Articles by Oakleigh Wealth
Equity Compensation: opportunities, risks, biases, and taxes
Long the domain of only the C-suite and key employees, equity compensation is increasingly used to motivate and retain younger and mid-level employees of the leanest startups to the largest public and private enterprises.
But, while these programs offer the potential for significant wealth accumulation, they also increase the level of risk the employee and her family are exposed to should the company take a turn for the worse. Armed with the knowledge of how these programs work and how they fit within your overall financial plan, you can take advantage of them from a position of clarity and security.
Restricted Stock Units (RSUs)
RSUs are one of the simplest and most common forms of equity compensation. They are essentially a promise of a given quantity of stock at a future date. Once the shares are vested and taxes are accounted for, you own the company stock just as if you had purchased it on your own. The key question to ask yourself when deciding whether to hold the shares or sell them immediately is this: “If I got a cash bonus instead, would I use it to buy shares in my company?” If not, that’s a good indication that you should just cash out now, or as the Steve Miller Band put it, “Go ahead, take the money and run!”
Budgeting is Optional (Tracking is Necessary)
If you’re like me, the idea of budgeting is not very high on your list of things you like to do, falling somewhere between going to the dentist and doing your taxes. If you’ve ever tried co-budgeting with a spouse or partner, it’s at best “no fun,” and at worst it’s an area rife with disagreement, judgment, and defensiveness. You may think you already know where your money is going (you don’t), or perhaps you don’t really want to know… It’s no wonder we don’t do it.
Invest or pay off debt?
No one likes the feeling of being indebted, whether it’s actual debt (student loans, mortgages, credit card…), or more generally in the sense of feeling an obligation to return some favor. And as this opening observation demonstrates, the decision of whether to pay down debt is often as much one of emotion as it is cold financial math. Therefore, answering the question of whether I should pay down my mortgage early or try to invest the savings in the market requires looking at both the math and the emotion of debt.