The Most Underrated Way to Build Wealth with Brian Feroldi

In this episode of the Personal Finance Podcast, we're going to talk to Brian Feroldi about  the most underrated way to build wealth. Today we will discuss with Brian about: What stock-based compensation is in simple terms? Should employees try to negotiate their stock-based compensation package? If so, how? What are the key tax implications of stock-based compensation? How does an Employee Stock Purchase Plan (ESPP) work? What are some common mistakes employees make with stock-based compensation? Which companies are known for offering high stock-based compensation? How Andrew Can Help You: Listen to The Business Show here. Don't let another year pass by without making significant strides toward your dreams. "Master Your Money Goals" is your pathway to a future where your aspirations are not just wishes but realities. Enroll now and make this year count! Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining Index Fund Pro! This is Andrew’s course teaching you how to invest! Watch The Master Money Youtube Channel! , Ask Andrew a question on Instagram or TikTok. Learn how to get out of Debt by joining our Free Course Leave Feedback or Episode Requests here. Car buying Calculator here Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at shopify.com/pfp Chime: Start your credit journey with Chime. Sign-up takes only two minutes and doesn’t affect your credit score. Get started at chime.com/ Thanks to Fundrise for Sponsoring the show! Invest in real estate going to fundrise.com/pfp Thanks to Policy Genius for Sponsoring the show! Go to policygenius.com to get your free life insurance quote. Go to joindeleteme.com/pfp20 for 20% off! Indeed: Start hiring NOW with a SEVENTY-FIVE DOLLAR SPONSORED JOB CREDIT to upgrade your job post at Indeed.com/personalfinance Turn your business dream into reality! Apply now at www.oneday.org/pfp Go to Acorns.com/pfp and start automating your investments and get a $5 bonus today! Delete Me: Use Promo Code PFP for 20% off! Previous Episode Brian Feroldi: A Masterclass on Investing in Individual Stocks with Brian Feroldi Connect with Brian Feroldi Website Linkedin Youtube Twitter Instagram Tiktok Facebook Connect With Andrew on Social Media: Instagram TikTok Twitter Master Money Website Master Money Youtube Channel Free Guides: The Stairway to Wealth: The Order of Operations for your Money How to Negotiate Your Salary The 75 Day Money Challenge Get out Of Debt Fast Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Andrew Giancola?

  Longtime listeners know, one of the best ways to build wealth is to increase your income. And one way to do that is by starting a side hustle. And that's one reason why I absolutely love Whatnot. Now, my son and I, we love collecting sports cards. And we've used Whatnot to buy and sell cards. It's been a really fun way to enjoy something we love together. Now, Whatnot is a live shopping platform where people sell everything from sports cards to clothing, electronics, and collectibles. And what's really cool about it is you can turn something you're passionate about into a business. And you could do it right from your phone. You don't even need a storefront or a website. So whether you're looking to make some extra money or find great deals on your next shopping trip, check out Whatnot.

• 0:44Andrew Giancola?

  Search Whatnot, that's W H A T N O T, in the App Store. Download and start selling right away. When I started the Personal Finance Podcast, I had no idea how big it could become. I just knew I had something I wanted to share, so I started putting it online. And looking back, I definitely wish I would have started a decade earlier. One of the horror parts about building something online, though, is making it look professional. A website used to mean hiring a developer, figuring out design, and potentially spending thousands of dollars. In fact, on my website, I spent tens of thousands of dollars. That's what impressed me when playing around with Hostinger's AI website builder.

• 1:27Andrew Giancola?

  I told it what kind of website I wanted, and I built the first version in minutes. No coding, no designer or developer needed. And Hostinger doesn't stop at launch. Their AI can help with SEO, website copy, email marketing, and more. Plus, your domain, website, email, and marketing can all live in one account, with plans starting at just $3 every single month. Hostinger builds your vision step by step. Create your website today. Go to hostinger.com/pfp and use code PFP for 10% off now. On this episode of the Personal Finance Podcast, the most underrated way to build wealth with Brian Feroldi.

• 2:24Andrew Giancola?

  What's up everybody and welcome to the personal finance podcast. I'm your host, Andrew, founder of mastermoney.co. And today on the personal finance podcast, we're going to be talking to Brian Peraldi about the most underrated way to build wealth. If you guys have any questions, make sure you join that master money newsletter by going to mastermoney.co/newsletter. And don't forget to follow us on Spotify, Apple Podcasts, YouTube, or whatever your favorite podcast player is. And if you're getting value out of the show, consider leaving a five star rating and review on Apple Podcasts, Spotify, or your favorite podcast player. Cannot thank you guys enough for leaving those five star

• 3:05Andrew Giancola?

  ratings and reviews. Now we are bringing back our homie Brian Peraldi is back on the show today. And we're going to be going through a ton of really cool concepts for you, but the most underrated way to build wealth is what we want to talk about today. So we're going to actually be talking about stock-based compensation. And if you don't know what stock-based compensation, this is going to be a great conversation for you. Specifically, if you work at a corporate job, then stock-based compensation is one of the ways that you can build wealth really, really fast. And it is very underrated. We're going to talk about understanding stock-based compensation and the types of stock-based compensation. We're going to talk about vesting and how it works, what employees should know about selling stock options, and we're going to talk through

• 3:46Andrew Giancola?

  how to negotiate your stock-based compensation package, which is a really, really valuable thing that could be a six-figure conversation for you. So you definitely want to make sure you are looking at that. We're also going to talk about taxes and risks when it comes to stock-based compensation, and how ESPPs work. And we're going to go through a bunch of other things when it comes to industry insights, and some common mistakes employees make with stock-based compensation. So, one of the most powerful ways that you can build wealth now is learning about stock-based compensation, especially if you are on the job hunt, and learning how to maximize that option in your favor. Brian is going to teach us all about that. So let's welcome Brian back to the personal finance podcast.

