If you’re in big tech, you know there’s nothing quite like working for a big tech company like Microsoft, Amazon, Google, or Salesforce. They’re household names all over the world, and they’re resume GOLD should you ever choose to get a new job.
The downside, though, is that there’s no big liquidity event like an IPO to look forward to, and you may not get stock option plans like those in startup tech do.
However, whatever big tech lacks in liquidity and “one day” wealth potential, it can seriously make up for in compensation and benefits, which are a huge boost to your long term savings. In this post, we’re going to explore how to make the most of those benefits to build wealth and gain financial independence… even without the promise of a big payday in the future.
Step One: Review Your Compensation Letter
Since big tech companies can afford higher salaries, one of the best ways for you to build wealth and achieve financial independence is to have a solid long term savings plan… which starts with your basic compensation.
Usually, when someone moves from a startup company to a big tech company, there’s a big increase in salary and RSU compensation, which presents the best opportunity possible to save more money. (You’re already accustomed to living on your old salary, so the additional money can be funnelled towards wealth-building.)
If you’ve recently been hired into big tech, you should have received this letter when you were hired. If you’ve been working for your company for a while, you’ll usually receive it towards the end of the year.
This letter outlines three things:
Salary
AKA, what you receive in your pay every other week.
Bonus
Most often, this is expressed as a target percentage of your salary in the compensation letter. The bonus is not guaranteed, and can ultimately be more or less than the target, depending on how the company performs. These are usually paid throughout the year.
RSU
Since your company is publicly traded, you’ll likely receive RSU (restricted stock units). Their value is taxed just like ordinary income (your salary + bonus), but it’s in the form of shares of your company stock that you’ll have to sell to cash in on.
In your compensation letter, these are usually expressed as a total dollar amount that’s converted into shares… so you could end up with more or less value here depending on how your company performs in the stock market.
Anytime I work with big tech employees, a big part of our initial work is reviewing their compensation letters and putting together a plan to best convert their compensation into long term savings. (Which I’ll outline in the next steps.)
As my clients who work in big tech climb the ladder and get promoted, their compensation tends to shift from salary to being more focused on their annual bonuses and RSU. If they’re proactive, this is an incredible opportunity for wealth-building because they get to save more from the infrequent-yet-large cash infusions, and can still have their reliable salary for their day-to-day living and monthly savings.
The key here, though, is being proactive with your planning and your saving, which I’ve got for you in the next steps:
Step Two: Review Your Available Long Term Savings Vehicles
After your compensation, the next big benefit the company will have for you are savings vehicles. These can come in many different forms, including:
Superannuation
Either a pre-tax or post tax contribution options
Employee Stock Purchase Plan
Look over your benefits to see exactly which ones are available to you, and at what financial capacity.
Step Three: Create a Yearly Savings Plan
As a financial planner, the bulk of my work with big tech employees involves helping them save as much money as possible into the right savings vehicles. Once that’s done, we increase the amount of savings over time through their future promotions or job changes that result in higher salaries.
There are A LOT of moving parts here, and I see it like putting together and maintaining a well-oiled, efficient machine.
Our raw materials before we start building this machine are your different types of compensation: your salary, your bonuses, and your RSU.
After we take out what’s needed for your taxes and living expenses, we’re left with a pool of cash that we have to decide how to allocate. These are the different places (machine parts) we can allocate that money to:
Your Superannuation Fund
This is always at the top of the list, and I always suggest making your maximum pre-tax contributions.
The idea is to front-load your contributions to your Super, so that you max out your contributions, perhaps via additional salary sacrifice contributions.
By salary sacrificing just a small amount, it leads to a larger account balance at retirement than if you didn’t make tose contributions and just spent the money.
Employee Stock Purchase Plans (ESPP)
The second machine part we want to allocate money to is the ESPP, which lets you contribute up to 15% of each pay (sometimes 10%). Then, two times each year, the dollars inside your ESPP are used to purchase company stock at a discount.
Investment Property
Investing in investment properties is someone all Australians think about at some stage of their life.
Ensuring the right structure, loan and property is key.
Get this wrong and you could end up with a property that doesn’t grow in value and where tenants are hard to find.
The right property can help create an amazing foundation for you and your family to create wealth over the long term.
Share Portfolio
Having your money diversified outside of your employee stock is important.
I talk often with clients about holding no more than 10-15% of their wealth in their employee stock, either via ESPP, RSU or Options.
Diversifying outside of your employee stock into other shares can provide you with this diversification.
Step Four: Create & Implement Your Long Term Savings Plan on a Year-by-Year Basis
Knowing your compensation and the different investment vehicles you have available to build your own well-oiled savings and wealth-building machine, we can start implementing your custom plan.
First, we’ll look at how much you need for living expenses and taxes, and make sure enough of each pay gets set aside to cover that.
Then we’ll look at how much you’ve been saving before now, and how much you need to be saving to be on track for your retirement, financial freedom, and lifestyle goals.
Then, we come up with your personalized priority list of what to funnel money to… like front-loading as much as possible into your super, your ESPP, and so on.
Then, we keep allocating money into your different savings vehicles for your best savings and wealth-growing potential until we get to the end of what’s available in your pay, bonuses, and RSU money.
Step Five: Monitor Your Financial Status & Make Needed Adjustments
As your savings grow, we’ll keep an eye on your accounts and the changes in compensation, and make as many money-wise adjustments to your savings plan as needed.
The goal is to save as much money as possible, while living a comfortable life and not having to feel like a pauper.
Successful Long Term Savings Plans Have A LOT of Moving Parts
Just like a well-oiled machine, the way you save to build long-term wealth as a big tech employee will have a lot of moving parts.
That’s not necessarily a bad thing, but it does mean that there needs to be a lot of careful financial and tax planning involved. This way, you don’t accidentally end up with a too-big tax bill or missing out on a savings vehicle that could save you a lot of money in your later years.
To talk to me or another highly experienced member of my team about what we can do for your long term savings plan.
