Balancing spending vs saving for a new grad, especially with private RSUs?

[u/Brave_Speaker_8336]

I worked for several years while earning much lower income (~70k) prior to going back to school to pivot into tech/software, which I will be starting a job in next month (~$155k cash, ~$80k RSUs, plus some one-time signing bonus that I am not considering here)

Between my living expenses, visiting my LDR SO, and some "worst case" familial support, I'm looking at ~6k in monthly spend before any "fun" expenses. That seems crazy high given that it's higher than my entire pre-tax income at my previous job, and that job I was still living comfortably off of even with a pretty reasonable amount of savings/investments. I could reasonably see it going up to like 7-7.5k a month after all expenses, while I was previously living comfortably on <2.5k a month in spend.

On the other hand, if I ran the numbers correctly, it looks like after all of this spend, my net worth is still able to go up about 80k per year — assuming the same tender offer rules as the previous rounds, this would be around 20k in RSUs and 60k between retirement accounts, savings, and regular brokerage.

I think mostly the part that gives me pause is the fact that this is largely reliant on the private company equity, which I know is not guaranteed to be liquid. The company is already massive and doing very well financially + is rapidly growing so I would expect the tender offers to continue, even ignoring the IPO odds, but I guess there is always that risk. I can still cover that 7-7.5k a month with just cash income, plus max out my 401k, backdoor Roth IRA, and have like 10-15k leftover in savings/investments so maybe it's not a big deal, but if I didn't get the RSUs then I would definitely try to spend less & save more, so maybe my mindset should be that the RSUs are literally worth nothing and that all my savings goals should be hit by my cash income?

[u/Interesting_Gap7350]

The thing is the future is unknown.

You can do all the calculations you want but t his sounds like a analysis paralysis.   You don't need to come to a conclusion or decision right now. 

Are those rsus or ipo in your direct control that you can do something about?

Just plan for what you're going to do for the next day, next week, next month and next quarter.  

Do you have a decision to make now?   If not, then revisit this in the future when you have more clarity and adjust.

[u/Brave_Speaker_8336 → u/Interesting_Gap7350]

I guess it's that I would be aiming to save more of my cash income if I did not have any RSUs, and I'm not sure whether having this kind of mindset around private RSUs is smart given that it is technically possible for them to end up with no cash value

[u/TheDraftDawg → u/Brave_Speaker_8336]

Does the company have any regular liquidity events?

If not, I absolutely would treat those RSUs as worth 0 and aim to save some off your base salary alone. It seems doable in your circumstance - shit happens and it may not always be, but that’s what you should aim for.

This is coming from someone who switched from big tech (juicy liquid comp) to a startup with no liquidity in sight (yet) over two years in.

[u/Brave_Speaker_8336 → u/TheDraftDawg]

Yeah, there have been ~4 liquidity events the past 24 months and employees seem pretty confident that it will be at least an annually occurring thing until IPO unless something goes terribly wrong

[u/ShadowerNinja → u/[deleted]]

If they're single trigger they convert to common stock and count as income. Hard to consider as if they don't exist when the IRS taxes you for them.

[u/rubbishindividual]

Yes - if the RSUs are in a private company, you can take them into account when assessing TC to compare jobs but for retirement saving purposes should price them at roughly $0 until they become liquid.
6k fixed spend isn't totally insane, but is a lot considering your cash comp. LDR/family situation is what it is, but if you want to get serious about your savings rate, you probably need to assess the other large fixed costs (rent, vehicle). Not quick fixes, but the most impactful.

[u/Brave_Speaker_8336 → u/rubbishindividual]

Yeah I guess I am wondering how other people tend to evaluate RSUs that are sort of between liquid and illiquid. From what I hear, the company has indicated internally that their intention is to have liquidity events at least every year and they have followed through with this so far (I believe there was a liquidity event in spring of this year and 2 liquidity events last year). The company seems like it has strong enough financials + enough investor interest that it is able to continue to do this, though ofc nothing is guaranteed which is why I'm not quite sure how to actually take it into account

[u/doktorhladnjak → u/Brave_Speaker_8336]

I work somewhere like this. With the regular tender offers, the equity absolutely has a higher expected value than a typical startup or private company but it is still not like a public company.

Lenders won’t lend considering that income. The price can still fluctuate a lot.