• 4:29Andrew Giancola?

  So Brian, welcome back to the Personal Finance Podcast.

• 4:32Speaker 01

  Andrew, thank you for having me. It's always a thrill to be here.

• 4:35Andrew Giancola?

  So today, we're going to be talking about something that I get a ton of questions on. And you and I were kind of talking before the show, this is a really underrated way to build wealth that I think a lot of people don't really think about. And we're going to be talking about stock-based compensation. We're going to have a bunch of stuff going on with this too. But first of all, before we dive into this, can you kind of just explain what stock-based compensation is?

• 4:56Speaker 01

  Yeah, well, it's right in the name itself. Stock-based compensation is when an employer compensates an employee with equity, aka stock, instead of cash. Everyone here that has a W-2 job knows that they get a salary. Maybe they get a bonus on top of that. Maybe they get healthcare coverage on top of that. There's all these things that you can get on top of your salary. One of those things is stock-based compensation. And for a long time, this was something that was only reserved for an exclusive group of executives. But in the last two or three decades, this has become far more common for rank-and-file employees to receive.

• 5:31Andrew Giancola?

  I love it. And I think there is a lot of people out there that I have started to see make content surrounding how they think about stock-based compensation. And I've seen people create lists of companies that they actually want to target to go work for because of some of their stock-based compensation packages. And they've kind of gone through the numbers and run those numbers. And they've become millionaires just because they kind of targeted some of these companies and some of these lists. So I think it's really, really interesting that we're going to have this conversation. So why do companies actually offer stock-based compensation instead of just increasing someone's salary? Like, why is a company incentivized to do this?

• 6:02Speaker 01

  There's a number of answers to that question. But the primary one is all about solving this pesky problem called the principal agent problem. So the principal agent problem is a conflict that arises between the owner of an asset and the person that is managing the asset. So those two things, the owner of the asset and the manager of the asset, might have different incentives in mind. And that makes the manager of the asset make different choices than they would if they were the owner themselves. Real simple example to understand this concept. Imagine I hired you, Andrew, to mow my My lawn and I said, I'll pay you $20 an hour. Now me, the homeowner, what I want is my lawn to be mowed.

• 6:46Speaker 01

  But I have now accidentally incentivized you to take as long as possible to mow my lawn. The slower you go, the more money you make because I am paying you on an hourly basis. That is a conflict of interest and that's an example of the principal agent problem. So this same thing happens to employees, rank and file employees. If their only compensation is salary like $50,000 a year, you have incentivized them to work as little as possible, just enough to not get fired. There's no upside for them to really working hard. So by making your rank and file employees part owners in the business,

• 7:28Speaker 01

  you in theory incentivize them to work hard to let the business succeed because that allows them to build wealth.

• 7:36Andrew Giancola?

  And that's a perfect example and I love the, when we think through incentives, I mean, that is what truly, truly matters if you want to help and motivate employees. And so that makes complete sense. So what are the main types of stock-based compensation? Cause I've heard, you know, there's all different types that are out there and kind of how does some of these differ from each other?

• 7:53Speaker 01

  Yeah, there are three main types that people need to know and there's two primary formats. The two primary formats are stock options, those are fairly common. And the other one is called restricted stock. Now, within the stock option category, there are two subcategories. The first one is the one that is the most common, something that's called incentive stock options or ISO. This stock option is only available to employees of the company. And what this does is it gives the employee the right, but not the obligation, to purchase the company's stock in the future at a set price. Real simple example here, Andrew.

• 8:37Speaker 01

  Let's say the company's stock price is $10 per share. And I get hired by this company. They give me an incentive stock option or ISO to buy 1,000 shares of the company's stock at a price of $10 and I have a 10-year period where I can exercise this option. So if down the road, the company's stock is trading at $20 per share, I can exercise my right to buy it for 10 and I instantaneously capture the spread between $10 and the $20 stock price, thereby allowing me to cash in on the gain in value of the company's stock. So those are stock options and incentive stocks are the primary one.

• 9:20Speaker 01

  Another type of stock option is called non-qualified stock options and these are typically granted to people that are associated with the company but aren't necessarily employees. Think people on the board of directors, think contractors to the companies, etc. They are same exact mechanism, it's just that the tax treatment is slightly differently. So that is one category, stock options.

• 9:43Andrew Giancola?

  I love that and with stock options, I remember the first job I ever had, I opened up the employee handbook and I look and they had this listing of stock options that we could purchase some of these options at 15% discount is kind of what the handbook had selected. I was like, man, this is an amazing deal because you can kind of capture that spread right there upfront and really be able to build wealth just from capturing that spread. And I think one big thing I thought through when I was going through that process was, do I believe in this company? And we kind of went through some of those metrics and I personally did at that time at the company I was working for. And so there were some cool things that I kind of did with those stock options. So I love that option for a lot of people. Perfect. So that's the first type. And then secondly, we also have RSUs. So can you explain RSUs to us?

• 10:22Speaker 01

  Yeah, RSUs have become increasingly popular over the last 10, 15 years or so. RSU just stands for restricted stock units. This is just when the employee is given stock in the company directly without having to exercise an option in the future. So again, let's go back to that same example. Let's say I take a job at a company, that stock is trading at $10 per share and I get restricted stock in that company. Well, Over time, as my stock vests, which I know is a term we're going to cover in a little bit, that stock literally just becomes mine. I don't have to pay $10 to buy it.

• 11:01Speaker 01

  It just becomes my stock. So effectively, the purchase price, if you will, on restricted stock is $0. This is why if you're an employee and you have the choice between incentive stock options and restricted stock, you should take restricted stock every single time.

