Save Your Money

Saving Money To Save Money

It takes money to make money, but what if you don't have any to begin with? I had to start saving money to save money.

Today I reached another milestone in my quest to reach financial independence and retire early.  Step number 3 in my Get Rich Quick’ish strategy is ‘Take Advantage of Free Money.‘  As of this moment I’m officially all-in on my employer’s ESPP program.

It has taken a while to get to this point (two years to be exact), but it means that between my Employee Stock Purchase Program and my 401(k) match, I’m finally grabbing 100% of the free money that my employer offers.


Before I go on, let me quickly answer two questions that you might have:

  1. What is an ESPP?
  2. Why did it take me two years to grab free money?

First – an Employee Stock Purchase Program (ESPP) is a workplace benefit that allows employees of a publicly traded company to purchase company stock at a discounted price. For example, if your company stock is trading on the market at $10 per share, an ESPP allows you to buy it for $8.50.

There are other potential discounts on top of that as well, but at a minimum this is usually an immediate 15% gain on your investment and that’s why I call it free money.  Check out my ESPP post for an in-depth look and explanation of what a good ESPP program looks like.

The next question is a good one, and it’s the reason I’ve written this post: why did it take two years to grab this free money???

It Takes Money To Make Money

In an odd (and often frustrating) twist, it actually takes quite a bit of money to take advantage of all this free money.  To go all-in on my ESPP meant that I needed to funnel 15% of my taxable income into the program.

That’s money I simply didn’t have, especially when I’m already diverting a sizable percentage of my paycheck into our 401k.

If you don’t make a lot of money, sometimes you just can’t afford to take advantage this “free money” and it can be very frustrating to sit on the sidelines and watch others benefit while you’re not yet in a position to do so.

For a family of six that’s trying to get by on a single income and save for an early retirement as well, finding an extra 15% in our budget wasn’t easy.

In fact, it was impossible.  There simply wasn’t that much money lying around to pour into our ESPP.

I suspect that many of you reading this blog would also have a hard time diverting an additional 15% of your paycheck into a savings or investment account. If you can afford to save that money then you’re probably already doing so.

Maxing out my participation in our ESPP meant that I had a problem to overcome: how can I claim this free money if I can’t afford to participate in my ESPP? 

Using my 3 solutions rule, my wife and I came up with a few ideas for how we could find that money in our budget.  Some of those options included:

  • Eliminate all unnecessary expenses in order to free up cash and to find the 15% wiggle room in our budget that we needed.  This would include things like cutting cable, downgrading our cell phone data plans as well has our home internet plan, eliminate our weekly date night, etc. etc.)
  • Make more money on the side to replace the 15% that would be going to the ESPP.  We kicked around ideas like making extra money through a side hustle like this blog, or by selling things on eBay or Craigslist.
  • Don’t participate in the ESPP.
  • Save up enough money to subsidize the 15% paycheck reduction.

Of these options, which one would you have chosen?  Maybe you can think of other ways to cover a missing 15% from your budget?  I know of a few coworkers that borrow the money from their parents just so they can participate in the ESPP, so I guess that’s another option we could have considered.

Saving Money To Save Money

We want to Get Rich Quick’ish and retire early, and that means ‘taking advantage of free money’ so we immediately scratched ‘don’t participate’ from our list of options.

Our budget is already pretty lean and we didn’t want to cut back more than we already have, so we decided against cutting more expenses.

We don’t keep a lot of crap around the house that we could sell.  We’ve either already sold the valuable stuff that we don’t want, or we want to keep our things – so selling items of value was also off the table.

The option we settled on was to save up enough money to fully participate in the ESPP, and it has taken us about two years to do that. Thanks to a bonus that I recently received at work, we’re finally over the top and can now afford to max out our participation in the ESPP by contributing 15% of our taxable income.

Here’s how we got to this point, and what happens next.

The Dirty Details

What it boils down to is we’re subsidizing ourselves.  Rather than borrowing money from our parents, we just saved up the money we needed to offset the 15% payroll deduction. Now, every payday, I’ll just transfer some of our saved up money from our savings account into our checking account to cover the money that we’ve put into the ESPP.

That’s it!

Over the past two years we’ve saved whatever money we could and also took advantage of ‘windfalls’ like bonuses and tax returns to save the rest in order to participate in this ESPP and take advantage of the free money.

If you want to max out your 401(k), or a Roth IRA, or participate in your own ESPP but can’t afford to do so because the money just isn’t there – why not save up money so that you can save money?  It might take a while, but better late than never, right?

