thousand five hundred dollars a year on shares you sell it every single quarter

So there’s a holding period of three months every single quarter you invest and then you sell it and by the end of the year you would get eight thousand eight hundred twenty three dollars which translates to a 1323 dollar gain now what is the percentage gain from this over that is actually seventeen point six percent this percentage is great and all but you really

Want to look at the actual dollar value you get which is over a thousand dollars so my advice for those young people there that just started at a company and 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 vests and you would quickly right

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There you made a 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 you paycheck suddenly shrinks because you’re contributing to this plan you’ve got to make do if you need the money in your paycheck and it cannot take that out well that’s that’s the

Way it works 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 three 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

Best date and then the company would buy those shares for you and then you of s essentially contribute 1875 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 three hundred thirty dollars on top of that i mean to me it’s a no-brainer you should definitely max out your esp p i hope i’ve convinced you enough and especially for the young people that

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Just got a job and have the option of esp p you might be a little shy about at all you don’t have the money you rather have a bigger check 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 six hundred

Twenty-five dollars you can allow your income to reduce by that much every month then would get you know eighteen percent gains this is a pretty significant amount of income here for essentially zero risk but you have to put up money upfront as soon as you do it for the first three months it’s like you don’t really need to keep on having this reduced income you

Just do it for the first three months and then you sell it right and then you can use that money and divide it over the next three months that’s my spiel about the spp should definitely contribute to the max to it yeah it’s free money teawrex here also has an esp p and 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 p do me a favor if you actually contributed less than 15% and because of my video you max it out or maybe you you had 0% contribution and then you suddenly max it out and get you know one thousand dollars 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 somewhere over here thanks for watching

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Why you should max out your ESPP | BeatTheBush By BeatTheBush

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