• 11:19Andrew Giancola?

  And that's one question I know a lot of our listeners have as they ask about the R issues and which ones they should take. And that's a great answer right there for a lot of you who come in and ask that question. We'll talk a little bit more about those here as we go through this episode too. So Brian, who is typically eligible for stock-based compensation? Is that middle-level managers? Is it, you know, anybody above that level? Is it CEOs? Is it the executives? Or is it someone in the entry-level position? Or who is typically eligible for this?

• 11:43Speaker 01

  Well, the answer to that question is it is completely dependent on the company you are working for. From a tax and legal perspective, anybody at the company could be paid with stock-based compensation. But if you look back historically, it was typically only the tippy-top senior executives of the companies, or maybe even the board of directors, that would pay themselves stock-based compensation. In the last couple of decades, it has become far more common for middle managers and even rank-and-file employees to receive stock-based compensation. So anybody can be eligible for stock-based compensation, but the company has complete discretion over whether they offer it to employees or not. So if you're interested in stock-based compensation, choosing the right company to go after to work for is key.

• 12:29Andrew Giancola?

  It is. And I think if you're wondering right now and you're listening to this episode, and you're like, I don't know if I actually have it available, you can contact your HR department. You can look at your employee handbook and see if it's there as well. That was mine. The example I gave was the company I worked for. I was an entry-level position and I had that stock-based compensation available for me. But not everyone is going to have that. It depends on the company that you work at. And so you want to make sure that you can double-check that. But again, like Brian said, if you are looking for a new job or you're on a career hunt right now, looking for companies that may offer that to your level can really, really help and benefit you long-term. So let's get into some, just some key concepts here so that we can get into the basics of, you know, how this kind of works. And the first one is vesting. A lot of people hear that word vesting and they may not know what it is. So what is vesting and how does it work?

• 13:12Speaker 01

  So vesting is simply the schedule that you need to go through as an employee for that stock to become yours. Again, let's say I sign up with a job at a company and I get restricted stock, 1,000 shares of stock. Well, that company won't just give me 1,000 shares of stock on day one. What they want to do is incentivize me to stay at the company for a period of years. So vesting is just the delay in the stock or the stock option that I'm giving becoming mine. It's fairly typical for companies to have a four-year vesting schedule. And what that typically looks like is on day one, you have zero ownership of that stock. But every day that you are an employee of that company, a small portion

• 13:56Speaker 01

  of that stock option becomes yours. And there are lots of different schedules that companies can use when it comes to vesting. Some have just a gradual glide that the stock becomes a little bit more yours every single day. Some are cliff vesting, meaning that after a certain amount of period of time, a couple of years, then a huge chunk of the stock just becomes yours. Or there's even performance-based vesting. This is when the stock becomes yours if you do something for the company, like if you hit a certain sales quota, or if you're a manager, if you hit some revenue target. So the vesting is just the period that it takes for the stock to become owned by the employee. And there are lots of different flavors for how that can be set up.

• 14:37Andrew Giancola?

  For sure. And I think some listeners may be familiar with vesting as well when it came to their employer match. So if you look at your 401k match, sometimes employers will have it set up, you know, where you can get your employer match. And after a certain amount of time, the full amount becomes vested over a specific period of time. So you may have heard that in the past on that as well. And then what should employees know about selling stock options? A lot of people ask us questions, you know, talking through, should I sell some of these stock options to pay off debt? Or should I sell some of these stock options to go ahead and invest in the S and P 500 somewhere else? And they kind of talk through and have that conversation. So what should they know about selling stock options if they're considering something like that?

• 15:14Speaker 01

  Well, one first thing to know that I didn't know when I first became an employee is that private companies, companies that are not publicly traded, Still can pay stock-based compensation. That is something that really confused me. I thought that only public companies had stock, but that's not the case. If you work for a private company, you still could be eligible for stock-based compensation. Now, if you work for a private company and you receive stock-based compensation, it's often much trickier for you to actually go ahead and sell that stock to realize any gains that you've been had. In the last couple of years, there have been moves that have been made by companies that have internal stock markets so employees can sell and buy stock from each other. Sometimes the companies will actually repurchase that stock

• 15:59Speaker 01

  from their employees to provide them with some liquidity. This is obviously much easier if you work for a publicly traded company where you can go to the open market and sell your stock. As for the when should you sell it? How much should you sell? Should you diversify? Those are obviously going to be dependent on your specific financial situation. But I can tell you that my personal philosophy on stock-based compensation was I was constantly selling the stock that I had in the employer that I worked for and I was using the compensation that I had to reinvest into other businesses. My logic for doing so wasn't that I was bearish on the company or anything like that. I actually believed that the company had a bright future. But my logic was, well, my salary,

• 16:44Speaker 01

  my bonus and my healthcare already depend on the company that I'm working for. Do I really want to bet my net worth on the company as well? So for me, it was simply a risk mitigation strategy to sell stock and reinvest elsewhere. But there are lots of examples of employees keeping all the stock-based compensation they have and doing fabulously well. In fact, I just saw something the other day that said one out of every three employees of Nvidia has a net worth of $20 million simply because of their stock-based compensation. So in that case, if you work for a company that really goes on to crush it, keeping your stock is obviously the right move. So it's more about your personal comfort level with risk than anything else.

• 17:27Andrew Giancola?

