How Much Money Should You Contribute To Your ESPP?

Equity Compensation | Employee Stock Purchase Plans

 Derek Jess By: Derek Jess

Employee stock purchase plans are a great benefit that many companies offer to help employees invest in the future of the company and make more money. You may have already decided to invest in yours, but you’re not sure how much money you should be contributing.

At Plancorp, we can help you gather all your financial information to make the best decision about contributing to your ESPP. Read on for common situations that may help you narrow down a figure.

What is an ESPP and How Does it Work

An ESPP is a favorable benefit that companies offer employees as a way of investing in the future of the business. It allows an employee to buy company stocks at a discount of up to 15%. It is one of four types of equity compensation an employer can offer.

Once enrolled in an ESPP, the employee makes contributions through regular payroll deductions, and after six months, the employer uses that money to purchase company stock on behalf of the employee. The stock lives in the employee’s name until it is sold. 

So, how much should you contribute? When it comes to taking that money out of your paycheck, there are several factors to consider.

How Does an ESPP Work? 

When an employee enrolls in an ESPP, contributions to the plan are made from regular payroll deductions. After six months, the employer uses the accumulated money to purchase stock at a discounted price. The stock will exist in the employee’s name until they decide to sell it, which can be at any point during the process.

How Much Money Should I Contribute to My ESPP?

Even before enrolling into an ESPP, there are two big components to take into account (literally!) Your personal finances and the benefits your employer offers.

Personal finance analysis: You should first determine your net worth. Examine all of your bank accounts, credit cards and investments to see where you stand. Use this worksheet to get started.

Workplace benefit analysis: What other benefits does your employer offer? Is there a 401(k) and do they match it? What is the ESPP stock discount? If money is already coming out of your paycheck to go toward a 401(k), this may affect how much you contribute to an ESPP.

Below are several scenarios that may fit your current situation. Use these as a guide when determining your ESPP contribution.

If you have credit card debt...

Before you contribute anything to an ESPP, you should pay off — or at the very least, pay down — your credit card debt. Interest on credit cards builds up quickly, washing out anything you earn from your ESPP.

If you have loans...

Your goal should be to pay off student loans or car loans as quickly as possible, but because these types of loans typically have smaller interest rates (between 2% and 6%), it’s safe to also put a percentage of your paycheck toward your ESPP. This is because you’re able to get a discount that’s greater than the interest rate of your loans.

If you sell your stocks immediately after purchase, you’ll have money to put toward paying off those loans. Make sure you’re contributing up to a company-match percentage for your 401(k), and then choose a percentage that feels comfortable to you for your ESPP contribution.

If you have small debt/no debt and little savings…

Your priority should first be to save up enough money to cover three to six months worth of expenses in case of an emergency. After you’ve saved up that nest egg, this option is similar to the one above. 

As long as you have enough money in savings, invest as much as you can into your ESPP while still managing to pay the bills, of course. Once you’re able to sell, you can obviously decide what to do with that money, but we’d recommend building your nest egg. 

If you have savings and no debt but money is tight…

Even if you don’t have debt, it’s understandable that money can still be tight. Gas prices are high, inflation is high, daycare is expensive, food is expensive. 

If this is your situation, make sure you contribute up to an employer match in your 401(k) and then determine an ESPP contribution that is comfortable for you based on your cash flow. 

Determine your cash flow using this free worksheet.

If you have savings and 401(k)..

If you have no debt and you’re contributing up to the company match in your 401(k) PLUS saving money, you should definitely max out the amount you can contribute to your ESPP. This will result in you substantially growing your net worth.

If you've maxed 401(k) saving and you're still saving...

The IRS has a 401(k) contribution level set at a max of $20,500 for 2022 (plus a $6,500 catch-up contribution if you are at least age 50) and an ESPP contribution limit at $25,000 per calendar year. If you’re already maxing out your 401(k) and still saving money, you should definitely calculate how much money you can add to your ESPP to max it out as well. 

Use an ESPP calculator to determine this amount. 

For more strategies on setting up a successful ESPP, click here.

Investing in an ESPP

It’s easy to get excited about investing in the future of your company, but be careful not to do so hastily. Consider your net worth and work from there to determine an amount that fits your lifestyle and budget. 

ESPP Investments


This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.

Plancorp is a registered investment advisor with the Securities and Exchange Commission ("SEC") and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not imply a certain level of skill or training. Please refer to our Form ADV Part 2A disclosure brochure and our Form CRS for additional information regarding the qualifications and business practices of Plancorp.

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Derek joined Plancorp in 2018 after spending the previous three years of his career as a financial advisor in Boulder, Colorado. As a CERTIFIED FINANCIAL PLANNER™ professional, he is passionate about helping people make financial decisions tailored to the life they want to live. More »