Building Emergency Savings with RSUs‍

Casey Fenton

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February 20, 2024

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Did you know that over 70% of Americans have less than $1,000 in emergency savings? This sobering statistic highlights the vulnerability many face when unexpected expenses arise. 

But what if you could leverage a unique employee benefit to bridge this gap and build unshakeable financial security? 

There comes Restricted Stock Units (RSUs), a financial tool often overlooked when crafting a robust savings plan. Here, you can find actionable strategies to transform them into your very own financial safety net.

RSUs: The Key to Strategic Allocation

Restricted Stock Units (RSUs) are like golden tickets to company ownership, granted to employees as part of their compensation package. These units represent shares of company stock that vest over a predetermined period, typically 2-4 years. Once vested, they become yours to keep or sell, offering the potential for significant wealth creation.

Think of RSUs as delayed bonuses, gradually unlocking your ownership stake in the company's success. This inherent connection to company performance acts in two ways. While it can lead to substantial gains if the company thrives, it also exposes your RSUs to market fluctuations. The stock market, as we know, can be a volatile beast, and your RSU value can rise or fall based on various factors, including:

1. Company Performance

Strong financial results and positive investor sentiment can propel your RSUs to new heights. Conversely, company struggles or negative news can lead to their value dipping.

2. Market Trends

Broader market conditions also play a role. A bullish market can buoy your RSUs, while a downturn can drag them down.

3. Industry Outlook

The overall health and prospects of your company's industry can influence its stock price and, consequently, your RSU value.

Why Build Emergency Savings with RSUs?

Turning a portion of your vested RSUs into emergency savings offers several benefits that empower you to navigate life's challenges with greater ease and confidence. Below are some compelling advantages of this approach:

1. Peace of Mind with Having Your Financial Safety Net

Think of when your rusty car decides to take a permanent vacation just as the washing machine throws in the towel. Unexpected expenses can derail even the most meticulous financial plans, triggering stress and anxiety. But what if you had a readily available financial cushion prepared for such situations? Here’s where your emergency savings come into the picture, fueled by strategically allocated RSUs.

Having a robust emergency fund provides peace of mind, knowing you have the resources to weather unexpected storms. Whether it's a medical emergency, car repair, or job loss, knowing you have a backup plan frees you from the burden of financial worry and allows you to focus on finding solutions with a clear head.

2. Financial Flexibility

Unexpected expenses often have a knack of appearing at the most inopportune moments. When faced with such situations, many resort to credit cards or high-interest loans, creating a cycle of debt that can be challenging to break free from. But there's a smarter way: leveraging your RSUs to build emergency savings.

Having a readily available financial buffer helps you avoid the temptation to dip into debt to cover unexpected costs. This not only saves you from the crippling burden of high-interest payments but also protects your credit score and ensures your financial well-being remains on track.

3. Balancing Growth and Security

While prioritizing emergency savings is important, it's essential not to lose sight of your long-term financial goals. Selling all your vested RSUs might seem tempting, but remember, these units hold the potential for significant growth alongside your company's success. So, how do you strike the right balance?

Allocating a strategic portion of your RSUs towards emergency savings allows you to maintain a safety net while still holding onto a significant share for long-term growth. This balanced approach ensures you're prepared for unexpected situations without sacrificing your future aspirations.

Emergency savings represent your low-risk foundation, while the remaining RSUs fuel your long-term growth potential. This balanced approach minimizes risk while fostering financial stability and progress.

4. Mitigating Market Volatility

Investing solely in stocks exposes you to the inherent volatility of the market. While your RSUs are inherently tied to your company's performance, having emergency savings diversifies your overall portfolio, providing a layer of protection against market downturns.

Imagine a sudden market crash sending your stock portfolio plummeting. With well-funded emergency savings built from your RSUs, you have a reliable buffer to fall back on. This reduces your reliance on a volatile market and ensures your financial stability isn't solely dependent on external factors.

Determining the Right Allocation Amount

Deciding how much of your vested RSUs to allocate towards emergency savings is a personal decision, influenced by various factors. Each individual's circumstances and financial goals are unique, requiring a customized approach. So, how do you find the sweet spot—the allocation that balances preparedness with long-term aspirations?

✔ Assess Your Current Emergency Savings

Before diving into RSU allocation, it's necessary to understand your existing financial safety net. Ideally, your emergency savings should cover 3-6 months of living expenses. This buffer provides breathing room to navigate unexpected costs without resorting to high-interest debt or jeopardizing your long-term plans.

If your current emergency savings fall short of this target, prioritize a larger portion of your RSUs to bridge the gap. After all, having a robust safety net is the foundation for financial security and peace of mind.

✔ Consider Your Risk Tolerance

Everyone has a different comfort level with financial risk. If you're more risk-averse, allocating a larger portion of your RSUs towards emergency savings ensures greater security and mitigates the impact of unexpected events.