#ItTakesMoneyToMakeMoney, right? But what if you just can't afford to #invest? Then it's time to start saving #money to #savemoney. #FI #FIREMovement #FinancialIndependence #RetireEarly #ESPP

Chime in!
Do you think saving to save is a viable option for you or anyone you know? It’s not a quick solution to the problem, but it is a solution. What do you think of it?

By Ty Roberts

Ty Roberts is the founder of Camp FIRE Finance, and a husband and father of four living in the Seattle area. He's a fan of the 4% rule, 80s movies and music, dad jokes and cast iron cooking.

16 replies on “Saving Money To Save Money”

Ty – a great example of creative thinking to maximize your “free money”! I like the idea of saving “surprise money” (e.g., bonuses), then dribbling it out over the year to allow you to have the ESPP deducted from your paycheck.

Keep up with the creative approaches, and you may just beat me to retirement! The race is on….(I’m out by June 2018, but I don’t have 6 kids!!)

Thank you, @retirementmanifesto:disqus! My goal is to call it quits no later than my 49th birthday, so I’ve still got nine years to go but with a little luck we’ll come in ahead of schedule! Also, I’ve only got 4 kids 😉 The 4 kids plus me and my wire = the 6 person family I refer to.

LOL, this cracked me up. Rick and I always joke with the kids each month that I’m pregnant, even though Rick has been….um… would you say it, tied? As the kids like to say “My father the gelding” is “fixed”. 🙂

Nice work. Super impressive to be able to find that kind of savings when feeding six people on one salary.

I would have opted for the same approach. I maxed my 401(k) a little before the end of the year two years ago, which allowed me to save up from the bigger paychecks at the end of the year. I used that money to subsidize higher contributions early last year, which means that I maxed out even earlier and then saved even more at the end of the year. This year I’m on track to max even earlier by subsidizing from savings. (Although it is a lot less impressive because my household is just my wife and I and we both have solid incomes.)

Congrats on being able to fully contribute! The option to put away as much as 15% is a HUGE benefit, and it’s great that you’re taking full advantage. I also have an ESPP program through my employer, though I’m capped at 5%. When I speak with folks who tell me they can’t afford to contribute, I try to convince them that they can’t afford NOT to. It looks like our programs are similar in that you contribute in six month intervals with (at least) a 15% reduction in the stock price. Since your money is tied up an average of three months (~6 months for the early contributions and ~0 for the last), being able to earn 15% on money tied up for an average of 3 months is like a 60% annual return! Nice work!

I’d never thought of my money being tied up for an avg of 3 months – good way to look at that.

We also get to purchase using a look back price (lowest price from the first or last day of the period). Adding that onto the price reduction makes this such a great benefit. Happy to finally be all-in!

I love what you said about subsidizing yourselves. Saving is GREAT for that, as is paying down debt. The less financial obligations one has, and the more money they choose to save, the greater position they put themselves in to be able to take care of themselves. And regarding the ESPP, who doesn’t love free money?

Great job with ESPP. I thought you could sell the stock right away and get the 15%. That’s what a lot of people at my old company did. Be careful not to accumulate too much company stocks, though. Sell them off once in a while.

Hey @retirebyforty:disqus! I can sell my ESPP stock immediately and plan to do so. Once per year I also get some stock granted to me – I try to hang onto that stock, but the ESPP stock will be sold immediately. Once I sell, I’ll use the cash to “refill” my savings account so that I can continue to subsidize my participation in the program. Any incremental gain I get will either be reinvested into an index fund or will be used to pay down our last remaining debt.

Great post Ty! My employee stock purchase plan is the best thing I have going in investing. It’s a 50% matching plan, so for every $1000 I contribute, my employer is tossing in $500. Healthy dividends and quarterly $2B profits make for a perennial income earning powerhouse. Better yet, at the beginning of each calendar year they match 100% of the first $500 I contribute, great way to start off the savings year. The minimum contribution is 1% of salary, but I contribute the maximum matchable amount, which is 6%…it’s a no brainer.

whoa – 50% matching is a great benefit. Even though they cap you at 6%, their match makes your total contribution the equivalent of 9% of your salary…am I doing the math right (your 6% investment + 3% from them)? Very cool!

Do you hold your ESPP stock and wait for the tax advantages, or do you sell immediately to lock in those guaranteed earnings?

Ty, thanks for this great post. I used to believe in keeping the stocks and only sell it once in a while but one of my friend suggested not to do like that, and ESPP stock can be sold immediately which i can use to put it in my savings. Thanks for sharing this very informative article.

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