  Exactly. And if you're in an industry like tech or AI or anything like that where you are trying to figure out which companies you should be working for, targeting the right ones, like if you find Nvidia early and you start working for them, even if you're employee, you know, 150, 200, 300, you can become very, very wealthy just by targeting the correct locations in order to start working there and building a career there. So I think that's really, really important. I on this podcast talk about this all the time and I think you should negotiate everything in life and there's a lot of things that you can negotiate with your finances that a lot of people just don't realize from rent to negotiating, you know, even your bills, things like that. And this is something I think we could bring up for stock-based compensation as well. If you are getting an offer from a company, is stock-based compensation something that you can negotiate? And if so, how can you do that negotiation?

• 18:12Speaker 01

  The answer to there is absolutely yes, you can. Whether the hiring manager at that company has flexibility to adjust the package up or down, again, depends on the culture of the company and whether they view stock-based compensation as a major recruitment tool or just a nice bonus that they offer. So I can't guarantee that the company will be able to offer you more or less stock-based compensation. Stock-based compensation practices for employees are set at the board level. So it's not even like a CEO can always give more stock to get a superstar employee to come on. But in many cases, they can. Sometimes boards will have an extra pool of stock that they have available that grant to the company that is used for

• 18:53Speaker 01

  negotiation purposes when it comes to hiring. But what is the harm of asking for more stock-based compensation if you're going to be hired at a company? And in some cases, just asking for a little bit more stock-based compensation or increasing the terms to be slightly more favorable for you, that can sometimes be a multi-hundred-thousand-dollar negotiation tactic that you can use to your favor. Or in the case of Nvidia, a million-dollar, a multi-million-dollar decision. So you should always, always, always try and negotiate your stock-based compensation package even more favorable, even if it doesn't result in getting anything else.

• 19:29Andrew Giancola?

  100%. And I think that's one thing a lot of people need to add to their negotiation list when they are starting to look for jobs or if they're working with their employer is to see if you can get more stock-based compensation. It is their job to tell you no. It is not your job to think they're going to say no and not ask. You definitely need to make sure that you are asking for sure. And then see where that conversation leads you. I mean, it could be a very, very cool thing that could happen there. What are some of the best strategies for maximizing stock-based compensation?

• 19:56Speaker 01

  Well, strategy number one, we just talked about. Make sure that you try and negotiate it. The employer will come to you with any sort of package. Always try and ask for more. Another strategy, which again, I would put at the very top of the list, if this is important to you, is to look for and target companies with generous stock-based compensation packages. By their very nature, some companies just have it into their DNA that they really are generous with stock-based compensation, while other companies, sometimes in the exact same industry, are far more stingy. So if I was going to be targeting companies to look for, I would specifically look for companies that were headquartered in California and ideally headquartered in the Bay Area, LA, or San Diego.

• 20:41Speaker 01

  Boston, DC, New York, they have also generally a good stock-based compensation practices. But if you could target companies that are in extremely competitive environments for hiring employees, they often have very lucrative stock-based compensation practices. So negotiation and picking the right company, that is literally 90% of the things that you can do to maximize your stock-based compensation.

• 21:05Andrew Giancola?

  For sure. And I think a lot of the stories that I've heard of people getting really, really wealthy, I mean, ultra wealthy from stock-based compensation is typically out of tech companies in Silicon Valley and those types of places. And they, like you said, they have favorable terms there in California. So I think that's something to for sure consider. Now, I know this is going to be a question a lot of people ask. What are some of the key tax implications on stock-based compensation? How do we have to think about taxes when we look at this?

• 21:30Speaker 01

  Yeah, well, as you can imagine, taxes can get very complicated, very, very quickly. But as a general statement, the taxes that you pay depend on the type of stock-based compensation that you have. So let's quickly tick through the high-level stuff for the three major types. So incentive stock options, the most common form of stock options that employee can get. So there's no taxes due on this stock-based compensation when the incentive stock is granted to the employee or when the stock option is exercised. So again, let's say I had a stock option to buy a stock for $10 per share. If I exercise that option and I buy that stock for $10 per share, even if the current price is 20, I don't owe any taxes on that.

• 22:14Speaker 01

  However, as soon as I sell that stock that I bought, that's when there are tax implications to think about. And depending on the holding period that I have for the stock, they can be taxed at short-term capital gains or long-term capital gains. So if you are bullish on the company that you're working for, one thing that you can do is exercise your stock as soon as you can and then hold that stock for a long period of time to take advantage of long-term capital gain tax rates, which are lower. Now, if you have non-qualified stock options or NSO, that results in a different tax structure. So when you exercise non-qualified stock options or NSO, there's an immediate tax hit, a tax bill that is owed to you,

• 22:58Speaker 01

  depending on the spread between your option price and the market price. The final one is restricted stock units. Remember with restricted stock, that stock just becomes yours as it vests. So you literally gain full ownership of that. Because you're essentially being given money directly in the company's stock, you owe ordinary income tax on that restricted stock as the time that it vests. So knowing the nuances of that can be important because if you get a lot of stock-based compensation, what you do or how you act can have huge implications for your tax bill.

• 23:35Andrew Giancola?

  Exactly. I think this is something a lot of people need to understand is when you start to look at your stock-based compensation at your company, you need to understand those tax implications because you could make the wrong move and end up with some sort of tax bill that you do not want to have to deal with. So make sure you're talking to your CPAs as well and kind of make sure you know the implications of some of the moves you want to make. If you want to start selling some of these stocks as they come up, just make sure you have that understanding for sure. Now, we alluded to this earlier and kind of how you thought about this, and I was the same way where I had stock-based compensation. And eventually I quickly realized, hey, my payroll is tied to this company. My retirement is also tied partially to this company. Now I have stock-based compensation tied to this company. And so, you know, I got a lot of things going on with one company here.

• 24:19Andrew Giancola?

  So how much risk is involved when holding too much of a single stock?

