Financial Planning for Tech Professionals

Nov 24, 2021

Big Tech emerged from the pandemic stronger than ever before. 

While other sectors suffered huge job losses and major business disruption, Big Tech has been on a tear. Company valuations have only increased in value since the start of the pandemic and continue climbing upward every day.

As a tech professional, now is the time to create a financial plan for growth and safety — so that you can stay on track and well-positioned to meet your life goals.

So, how exactly is financial planning different for tech professionals?

In this article, we’ll cover the most common financial planning topics for tech professionals:

  • Equity compensation, such as stock options, restricted stock units, restricted stock, and employee stock purchase plans
  • Balancing spending and saving between your working years and retirement, and tips for keeping spending under control
  • Practical considerations for IPOs and acquisitions and their impact on your financial life
  • Concepts and techniques for reducing taxes, including considerations for the 2021 and 2022 tax law
  • Considering insurance and your legacy

Following these best practices will help you feel confident about your financial future while still allowing you to enjoy a great quality of life today.

How does equity compensation work?

Equity compensation allows the tech employees to share in the profits via appreciation and can encourage retention, especially if there are vesting requirements.

As a tech professional, your compensation package generally includes equity compensation in the form of:

  • Restricted stock units (RSUs)
  • Non-qualified stock options (NSOs)
  • Incentive stock options (ISOs)
  • Restricted stock
  • Employee stock purchase plan (ESPP) for tech companies that have gone public

These stock-based forms of compensation have detailed rules and important income tax consequences that are more complicated than simple salary and bonus compensation programs in other industries.

The rewards from stock grants can be a significant wealth-building opportunity. A Fiduciary Advisor can help you manage and maximize your stock compensation.

How do I navigate an exit scenario?

For startup employees, an exit is a big deal. It means you can finally cash in on the value of your options and shares!

Startup exit scenarios include IPOs, SPACs, direct listings, and acquisition. 

So, as a startup employee, you should understand the financial status of your company. You should also understand how events like VC financing rounds, IPOs, and acquisitions translate to your personal finances.

When it comes to exits, timing is of utmost importance. For instance, you can exercise your stock options before your company goes public and pay about 35% in taxes. Or, you can wait until the shares are trading publicly to exercise (a cashless exercise) and pay close to 51% taxes once you sell your equity.

Your Advisor will help you develop a selling strategy, as well as several strategies to minimize the tax bite.

How do I budget on a tech income?

A key aspect of financial freedom is having a plan for all your hard-earned money. The right financial plan will help you stay focused so you can reach all your financial goals — and possibly reach them even sooner than you could’ve imagined.

However, if you’re part of the 3 in 4 Americans who are winging it when it comes to your financial future, you likely don’t have a plan for the cash remaining after you’ve paid your bills. You may be good at avoiding overspending, but you probably aren’t sure whether you’re saving enough.

It can be doubly challenging to create an income plan for tech professionals. Your income varies year by year. You need a plan that accounts for changes in the value of equity compensation and bonuses paid based on company performance. After all, “I hope the stock does well” isn’t a financial plan.

With more volatility and complexity in your finances, you have to think differently, plan differently, and behave differently. Your Fiduciary Advisor will set you up with a financial plan that’s customized to your particular needs.

How do I diversify away from tech stocks?

In general, tech professionals tend to take concentrated positions (i.e., over 25 percent of your portfolio) in tech investments. It makes sense — you work in tech and are likely to understand your industry best. Or, you’ve simply accumulated a concentrated stock position after receiving stock as part of your compensation. This represents significant upside and also significant risk — doubly so if you and your spouse both work in tech.

But is it a good idea to have most of your wealth tied up in one company? Of course not!

While the strategy of holding onto RSUs and ESPP over the recent past has worked out incredibly well, you should mitigate tech sector risk by balancing your tech growth stocks with value stocks.

Speculating on one company or one sector can lead to huge financial setbacks. When your wealth is distributed across multiple companies, even if your employer’s stock takes a hit, your losses would be less severe.

Your Fiduciary Advisor can help you figure out how to handle your company equity and how to spread the proceeds over different investments to protect your wealth.

How do I manage my taxes as a startup employee?

Inevitably, when you throw equity compensation, acquisitions, and IPOs into the mix, income tax planning becomes a little more complicated. Throw in crypto investments and NFTs and you now have yourself a 1,000-piece tax planning jigsaw puzzle. However, left unplanned, taxes will eat up the income that you need to live on in retirement.

Your Fiduciary Advisor will help you with strategic and tactical tax planning for your short- and long-term financial health.

How can I protect my assets?

Let’s say that you are a 40-year-old American man. Let’s also imagine that you’re standing in a crowd of 99 other 40-year-old men. 2 men in that crowd will kick the bucket before their 50th birthday. Another 7 have passed away before their 60th birthday, and another 13 won’t make it to their 70th birthday. Almost 1 in 4 of you will die before age 70.

Why are we talking about this? Because it is all too common to procrastinate on life insurance and estate planning. Many of us would rather do anything — clean the bathroom, mow the lawn, go to the gym — than think about the end of our lives. It’s no wonder these are the most-avoided planning topics among those who aren’t already working with a Financial Advisor.

But life insurance premiums increase with every passing birthday, and your employer’s life insurance policy will terminate once you leave your company. And failing to plan for the risks and facts of life can cause significant distress and financial burden during an already challenging time. These measures will ultimately help you sleep better at night.

No one wants to talk about death or disability, but it is a reality that we will all need to deal with at some point. It’s only fair to our loved ones that we at least protect them financially!

We Can Help

As a tech professional, you need a Financial Advisor who understands your unique challenges and needs. We can help you save time and worry, fill your knowledge gap, and help you reach all your planning goals. 

Book your complimentary financial planning consultation today — call our San Ramon, CA office at (925) 314-8500 or fill out the form below. We look forward to speaking with you.

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We’ll spend 30 minutes getting to know you—your situation, needs, and vision—then offer a strategic plan to reach your goals.
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