ESPP vs. no-match 401K vs. life decisions

[Russell]

I'm usually pretty good with money so I don't post often but I need a second opinion on this one.

Some background first:
I've been contributing 15% of my salary towards the 401k. However, the company did away with the employer match (6% - I was bummed) a few months ago. I've kept on contributing to take advantage of the down market.

About 5 months ago my wife got laid off. Our total income has gotten smaller but since I make a decent amount and we live well below our means we're comfortable paying the mortgage and the bills.

We also bought/financed a new car a couple of months ago since we got a really good deal on one and we'd been looking for a bigger car to tow our pop-up camper with. I put down $10k and financed $16k at 8% simple interest (not compound). I can pay this off if I want to but I figure I'd hang on to the cash until at least the end of the year or until my wife finds another job.

The wife has some student loans and credit card debt that we're paying off slowly but surely - we have a plan and a target date for those.

Lately we've spent money on a few things but that's not typical for us so we have a pretty healthy balance in our savings ($50k+)

OK that about covers our current liabilities and the background.

I'm now eligible (been with the new company for 7 months) to participate in the ESPP program. I can contribute up to 15% of my salary and the stocks are offered at a 15% discounted rate. My strategy is to obviously sell the stocks soon after I get them. I figure after taxes and commission etc there's a good chance I could make 10%. That's better than any CD, savings are offering right now. Of course, ESPP comes with a higher risk and it's exactly like buying stocks. However, in case the stock prices tank I'll hang on to the stocks until they go back up. I also have the option to withdraw from the plan if I see things are south.

My question is, should I lower my 401k contributions and divert some of the money towards ESPP. If not I can't contribute enough to make it worthwhile for me to participate in the plan. As-is I'll probably only make about $2500 per year due to the govt mandated $25k limit per year for ESPP.

Or should I not even bother with ESPP since there are other things we want to do shortish term like:

- buying a better camper
- buying a hobby farm or other property
- buying a road-bike for the wife for the 25 mile run she wants to do
- The wife wants to go back to school for a change in career (from IT to nature/biology stuff she enjoys). I'm not sure this is the best idea but I don't want to say no if that's what she wants to do. The cost is roughly $600/semester - which doesn't sound bad to me.

What would you do?

[elessar78]

Me personally, wouldn't mess with it. I like to keep my money management as simple as possible. Seems like you accounted for taxes and commission but not risk—I'd stay away and keep doing what you're doing. It doesn't seem like you're pressed for the 10% return anyway.

[tmvijai]

Thats an interesting background with challenging questions. Obviously lots going on your world but you are on top it and keep it under control. First Kudos to you..

I surely don't like that 8% car payment hanging in there for a year or so when you are waiting for your wife to get a new job. Let say you buy stocks and sell them and make 10%, you are paying 8% to car loan payments which is not tax deductabile either. So you are not gaining anything. I would rather payoff that loan gradually and don't take long enough. I personally don't like too much debt including paying high interest.

Meanwhile, you can try practising your investing skill at weseed.com buying yrou company stock and see how much you earn in this period. It depends onthe market obviously. Once you got over that, you can just try putting little amount and test your risk tolerance factor and your experience in weseed.com The market is really wavering all across the board so it possible to win if you act with insider information carefully.

Just my 2cents.

[jIM_Ohio]

You have a plan which is working- and a plan which is lowering your taxes paid, making it efficient using the income you have.
skip the ESPP this time as the stars did not align

if wife gets a job, can you start ESPP then, or do you have a finite window to join or lose out on it forever?

one other point- with wife not working and income lower, taxes will be lower- doing some roth conversions now might make sense.

[anonymous_saver]

How about contributing to the max in 2 Roth IRA's for both you and your wife? Or do you not qualify for a Roth? If you do, I would go with this method instead of the 401(k) or probably even the Emp. Stock.

How much debt do you have (you mentioned car, CC, mortgage, student loan)? What are interest rates, balances, etc. Also, how much extra money do you have each month? We can probably help you pay down this debt if you want assistance.

I think buying the camper, hobby farm, or the bike are bad ideas. Your wife doesn't have a job right now, and you probably shouldn't focus on buying many "extras".

The school for your wife makes a lot more sense. Although, perhaps if she gets a new job, she could go to school PT, and get some of the tuition paid for?

[Russell]

Thanks everyone! for a day or so I thought perhaps my situation was so bizarre no one had any suggestions

Yes, I've decided to skip ESPP. It looks like a lot of tax related paperwork, more complicated than a regular stock transaction and the amount of money I'll be able to contribute won't give me a huge return (amount wise).

Well there are several other things going on besides what I listed - for one I'm trying to sell my motorcycle and my race car but given the economy no one's buying. I was going to use the money from the sale to pay down the balance on the new car (it's a truck actually) but they're just not selling right now.

So for now I'm going to borrow 1 year's worth of truck payments from my Citi card at 0% until 5/1/2010. This will knock down my principal by $4k and I'll also keep making the payments at the same time. Come May next year my balance will be less than $8k and I'll write a check for $4k to Citi. At that point I'll evaluate our sitch and see if I want to pay it off.

Camper - well the thing is there're a few things I can't put any monetary value on and trust me I'm frugal to the n-th. When we go camping with our 5yo it's just awesome. We enjoy every moment of it, the bickering stops, the bratiness goes away for the most part we join in the setup, the building of the fire, the smores, the grilled hotdogs, the hiking, the nature etc...it's so much fun. The only thing I'm not comfortable with is being in a tent camper I don't feel safe with our 5yo. I'd prefer a hard walled trailer. We're looking at the used ones and waiting for the right one to come along. Our budget is no more than $10k (not $30k etc) and will be paid in cash. One thing I've learnt is if you've decided you need something you might as well get it now than later so you actually use it and take advantage of it.

The hobby farm - well it's our pipe dream we're city slickers probably not even cut out to own or run a farm but we like the idea of self sufficiency and relying on ourselves. Buying a farm or any kind of a land in CA is $$$ so we may have to put this off for a while. The only problem is if we own it much later in life we may not be physically able to do the hard labor etc ourselves. There's always a trade off but this one makes sense to wait on until the stars line up.

Roth wise, we didn't qualify for it last year but we should this year. We may do that. I invested about $15k in a brokerage account this year and so far I've made about 23% overall. Amount wise it's small but I can't complain so I may continue to invest a little here and there.