For most people, company acquisitions are both exciting and a bit stressful. Throughout the process, it’s natural to go through several phases of questions and considerations. Initially, you may be focused on what the acquisition means for your employment. Then, once you understand how the acquisition changes (or doesn’t) your role, you may turn your attention towards your vested and unvested stock options to ensure you understand what money may be coming your way.
And then finally, you’ll probably start thinking about what to do with your winnings if you’re receiving a windfall of cash. Here, we’ll discuss that last component, including how to avoid common pitfalls and turn a big win into a lasting personal victory.
Evaluating your options
The first question that most people ask once the euphoria wears off is, “should I save this money, repay debt, invest it, or spend it on something fun?” The short answer is “yes.”
It’s important to work towards multiple objectives, not only because there are always competing financial priorities, but because being overprepared for one and wholly unprepared for another is not an effective use of resources. This is especially so with personal finances, where too much of a good thing can lead to unintended consequences (i.e. overcontributing to a 401k, or controllable factors that might land you in a higher tax bracket).
While you may not be able to (or want to) contribute to all of your financial goals in equal measure, it often makes sense to apply varying amounts of resources to a number of them. Not only is it helpful to make progress towards all of your goals, but priorities change over time so it’s important to diversify your financial assets across them.
And of course, don’t forget to celebrate! An important part of financial success is staying motivated, which of course includes properly celebrating those hard-earned wins.
Maintaining perspective
Even among startup employees who recognize that an exit for their firm may be an eventuality, the hard work and focus required to get there can make such an event feel sudden and dramatic.
It helps to take a step back and consider how you view this windfall as a catalyst for change in your financial life. Ideally, you want to view this as an expansion of your financial assets that will enable you to accelerate the financial goals you already have in progress. (Like more quickly repaying debt or being able to afford a more expensive home.)
This is very different from making sudden, dramatic changes to your goals, or even worse, assuming that there will automatically be more windfalls where this one came from. Any new financial obligations you take on should be sustainable without the occurrence of other windfalls in the future – since they realistically can’t be predicted.
Avoiding impulsive financial behavior
One of the most common traps that people fall into with a sudden windfall is impulsive financial behavior. This is because it suddenly feels like roadblocks have been cleared and so we want to go forward as quickly as possible. For example, if you’ve felt sidelined from pursuing certain long-term financial goals for an extended period of time (like not having the cash needed for a home down payment), it’s particularly easy to jump to take major action now that the barrier has been removed. But it’s important to take a step back and ensure you’re not getting in over your head.
Much in the same way that views towards marriage & finances are often informed from what our parents have done (for better or worse), there tends to be some contagion among people who experience a large financial event together. For instance, it would not be surprising to hear of a wave of home purchases among a group of employees whose firm recently had a successful exit. Needless to say, we are wedded to large financial decisions, so a rapid change of plans (or worse yet, basing them on what other people are doing) probably isn’t a good choice.
Taking action
After receiving an employer stock windfall, many people quickly recognize that their financial assets have ballooned in size while time and resources to manage their own wealth remain limited. With this much at stake, it’s important to engage a financial advisor that specializes in helping tech professionals successfully navigate employer M&A.
Book a phone consultation today to turn a big win into a lasting victory for your financial life.
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.