However, for those comfortable with calculated risks, holding onto a larger share of their RSUs allows for greater potential long-term growth. Ultimately, the right allocation depends on your individual risk tolerance and financial goals.

✔ Don't Forget Your Future Goals

Emergency savings are important, but remember, your financial journey extends beyond immediate needs. Ensure your RSU allocation balances preparedness with your aspirations for retirement, homeownership, or other investments.

Don't sacrifice your long-term vision for short-term security. Aim for an allocation that provides sufficient peace of mind while still fueling your progress toward future goals.

Strategic Selling Techniques for RSUs

Now that you've determined your ideal allocation of vested RSUs for emergency savings, it's time to translate it into action. Here are some strategic selling techniques that ensure you maximize your financial gain while managing potential risks:

1. Dollar-Cost Averaging

Imagine you have a significant amount of RSUs to sell. Selling everything at once, especially in a volatile market, might not be the wisest decision. Dollar-cost averaging offers a more strategic approach. This technique involves spreading your RSU sales over a predetermined period, regardless of the current stock price.

Think of it like buying groceries on a weekly basis instead of stocking up once every few months. By selling smaller portions of your RSUs regularly, you capture better average prices in the long run and mitigate the impact of market fluctuations. This is particularly beneficial during volatile market periods and can help you optimize your overall gain.

2. Limit Orders

Don't want to miss out on a specific price target for your RSUs? Limit orders come to the rescue. These orders instruct your broker to sell your shares only when they reach a predefined price point. This ensures you capture specific gains and helps manage your risk exposure.

Imagine you believe your RSUs have the potential to reach $100 per share, but you're comfortable selling at $80 to secure your emergency savings. Setting a limit order at $80 ensures you capture that desired price, maximizing your gain from that portion of your RSUs.

3. Tax Considerations

Selling RSUs triggers tax implications, and understanding these is important for optimizing your strategy. Depending on your vesting schedule and tax bracket, different selling approaches might be more advantageous.

Consult a financial advisor or tax professional for personalized guidance. They can help you navigate the tax complexities of RSU sales and ensure you maximize your after-tax gain while minimizing your tax burden.

Exploring Alternative Uses for Your RSUs

While building emergency savings with RSUs is a wise strategic move, it's not the only avenue to explore. Remember, your vested shares represent a unique opportunity to fuel your overall financial journey. Some alternative uses for your RSUs are as follows:

1. Debt Repayment

Struggling with high-interest debt? Consider allocating a portion of your RSU proceeds towards debt repayment. This strategic move can save you significant money on interest charges and accelerate your journey toward becoming debt-free.

Imagine you have high-interest credit card debt accruing substantial charges every month. By strategically selling a portion of your RSUs and using the proceeds to pay down that debt, you can free up valuable cash flow and eliminate those pesky interest charges. This not only improves your financial health but also opens doors to future investment opportunities.

2. Investing in Long-Term Goals

Don't neglect your long-term aspirations. While emergency savings are necessary, your RSUs can also fuel your journey toward retirement, homeownership, or other investment goals.

Think of your RSUs as seeds for your future. Allocate a portion towards retirement accounts, investment portfolios, or down payments for dream homes or businesses. This helps you build long-term wealth and secure a brighter financial future.

3. Charitable Giving

Sharing your success with worthy causes can be a fulfilling way to utilize your RSU gains. Research charitable organizations aligned with your values and consider donating a portion of your proceeds. Imagine the ripple effect your generosity can create. By supporting worthwhile causes, you contribute to positive change in the world while experiencing the joy of giving back.

Take note that the choice of how to use your RSUs ultimately depends on your unique circumstances and goals. Seek professional advice if needed to develop a personalized strategy that aligns with your financial vision and risk tolerance. Exploring these alternative uses alongside prioritizing emergency saving gives you the full potential of your RSUs and paves the way towards a secure and fulfilling financial future.

Want more practical tips for your RSUs? Feel free to browse Upstock’s blog for a wide range of equity-related guides backed by industry analyses and current events. You may also reach out to us via chat for tailored answers to your RSU-related inquiries.

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ABOUT THE AUTHOR

Casey Fenton

Founder, Upstock & Couchsurfing, AI and Equity Innovator

Casey Fenton, the founder of Upstock & Couchsurfing and an AI and equity innovator, has revolutionized how we perceive and implement equity in the workplace. His foresight in creating platforms that not only connect people but also align their interests towards communal and corporate prosperity has established him as a pivotal figure in technology and community building. Casey speaks worldwide on topics including ownership mindset, worker equity, With Upstock and Couchsurfing, he has demonstrated an unparalleled expertise in harnessing technology for the betterment of community interaction and organizational benefits.

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