• 24:23Speaker 01

  Well, there's plenty of risk and it always depends on how much of that stock do you hold in comparison to your net worth and moreover, what is the general compensation of your financial life? Do you have dependents or are you a young 20 something with no dependents and you have a lot of capacity to take on risk? That employees obviously did an entirely different situation than someone that's in their mid to late 50s, sending kids to college and has a huge need for money right now to pay for expensive things. So what you do totally depends on your individual situation and your personal risk level. The key thing to do though, Andrew, is to just ask the question of yourself. How much risk do I

• 25:04Speaker 01

  want to take on as an individual stockholder? How much of my net worth and career do I want invested in a single company? If you're a risk-loving person and you think that the company is really great to work for, has a super bright future ahead, then you can keep a more concentrated amount in that company. But if you're on the other side of the spectrum, perhaps you should be more conservative.

• 25:24Andrew Giancola?

  For sure. I completely agree on that too. I think that's where it depends on where you are in life and a lot of different circumstances. You gotta look at your risk tolerance, which we talk about this podcast all the time and kind of figure out where you need to be when it comes to that. What factors should employees consider when deciding how much of their compensation to hold or sell? Is there anything that you kind of thought through or is there any kind of rules of thumb that you had thinking through, you know, how much of this should I hold? How much of this should I sell? Or is there like a list of things that you need to handle with your finances first before you do that? How do you think about that?

• 25:54Speaker 01

  Yeah, well, I consider stock-based compensation to almost be bonus money that you have coming in and it is very much similar to a bonus money. Just because you've received stock-based compensation, that does not mean you are guaranteed some payout in the future. In fact, if that company goes on to falter or has a really bad couple of years, that stock-based compensation in many cases can be worth zero, especially if you're working for a venture-backed startup. Those are typically very high-risk companies. So when it comes to a general rule of thumb, the first question to ask yourself is how much of my personal net worth do I want invested in a single company? For me personally, my personal rule With thumb is no more than 15% of my net worth do I want invested in a in a personal company?

• 26:38Speaker 01

  That's when I would start to lose sleep at night worrying about a single position. But I know other people that would be perfectly comfortable having 80 or 90% of their net worth in a single company. And of course, if you look at the richest humans in the world, Elon Musk, Bill Gates, Warren Buffett, they often have 90 plus percent of their net worth invested in a single company. So like anything, it's always about balancing your personal level of risk and reward and your personal comfort level with how much risk you want to take on.

• 27:09Andrew Giancola?

  Exactly. That is all what it comes down to is total risk tolerance. And I think that's a huge one for sure. So another one that a lot of questions we get on is is ESPPs or employee stock purchase plans. Can you kind of talk about how those work first? And then we'll kind of get into some of the other nuances later?

• 27:26Speaker 01

  So a benefit that some companies offer is they want to give their employees the ability to invest a portion of their salary in the company's stock. And to incentivize them to do so through an ESPP, an employee stock purchase plan, there are often perks or benefit that can make it a no brainer move for employees to do so. So typically, the way that ESPPs work is if a company has a publicly traded stock, let's say that stock is trading at $30 per share. Well, the employee can take some of their salary, put it into a fund, and then at certain points during the year, that fund will be used to buy shares in the employer's stock. And it's typically done at a discount to the employee's stock price.

• 28:11Speaker 01

  So again, let's say that stock is trading at $30 per share, and the employee has the right to buy it at a 10% discount. Well, even though the market price is $30 per share, by using an ESPP, they can buy that stock at $27 per share, thereby instantaneously earning a 10% return on any money that they put into that ESPP. Now, I have seen a few different variations of ESPPs. Some of them can be modestly okay, a nice little perk. Others can be an absolute Slam dunk, no brainer investment. I'll give you a quick example. So the company that I worked for gave us a 15% discount to the closing price of the stock. That in itself is a pretty good plan.

• 28:56Speaker 01

  I could buy the stock at a 15% discount and earn an immediate 15% return. However, one of my friends that worked at a different company in the exact same industry that I did, his employee stock purchase plan allowed him to purchase it at a 15% discount to the lowest trading price that the stock traded at over the last six months. So as the stock wiggled up and down, he could buy it at the lowest dollar trading price that the stock had and then take 15% off. So in some cases, he was buying it at a 40% or 50% or even more discount to the then turning free in place. If I had that plan in place, I would have done everything in my power to max out my employee stock purchase plan.

• 29:39Speaker 01

  So this is yet another time that the details of the plan really matter.

• 29:44Andrew Giancola?

  And this is why I think so many people need to understand how this works. They need to understand how some of these plans operate and how your specific plan operates. Because you could be leaving 30, 40, 50% on the table just based on something. If you had a plan, just like your friend did, there's a lot of plans like that that are just really advantageous to the employee. But you've just got to understand how this works to make sure that you can actually take advantage of that. My relationship with money has changed a lot over the years. Early on, I thought building wealth was about making more money. Now I know it's really about having clarity. When you know exactly where your money is going and whether you're on track, you make better decisions. That's one of the reasons I love Monarch. It's the personal finance app that tracks everything from your accounts and investments to your savings, goals and spending.

• 30:29Andrew Giancola?

  So you can see your entire financial picture in one place. One habit that's made a huge difference for me is my five minute drill every single morning. I open Monarch, check my spending, investments, cash flow and net worth, and I'm done in just a few minutes. It gives me confidence that nothing is slipping through the cracks. I also love the AI weekly recap because it'll flag spending changes, upcoming expenses or shifts. In my net worth before they become a problem. Instead of reacting after the fact, I can make adjustments early. It really feels like having a financial advisor in your pocket. Write your own money story with Monarch. Use code PFP at monarch.com to get your first year of Monarch Core half off at just $50.

• 31:12Andrew Giancola?

