Smart Reasons to Save, Use and Invest Money

Getting Over 15% Return By Saving Money In An ESPP

First, let mes explain what an ESPP is.  This acronym stand for “Employee Stock Purchase Plan“, and it enables an employee to buy their employer’s stock at a discount (up to 15% off the market price during the purchase date).

The basic ideas of an ESPP is that it slowly drawn a certain amount of your salary and holds it for you to purchase company stock at a certain date in the future.  My employer does such a purchase on a quarterly schedule.  Then at the end of the time-period (again, my employer uses quarters), your employer uses your money that was saved to purchase your employer’s company stock, at a discount mentioned above!  Where I work at, the discount is 15%, which is a great!

When the company stock is purchased, the next day I go in and sell the stocks that was purchased by my employer.  This gives me an instant 15% rate of return on the money that was saved for the purchase!  So to think about it a different way, for those 3 months, I get a 15% gain on the money saved.  Mind you, the term is only 3 months and not an entire year!  So that 15% return is really better than it seems!

If you hold your shares, only selling them after 2 year, you’ll receive better tax treatment, but I’m more than happy to take the 15% return that my employer offers.  Waiting 2 years to sell the shares for better tax treatment seems risky to me.

Not as obvious as the 15% return is the forced saving provided by my employer.  Since I paid off my mortgage, I was having problems saving the money for investing.  Using the ESPP, my employer is basically saving the money for me, while paying me a 15% to do so!  Tell me this isn’t an awesome mechanism or what?

I’ll admit, I’m excited to have my employer pay me to save money!  The best part is that my employer does the work of saving the money for me, and then at the end of the quarter pay me 15% return…  What’s not to love with is deal?

If your employer has an ESPP, are you taking advantage of it?  IMHO, this is one of my best money hacks that I’ve done!  If your employer offers this benefit, look into it and the tax treatment of such a plan!  Perhaps you’ll view this as a win-win like I do!




15 Responses to Getting Over 15% Return By Saving Money In An ESPP

  1. That’s an awesome perk of working for a company that offers ESPP. I wish I could get on something like that. Unfortunately, school districts aren’t publicly traded. 😉

    • Ahhh, that’s true! But honestly, I kind of wish I were a teacher these days. I think I would find it very rewarding, both in time and in a mentoring sense.

  2. I know my girlfriend wishes she would have taken advantage of her stock options when she used to work for Starbucks. Great post–more people need to take advantage of purchasing their companies stock.

  3. I’ve worked for companies that offered ESPP but never jumped on board for various reasons. I’m not sure if I could have sold the stocks the very next day and we could only sell during open “windows” and who knows what the value would be then. The most important reason was that I was trying to save up to buy a house and wouldn’t have been able to contribute more than a small percentage to the plan. After reading the fine prints and doing the math I decided that after all the processing fees it wouldn’t be worth it.

    However, in your case, I can definitely see the attraction!

    • I think it’s worth it for me, but if the market was more promising, I think I would let it ride… Unfortunately, the last 2 quarters have sucked pretty badly.

  4. Love our ESPP. Plus, they buy it at a 15 percent discount off the lowest price for the prior 6 months. (Or is it the lowest price of either the start or end of 6 month period? Can’t remember.)

    I wish we could afford to put even more money into this plan.

    • I’m putting the max that I’m permitted to put in from a percentage basis.

      I wish the market was more promising, but it’s still a great automated saving mechanism.

  5. Isn’t it just 1 year you would have to hold your ESPP shares for them to be considered long term capital gains (thus paying less tax)?

    Where did you get 2 years from?

  6. I take advantage of the ESPP as well. I hold it for 2 years and sell it though. I don’t hold the stocks over 2 years so I don’t think that’s a huge risk.