TFP #043: How Is Financial Planning Different For Tech Employees?

Read Time: 5 Minutes

Welcome to the 43rd edition of the Tech Financial Planning (TFP) Newsletter.

What on earth is financial planning, and how is it unique for people in tech?

Or put more simply, what is it that we actually do with clients?

In this newsletter we’ll break down what financial planning is, both broadly and for our clients, and some ways we’ve helped clients this year.

TL;DR

  • We work primarily with tech employees, many who have equity compensation, which means our “flavor’ of financial planning is a bit unique to other companies

  • A lot of our work revolves around making decisions around company stock, how to save and invest well, and the tax implications of all of these moves.

  • The whole point of it all is to help you live the life you want

What is financial planning?

If you look up a more classical or technical definition of financial planning, here’s what you get:

Nerd Wallet - “Financial planning is an ongoing process that looks at your entire financial picture in order to create strategies for achieving your short- and long-term goals.”

Schwab - “Financial planning helps you understand where you are today and create a roadmap to get you where you want to be.”

Or as I say on our homepage - how do you use your money to live the life you want?”

Ok, that’s a decent start, but still a bit vague and high level.

So to help clarify what financial planning actually looks like for people in tech, let’s run through some recent ways we’ve worked with clients.

A Quick Note

This should be apparent by a) our website and b) this newsletter, but we work primarily with tech employees, many who participate in the ownership of their company (aka equity comp). 

Most are in their 30s and 40s, although we do have clients older & younger.

Most are focusing on building their wealth and their family.

This is different from those approaching traditional retirement age and focused on things like Social Security, Medicare, and how to live off their portfolio.

Those areas are still important, but they don’t apply to many of our clients right now.

Some Ways We’ve Helped Clients This Year

1) Exercise Stock Options

Stock options are complicated, and it’s easy to make big mistakes.

Currently we are helping a number of clients proactively and strategically exercise stock options, both at public companies like Procore, and private companies like Anduril, Click Up, and BuildOps.

The goal is to align the strategy with the overall plan (and hopefully minimize taxes along the way, although not always)

2) Evaluate tender offers

We have several clients at private companies where their company is offering to buy back certain amounts of shares.

This can be a huge opportunity for our clients to a) take some risk off the table b) use the funds for other goals and c) get some return on their equity without having to wait for the company to go public or get acquired.

We want to weight the risks versus the rewards.

In many cases, the company could grow even more than they already have.

So by selling now, the client may be giving up future upside.

But on the other hand, it could go down, even in the event of an IPO (look at the recent Instacart valuation vs IPO) or never have a liquidity event.

So we weigh all these things with all the other factors in a client’s life, and so many things that are completely unknown, and try to make the best decision with the information we have

3) Review tax returns

I review client tax returns for 3 reasons

  • Help clients better understand their tax situation

  • Make sure everything was reported correctly

  • Look for planning opportunities.

Just this year this has been huge for clients.

Some examples:

  • In multiple cases found that clients were overpaying taxes because their RSU cost basis wasn’t reported correctly

  • Similar, but when selling non qualified stock options

  • Backdoor Roth Conversion wasn’t reported correctly, which would have cost my clients over $7,500 in taxes

  • A client exercised a big chunk Incentive stock option and (intentionally) triggered AMT. None of this was reported on the tax return.

  • Opportunity to sell stock at a gain and pay $0 in taxes

  • Adjust withholdings so a client doesn’t owe taxes in the future

  • Better structure charitable giving to save on taxes while giving the same amount

4) Helping clients negotiate job offers

Many of our clients have done an incredible job growing their careers and continue to have great job opportunities. 

But there’s a lot to consider:

  • The equity they are leaving behind (RSUs, ESPP, and stock options) versus new company equity. This is particularly important if leaving a public company for a private company.

  • Benefits, including healthcare and 401k match

  • Compensation

  • Career growth

We’ve helped clients use some of these different factors to negotiate for a higher salary / OTE, equity, or both

5) Manage concentrated positions

Some of our clients have hit it big.

Now it’s time to figure out what to do with it.

To sell or not to sell, how much to sell, which shares, the taxes associated, the various risks to consider, what to use the resulting funds for, and so much more

6) Some quick hitters

This newsletter is already getting long enough, and if I write at length on each one it will never end.

So here’s some other, quicker examples (although certainly no less important)

Putting It All Together

While we’ve shared a number of ways we’ve helped clients this year, it’s worth pointing out that the clients are the heroes of the story.

We are merely the guide (or sherpa, because that’s way more fun).

A big part of our job is helping our clients understand the wide-ranging benefits their company offers and the tools at their disposal.

And more importantly, how all of this connects to the rest of their financial life.

We recognize each of our clients (and you) has their own priorities and agenda. 

For some, that may be owning real estate. 

For others, that may be retiring in Costa Rica in 10 years.

For many, it’s the ability to have flexibility and be work optional.

It’s our job to help you make the most of the tools at your disposal so you can get there.

Want Help?

If you want to work with a financial planner who can help you navigate all the complexity of your ever changing financial life, reach out and schedule a free consultation.