  That's 50% off your first year at monarch.com with code PFP. If you've been listening to this show for a while, you know it's not just me anymore. It takes a great team behind the scenes to make everything happen. And if I had to hire someone tomorrow, I'd want someone who could jump right in and make an impact. That's why I'd use Indeed Sponsored Jobs. When workplace chaos hits, Indeed Sponsored Jobs helps you reach qualified candidates faster. Your job gets boosted in search results, so you're spending less time searching and more time interviewing the right people. Plus, you only pay for results, which I absolutely love. Sponsored jobs posted directly on Indeed are 95% more likely to report a hire than non-sponsored posts.

• 31:57Andrew Giancola?

  That's a huge advantage when you're trying to grow your business. Spend less time searching and more time actually interviewing candidates who check all of your boxes. Less stress, less time, more results. When you need the right person to cut through the chaos, this is the job for Indeed Sponsored Jobs. And listeners of this show will get a $75 sponsored job credit to help get your job the premium status it deserves at indeed.com/podcast. Just go to indeed.com/podcast right now and support our show by saying you heard about Indeed on this podcast. Indeed.com/podcast. Terms and conditions apply. Need to hire? This is a job for Indeed Sponsored Jobs. It's kind of amazing how much can change in just a single year.

• 32:41Andrew Giancola?

  Every summer, the kids are a little bigger, a little more independent, and life looks a little different than it did the year before. And it reminds me that while we can't predict the future, we can prepare for it. That's one of the reasons I like PolicyGenius. See, PolicyGenius isn't an insurance company. They're an online marketplace that lets you compare life insurance quotes from some of America's Top insurers, side by side, for free. And their licensed team helps you compare coverage, prices, and terms, answers your questions, and even handles the paperwork so you can get the right policy without the hassle. For me, having life insurance isn't about expecting something to happen. It's about knowing my family is protected, so I can actually enjoy these moments together, instead of worrying

• 33:25Andrew Giancola?

  about what comes next. And with Policy Genius, you can find 20-year life insurance policies, starting at just $276 a year, for $1 million of coverage. Head to policygenius.com to compare life insurance quotes from top companies and see how much you can save. That's policygenius.com.

• 33:44Speaker 02

  I hope I don't have to cancel again tonight.

• 33:46Speaker 03

  Chronic migraine means 15 or more headache days a month, each lasting four hours or more. Botox, onabotulinum toxine A, prevents headaches in adults with chronic migraine. It is not approved for those with 14 or fewer headache days a month. Botox, the number one prescribed branded chronic migraine preventive treatment, prevents, on average, eight to nine headache days a month, versus six to seven for placebo. Prescription Botox is injected by your doctor. Effects of Botox may spread hours to weeks after injection, causing serious symptoms. Alert your doctor right away, as difficulty swallowing, speaking, breathing, eye problems, or muscle weakness can be signs of a life-threatening condition. Patients with these conditions before injection are at highest risk. Side effects may include allergic reactions, neck and injection site pain, fatigue, and headache. Allergic reactions can include rash, welts, asthma symptoms, and dizziness. Don't receive Botox if there's a skin infection. Tell your doctor your medical history, muscle or nerve

• 34:30Speaker 03

  conditions, including ALS, Lou Gehrig's disease, myasthenia gravis, or Lambert Eaton syndrome, and medications, including botulinum toxins, as these may increase the risk of serious side effects. Ask your doctor. Visit botoxchronicmigraine.com or call 1-800-44-BOTOX to learn more.

• 34:45Andrew Giancola?

  So what are the, you know, we kind of talked about some of the advantages just now. Are there risks associated with participating with an ESPP too?

• 34:52Speaker 01

  Well, of course, if you put money into an ESPP, and then that your company's stock goes down dramatically, well, you have a portion of your net worth tied up in a stock that is losing investment. And again, depending on how much of your net worth is in that single stock, that can do dad things, not only for your career prospects, but for your net worth. So, anything related to stock-based compensation. Is never guaranteed to work out. You, the employee, are always assuming some level of risk. The exact same way the owners of the business are assuming risk by putting capital into the company. But if you want to mitigate that risk and take advantage of the ESPP, some ESPP plans do allow you to instantaneously sell the stock at the basically the same time that you get it.

• 35:35Speaker 01

  So if you effectively want to use them as a checking account that pays a 15% or 30% or more instantaneous return, that is one thing that you can do with some ESPP plans if they allowed you to not have a certain holding period.

• 35:50Andrew Giancola?

  Exactly. One thing I used to do is I would kind of look at the health of the company and try to figure out some of the financials of the company. I worked in the finance department, so I kind of understood that part of it. And I could see all the financials and I knew, hey, this company is really strong. I want to kind of continue to invest here. And I look at the future and I think it has a bright future. Whereas my wife's company at the time, when we were younger, she was working at a company that had a higher risk. She was in the fashion industry and so there was just much higher risk at her company. And you could look at the financials and very quickly say, hey, this is a much riskier proposition here to be investing in some of these plans. And so then you can just utilize it as a discount, like you're saying, where, you know, if you get a 15% gap there, then you can go ahead and just, you know, buy the stock and then, you know, cash in on that 15%. So there's stuff like that for sure that I used to look into to make sure I was researching properly when we went through that.

• 36:35Andrew Giancola?

  Now, is there any common mistakes employees make with stock-based compensation? Is there anything that you see that happens pretty frequently that they probably should not be doing? And how would you mitigate that risk?

• 36:45Speaker 01

  Unfortunately, the answer there is yes. Mistake number one, that probably the most common mistake by far, is not understanding how stock-based compensation works. Not understanding your particular stock-based compensation situation. This is a confusing, complex topic that many people do not understand. And even in business school, which I graduated from, I had no idea that this was a thing that can happen. So a lot of people hear about stock-based compensation for the very first time when they're negotiating with the HR rep on the other side of the table and they're presented with a package. So so many people view this as too complicated, too complex. They don't understand it and they just don't look into it.

