The buzz in 2007 was all about web apps. Taking things that traditional desktop software handled and moving them online and enabling people to access them anywhere. I have created a new tag called web applications and will be posting some reviews that highlight the very best. Here are some links to 2 past reviews I did:
Blogging: WordPress is Awesome
Photo Sharing: Smugmug Photo Sharing
Things are in full swing and we have made some great progress on the wedding plans. April 13’th will be just around the corner!
Well those are the major items! Lot’s more little things to do. For more details on our wedding you can view our web site on the Knot.com
I have done a little house cleaning on the website and implemented the new K2 theme for WordPress. Here are a few of the changes:
Let me know what you think!
ESPP’s are often the source of a lot of confusion so i thought it would be a good topic to post on. Most people don’t realize they are giving up FREE money by not participating in these plans.
What is an Employee Stock Purchase Plan or ESPP?
It is a stock purchase program that allows employees to purchase stock at a discount, usually 10 or 15%
Most large public companies offer these programs. Check with your HR department to see if yours does. If the program meets a few simple criteria they can be a great way to get FREE money. We all like FREE money 🙂
So how does it work?
Employees contribute after tax dollars, up to a pre-defined maximum, to an escrow account. At the end of the plan period, either quarterly or semi-annually, the company uses the escrow money to purchase the stock at the closing price minus the discount.
What about the free money part?
You need to read the fine print and see if there is any kind of holding period. If there is NO holding period you should contribute to the MAXIMUM the plan allows. As soon as you get the discounted shares, turn around and sell them the next day for an automatic 10 or 15% return on your investment!
The Home Depot Example
Here is how it works at Home Depot, we will use a sample salary of $50k for easy round numbers.
This works out to a 3% bonus per year or $1,500. Not bad for doing nothing but a little planning. The tricky part with this is that the 20% will take about of a third of your paycheck when you take taxes into account.
| Bi-weekly Gross Pay | $1,923.08 |
| Federal Withholding | $289.50 |
| Social Security | $119.23 |
| Medicare | $27.88 |
| Georgia | $102.77 |
| ESPP | $384.62 |
| Net Pay | $999.08 |
On the plus side this is a GREAT way to save money for big purchases and to live on less than you make.
What about the taxes? Shouldn’t you keep the stock for at least a year to pay less in taxes?
Here is how the taxes work. If you sell the stock right away, the IRS considers it as ordinary income. If you hold the stock for at least a year you will pay capital gains which is 15%. So yes, you would pay taxes if you held the stock but you always have to evaluate risk. There is an added risk to doing that and for me I just don’t think that risk is worth it. For example, we received the most recent allocation of ESPP shares in July at $38. By the time the shares were in my account (~10 days) the stock was at $40 and I sold them immediately. The stock is at $34 today!
I am an avid believer that you should not invest in the individual stock of the company you work for. You already have your income tied directly to the success of the company, you don’t want your investments to also be impacted if the company takes a turn for the worse.
I am on my “use it or lose it” vacation this week! At Home Depot your vacation time does not carry over so I had to start taking some. Looking forward to catching up on some house projects, doing some photography, relaxing, and maybe even writing some more posts!
This news certainly deserved a post! After almost 18 months we finally got our act together and set a wedding date. Crystal and I will be getting married on April 13th 2008 at “Flint Hill” in Norcross GA. We wanted a “Southern Mansion†style wedding and we are really excited about Flint Hill. It was exactly what we wanted: a good balance of history, modern ballroom, and beautiful gardens for an outside ceremony. Now I am busy planning all the details. 🙂
There are a couple different pahses of investing. Let’s take a look at each one.
You Can’t Invest If You Are Broke!
Simple concept right? You have to be living far enough below your means in the first place to save up some money to invest. You can’t start investing if you are living pay check to pay check. If you are, read through the first 5 foundations and come back to this one.
I have money, now where do I invest it?
You are following the first 5 foundations and your savings acount balance is starting to have some zero’s on the end of it. You have an emergency fund of 6 months and you have money left over that you are now ready to invest with the hopes of seeing better returns than 5% in a high yield savings account.
There are thousands of different investment options out there. My goal here is to break it down and make this really simple: put the money in a broad market index fund or a growth stock mutual fund with a long track record of success.
I have two spots where i put my investment money: growth stock mutual funds and index funds. Let’s start with the mutual funds. Since my older sister Rachel works at Lord Abbett Investments , I don’t pay any sales charges or commissions to Lord Abbett. This is a huge advantage and the primary reason I have most of my portfolio with them.
If Rachel were not at Lord Abbett, I would have the money invested with an index fund at Vanguard. Since Crystal and i are not married yet, her 2006 Roth IRA could not be opened at Lord Abbett without paying a sales charge. We decided instead to open a Vanguard account and put the money in the S&P 500 Index Fund. Opening the account was easy and with a 12.2% return since 1976 and a .18% expense ratio this is a great investment option!
I have the money invested now what?
Leave it alone! Let the magic of compounding take over. This is one of my favorite calculators to play with:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
Take a look at this quick math:Â If you invest just $10k a year for 30 years at a conservative 10% interest rate you are looking at $1.8 million! What makes this really interesting is if you put in 31 years. You get 2+ million. So in other words, waiting a year to start investing with this formula would cost you $200k. Starting early will have a HUGE impact on your overall portfolio.
I just realized that I did not write a single post in the month of April! Time to get back to finishing my foundations of personal finance and move onto some more topics.
Work has been crazy latley as we are in the home stretch now of getting ready to launch the new Homedepot.com site. I have ben working on this for over 18 months so I am looking forward to getting it done!
Unlike Foundation #4, this is the one that usually gets people in trouble. Here are my top 5 depreciating items to watch out for:
1) Cars – Beside your house your car is probably the largest asset that you will own. It is also one that depreciates like a rock! Most cars will loose 50% of their value in the first 4 years. There is so much to talk about with cars that I will dedicate an entire post to them in the future
2) Furniture – If you think cars are bad furniture is worse. Furniture depreciates about 25 percent on the first day out the showroom and just keeps going down from there. Don’t even get me started on the people buying $10k in furniture on credit and taking 10 years to pay it off. “Rooms To Go” is a finance company that just happens to sell furniture. Furniture deserves it’s own post!
3) Consumer Electronics – Computers, TV’s, gadgets, etc all loose value VERY quickly because technology progresses at such a rapid pace. Some companies are working on 6 month product cycles!
4) Sporting Goods – Ever shop for a set of golf clubs or a snowboard at the end of the season? Most of the time you will find discounts of at least 50% off. That means the shiny new set of clubs you bought at the start of the season is worth less than 50% of what you paid! Another category that goes down like a rock: Fitness Equipment!
5) Clothing – Fashions come and go just as quickly as the seasons. The hot sweater you bought last year is old news this year and is worth next to nothing. The higher the fashion the steeper the depreciation slope!
The best way to combat depreciation is to buy used and let somebody else take the price hit. eBay and Craigslist have made this easy but you do have to be patient to find the best deals. One aspect of eBay that is often overlooked is that eBay can now put a price on everything. If you want to purchase something new it is easy to evaluate the depreciation slope BEFORE you buy.
There are two kinds of assets: those that appreciate in value and those that don’t. Your goal should be to focus on the assets that appreciate in value:
1) Cash in a 5% Online Savings Account
2) Investments like growth stock mutual funds
3) Real Estate
Got any others?