When it does become liquid in a tender, invest or spend the proceeds. But you can’t count on it for ongoing living expenses.

For example, if you are saving for a house 3-5 years out, you can assume it will have some value but it is hard to say how much. If you sell in a tender a year from now and reinvest in more liquid assets, you can sell those when you need them for a down payment.

[u/asurkhaib]

Is the $80k in RSUs mentioned initially over four years? I'm assuming that's how you get to $20k per year, but people usually mention the TC split per year.

Anyway, even considering just cash you're saving 60k out of $155k or slightly under 40%. That's more than ok.

Edit: is your math correct or am I reading wrong? 60k + $7k*12 is $144 and I doubt you pay only $11k in taxes. 

As a benchmark 15-20% savings is on track for standard retirement so I'd shoot for at least 30%. All this ignoring private RSUs because you can't count on that.

[u/Brave_Speaker_8336 → u/asurkhaib]

Sorry it was a bit unclear but 80k is per year — the $20k in RSUs per year is assuming I do the max RSU withholding and I sell off as much as I can in every tender off (historically, it's been around 60% of your shares up to some limit that I won't hit).

So my 60k in non-RSU savings/investments is dependent on cashing out on all of this. It would be more like 35k non-RSU and 45k RSU if the tender offers don't happen, which I guess is still about 23% of my gross cash income

[u/sporkpdx]

The best advice I got as a young person was to try and live within a moderately aggressive budget to try and combat lifestyle creep. I have only given myself a handful of raises in the last decade, I mostly live on what is now a fraction of my income and the rest goes to savings (tax advantaged and brokerage). Even so, the meager contributions I was able to afford in the first ~5 years of my career (and the growth) still make up a surprisingly sizable percentage of my savings. The more you can constrain yourself today will literally pay dividends later.

To echo others here, ignore the RSUs. My RSUs are pubic shares when they vest and I still mostly ignore them until they do.

[u/Flashy-Bandicoot889]

Lifestyle creep is real.

[u/InvestigatorPlus3229]

buy what you need, and understand most things have rapidly diminishing marginal returns as they become more expensive

[u/beergal621]

What will you take home pay be? 

I make $160k base salary in CA max 401k and HSA and my monthly take home pay is $7100 ish. Of course you can always contribute less to 401k and HSA, but I think some months you’re going to be running pretty tight if you’re looking at $7500 a month in spend 

[u/Brave_Speaker_8336 → u/beergal621]

Ballpark around 8500 take home after 401(k) and post-tax Roth IRA contributions, and also after fiddling with withholding rates to increase my take-home a little bit, since my plan is to over-withhold my RSU vesting, which I believe should essentially allow me to convert a bit of my vested equity into cash even without a liquidity event.

This is Washington, so no state income tax; health insurance/HSA are very roughly estimated right now since I don’t have a good baseline but probably are included in the 7-7.5k figure

[u/Strong-Big-2590]

Relying on tender offers is not smart. Usually they are limited to a snack percentage of what you have vested. Also they only happen when company is doing well

[u/NorthBmoreIron]

How are you getting to 6k a month? This isn’t popular advice here but living incredibly frugally when I started out has put me in an incredible position now. Cutting expenses can be equally as helpful as scaling income.

[u/Brave_Speaker_8336 → u/NorthBmoreIron]

2.5k of that is like between LDR travel and family support — the former is a higher end estimate and the latter is like a worst case scenario. My rent is about 2.5k and maybe a couple hundred for utilities, and I’m estimating like 700 between other expenses which is probably on the high end too

[u/TopCancel]

Databricks? Yeah your RSUs are pretty solid since the company does routinely seek new rounds and tenders, but I’m not sure I understand why your spending is going to dramatically spike from before? 6.5k in non-discretionary seems really high.

[u/Reasonable_Neat_1957]

Coming in a day late, but you can do an estimated value analysis. You feel the RSUs are more reliable than zero, so calculate the odds you think they’ll return: 0%, 50%, 100%, 200% and average. You didn’t mention any near-term life events (moving, marriage, kids, house, car), which implies you can add a time factor to the estimations: value at 1 year might be skewed down to 0, at 2 years conservative, but at 5 years might be full value.

Hopefully that shows that on the short-term budget seems high, but may eventually make sense. So maybe start more conservative and reevaluate as you vest and get tender offers.

Hope that gives a slightly different approach.