• 37:26Speaker 01

  Don't make that you. Learning the details and the nuances of stock-based compensation can be a six-figure or more decision for you. So mistake number one is just not understanding it.

• 37:37Andrew Giancola?

  A hundred percent. And if someone out there is saying to themselves, hey, this is overwhelming for me. I'm listening to this and I still don't understand what is going on. One thing that you can do is you can have your HR department send all of the information over to you. Now, this is just a starting point. This is not the ending point. Before you talk to your CPA or anybody else about the information, and you can stick that information, the entire handbook or whatever they send you, you could stick it in something like ChatGPT, for example, and it can start to simplify and explain some of these terms to you so that you have an understanding of what's going on. You can ask it questions and all that kind of stuff as well. That's a great starting point, just to kind of figure out what your employer offers specifically. What are the tax implications and some of those other things as well. That's a good starting point to at least just get an understanding. Then you can ask questions to your HR department. You could do more research with your CPA and then get some more information

• 38:20Andrew Giancola?

  that way. Are there any other ways that you can think of that they could avoid some of these pitfalls so they can understand their stock-based compensation and make sure they're avoiding any other pitfalls that are associated with it?

• 38:30Speaker 01

  Yeah, you just said a great one. ChatGPT is a total game changer cheat code for just putting the stuff in there and saying, explain this to me like I'm five years old. So that's a great start. But some other mistakes to make, we already talked about not negotiating your stock-based compensation, not asking about more stock-based compensation, even if you're employee, especially if you have a review coming up. Many people renegotiate their salary, but they don't negotiate their stock-based compensation. That can be a mistake. Or how's this for a gut-wrenching statistic? So according to Carter.com, in 2022, about half of in-the-money stock options that employees had, half that were expiring, were left unexercised. Meaning,

• 39:12Speaker 01

  the employee literally had money that was coming to them if they exercised their stock option, and they simply let it go unexercised. Half. So that is a huge, huge amount of literally free money that employees are saying no thank you to. And the number one reason why people don't is that they didn't understand what was happening and that they said that equity-related decisions are just too stressful to think about. Please don't make that you. Even if worst-case scenario, you go in there, click a couple of buttons that say sell, and you take that money, just do that. If you don't want to make a more complex decision, just make a simple rule. Whenever I get stock-based compensation, I'm going to immediately convert

• 39:55Speaker 01

  it to cash if this is just too overwhelming to think about. That alone, that single decision, and just paying that little bit of attention could be a multi-thousand-dollar decision.

• 40:04Andrew Giancola?

  That has to be step one for sure. It's the number one thing you need to be doing. And again, just trying to figure out this stuff, like Brian says, is a six to seven figure decision. And we always talk about the big impact decisions, the million dollar decisions. This is one of them. And so you've got to make sure that you have that understanding going forward. Are there any companies out there that you know of that offer, you know, high stock-based compensation? Or are there any companies that you would think of targeting? Or how do you think about that process?

• 40:29Speaker 01

  Yeah. So Andrew, if I was to re-enter the workforce, I've been working myself for a couple of years and I don't ever see myself going back. But if I was to re-enter the workforce, this is the number one thing that I would use to make a decision of, am I going to work for this company or not? It would be all about stock-based compensation. That is not something that I would have done 20 years ago, but it is now the number one thing that I would look for. So when it comes to trying to find a company that pays high stock-based compensation, no surprise here, the number one company that you should try and work for is something related to the technology sector. Technology companies, communication companies tend to be, especially ones that are based out of California, tend to be the most generous stock-based compensation companies out there.

• 41:10Speaker 01

  Two other sectors that are generally known for paying high levels of stock-based compensation are financial companies, which it sounds like you worked for. And then, bluenough, real estate companies also tend to have generous stock-based compensation factors. On the other end of the spectrum, companies that tend to have very stingy packages tend to be older, older companies that have been around for a long period of time. So consumer staples companies, utility companies, energy companies, material companies and industrial companies. They tend to be older in nature and therefore reserve the stock-based compensation only for basically the CEO and the board level of the company. So if stock-based compensation is important to you, no surprise,

• 41:54Speaker 01

  you should focus on technology companies, financial companies and real estate companies.

• 41:58Andrew Giancola?

  And those, again, those are the industries that I have heard of people just looking and focusing on that. And they become multimillionaires just from trying to target the right companies that have the right stock-based compensation. So that is awesome. Well, Brian, this was super, super helpful. I want to jump into some of the bonus questions that we ask our guests when we have time. Typically, we ask the same questions, but this is what, your fourth time on here now? So I changed them up just for you. So I'm excited for this. How do you balance enjoying your money now versus planning for the future?

• 42:25Speaker 01

  This is something that I have changed my mindset on absolutely completely over the last 20 years. When I first entered the workforce, I was hyper focused on building my net worth. I tracked every penny that I spent. I saved as much as I could and I maxed out my 401k and Roth IRA and did everything you're supposed to do financially. And at the time, I was actually denying myself probably more luxury in my life than I could afford. And that's just what I did for a long period of time. Over the last five and 10 years, I've become much less frugal in my old age and I feel like I am now spending more money today than I ever have. And I have since come to believe that you should really prioritize experiences and doing fun things while you have the health to enjoy

• 43:09Speaker 01

  them. I have seen family members of mine that thought they were going to live for a very long time, have debilitating health things come along. I've of course had friends that have died far earlier in life than they obviously wanted to. So balancing these two is not easy, but I now place much more emphasis on enjoying money now versus planning for the future.

• 43:31Andrew Giancola?

  I'm the same way. I've transformed from my twenties where I was extremely frugal and that's kind of the wealth accumulation time that I had, but I was so frugal at that point in time and that once I had kids and my life changes started to happen, I got married, all that kind of stuff, then you know, a lot of things shifted for me. I spend a lot more now. Now my biggest problem is I can't get the financial independence goalpost to stop moving. I need, I need to get it to stop and that's another skill. A whole nother conversation in and of itself, but that's, that's awesome. What's one financial habit that has had the biggest impact on your life?

• 43:59Speaker 01

  Automation. Setting things up and not having to think about them. So I automate my savings. I automate my 401k contributions. I automate my Roth IRA and I'm a big DIYer. And again, at the beginning, I was looking at and tracking every single penny, but now that we have tools that are available to us that make things automatic, I would say automating your finances, taking that one action, that one time to set yourself up, it's the best financial decision you can make.

• 44:24Andrew Giancola?

  Exactly. And that's one thing I think, once you get it set up and you get it set up properly, you can literally just set everything on autopilot. You do not have to worry anymore and it just makes life so much easier. The worst thing I need to rely on is my willpower and removing my willpower from the equation is the best thing I ever did. So I completely agree with that as well. If you could go back 10 years, what financial decision would you change?

• 44:44Speaker 01

  Invest everything into Bitcoin, obviously.

• 44:47Andrew Giancola?

  That's very true, actually.

• 44:49Speaker 01

  So I'm very happy to say that I wouldn't change any financial decision I've ever made, ever. For the first 10 years of my career, I was hyper-focused on saving. And for the last couple of years, I've been hyper-focused on enjoying what I have. But I am in the position today to really enjoy the good life because of that hardcore saving that I did for so many years. And even looking back, there's nothing that I really wanted 20 years ago that I truly denied myself of. I probably could have gone out to dinner a little bit more often, probably could have paid for some extras on vacations that I've had, but I don't think I would change anything about my financial life.

• 45:24Andrew Giancola?

  I think that's kind of where my 20s was too, where I was frugal during that point in time, but it was something that I really don't regret whatsoever because it helped me just kind of build that base to then I could buy the things I want when I wanted to instead. So I think that's for sure. That's a great one. How do you think about money differently now than when you started your career?

• 45:41Speaker 01

  Well, as we just discussed, I used to think of money as the primary ends, the thing that I was trying to maximize. And now I view money as a tool for living a better life. That has taken me years to really, truly embrace. But once it was pointed out to me in simple terms, money is effectively numbers in a database. Like, at its core level, that's what money is. It's kind of silly to spend all of your life energy maximizing a number in a database. And if you are truly just saving money your entire life and focused on hyper-saving and you never go to the enjoyment period, that's really what you are doing. So I have, again, shifted my mindset to being money is a tool for living a better life.

• 46:25Speaker 01

  That's by far the biggest money change I've gone through.

• 46:27Andrew Giancola?

  And what I've realized too is just like, learning to spend money, especially if you're frugal, is a skill. Like, it's a skill that you actually have to kind of work that muscle a little bit. And then once you get it going, you gotta make sure that you control it. But once you get it going, I think it's something that you can figure out what you value, you spend your dollars on your values, and that's kind of how you have that control. The last one is what's a common financial myth you think most people should stop believing?

• 46:49Speaker 01

  There's a bunch of them, but I'll go a little bit to the left and say, I've always heard you have to spend money to make money. That's something that I heard for a long period of time. I think that that is absolutely false. There are so many ways, especially today, where you can spend $0 and start businesses, or use digital products, or make investments. You can make a time investment, and that can result in ungodly amounts of money coming into your life in the future. So I think in the past, it was more true that you had to spend money to make money. I don't think that's the case any longer.

• 47:22Andrew Giancola?

  For sure. When you had to have a brick and mortar business, or you didn't have the internet available to you, for sure, I think that was true back then. But now, you can start all kinds of businesses for $0 with social media. And there's just so many different things that you can do. It's absolutely amazing. So perfect. Well, Brian, this was absolutely amazing. Thank you so much again for coming back on. Where can people find out more about you and what you have going on right now?

• 47:40Speaker 01

  Yep. So my name is Brian Feroldi. I'm pretty much on every social platform if you search for my name. What I've been working on for the last couple of months, as you know, Andrew, my category is individual stock investing. And I have felt for decades that individual stock investing is just too hard. So I've been working on a new product and a new course that simplifies the stock analysis process as much as possible. It's called Stock Simplifier. And if you're the type of person that has stock-based compensation, and you want to learn how to analyze the business that you are looking for to say, is this a good investment? Is it not? But you don't know a lot about stock investing. I think this new product, Stock Simplifier, is going to make the stock research process as easy as it possibly could be.

• 48:23Andrew Giancola?

  And I highly recommend it as well. I mean, Brian makes the stock investing so incredibly easy. He is the best at it and the best at teaching it. So thank you again, Brian, so much for coming on. We truly appreciate it.

• 48:33Speaker 01

  Andrew, awesome to be here. Thank you. Look forward to my next return or visit.

• 48:38Andrew Giancola?

  Exactly. Absolutely.

• 48:53Speaker 03

  Progressive's Accident Response can contact emergency services if you're in a major accident. The only thing worse than someone you love being in an accident is not being able to help them. So Progressive is here to help when you can't. So get peace of mind knowing your loved ones are protected with Progressive's Accident Response. Learn more at progressive.com. Progressive Casualty Insurance Company and Affiliates, Limited Availability in California. Driver is responsible for emergency and towing charges not covered by the policy. Coverage subject to policy terms and conditions.