Personal finance, ohhhh personal finance.
The dreaded, taboo topic that we're never taught in school, yet it's required if you want to be prepared for emergencies and retirement alike.
Today I offer you some advice, based on my own personal opinions and research after devouring the classic personal finance books and reading many of the top articles from the personal finance community.
Learning to manage your finances can be challenging, but it's easier than that first time you start looking into React trying to figure out what in the world JSX actually means or how this in JS actually works.
Further, being aware of basic principles gives you the power of dealing with unforeseen circumstances.
- Were you disrespected and laid off abruptly like our fellow npm devs? Having an emergency fund can help ease the stress as you find a new job.
- Want to travel the world but for some reason you can't find the mula to do so? Say hello to budgets!
- Are you taking advantage of free money and investing pre-tax money to grow for years? 401(k)s to the rescue!
Three quick potential use cases for convincing you the importance of being financially savvy. There are many, many more, but enough of that - instead it's time for me to tell you how this article will work!
Article Agenda
- Why am I writing about this?
- The basics of median income in the US
- Handling Your Business
- Concluding thoughts
Let us begin
Why am I writing about this?
Recently Kyle Shevlin and Jason Lengstorf were in a Twitter thread talking about generosity in your career. They mentioned potentially writing a blog post about it, and I asked to also talk about personal finance in that article - alas I decided to write an article instead.
Here's the thread with the advice they gave!
I decided to write because of my passion for personal finance, and being able to share what I've learned with others! Please let me know if there are any questions in the comments below!
while (generosity > selfishness) {
careerGrowth++;
happiness++;
}
With that being said, we move on to income.
Median US Income vs. Average Developer Income in the US
When comparing gross income across the country (US or your own), one must look at median values instead of averages - why? When including the salary of those in the top 1%, the results get skewed....very very skewed.
Median Household Income in the US
The median household income in the US according to the U.S. Census Bureau for 2018 was $61,372, $5,114.33 per month, or $29.51 per hour.
What does that mean? It means that if you are earning less than that you are in the bottom half of earners, or if you are earning more, than you are in the top half of earners.
Depending on where you fit in that scale, you're ability to grow wealth, gain financial independence, or pay off debt can be scaled up or down for a few common reasons.
- We can follow a few basic steps to stabilize our finances, be prepared for retirement, and still help out our cousins, nephews, or nieces with their college expenses or birthday gifts!
- Be in a great positions to help our family tree, support causes that help the world, and give back to our communities in a positive way
- Enjoy experiences or buy things that we enjoy for our happiness
while (financiallyStable) {
totalThingsToStressAbout--;
changeStructureOfFamilyTree = 100;
donationsToCharity++;
knockOfBucketListItems++;
happiness++;
}
We are in a marathon folks, not a sprint, so give yourself time and have patience on your journey to achieve in your finances!
Determining Your Current Ticket Status?
- Check your income based on data above
- Check median income by age
- Income percentiles by Age
No matter where you currently land - you can begin changing to improve!
Handling Your Business
Before getting started in what I believe are the basic steps one can take for their future, a quick disclaimer.
Every person has a different financial situation, priorities, and goals in their life. My advice for you is to do what makes the most sense, balancing all three areas. The most important step is your next one :D
The Basics
The basics are activities that can be used for managing your finances for both retirement and future goals.
Obtaining Resources - Career & Income
The bread and butter of your financial life.
How much money is flowing into your coffers each month? What percentage are you saving? Investing?
Are you working towards your next career goal today? Do you know what that goal is?
There are two main levers we can use when managing our finances.
- Money going into our accounts
- Money going out of our accounts
Pursuing to increase the amount going in, or decreasing how much leaves is paramount depending on your goals!
while (financiallyStable && age < retirementAge) {
moneyGoingIntoAccountsFromFtJob++;
moneySaved++;
enjoyLifeExperiencesWithOutStress++;
if (interestedInRetiringEarly) {
retirementAge--
}
age++;
}
Resource: Career Articles from ESIMoney
Monitoring Performance - Budgeting & Goals
Budgets are like specs for your money. It changes the game when you tell your money where to go, knowing you can achieve your goals, enjoy life, and donate to charity all while paying the bills.
Further as time goes on, monitoring your budget over time can help you see potential places to cut costs or save for that new monitor you want!
Budgets are like New Relic for your cash flow!
while (budgeting) {
// 100 equiv to 100%, as in the ability to do so is there!
allBillsPaid = 100;
payDebtOffEarly = 100;
saveForRetirement = 100;
saveForFutureGoals = 100;
enjoyLifeExperiences++;
totalStress--;
executiveLifePower++;
}
Resource: Duke of Dollars Budget Series
Save Up For Outages - Emergency Funds
As we all witnessed last week from NPM's disrespectful management of their employees, lay offs and unexpected loss of incomes do happen - sometimes abruptly.
It's in these moments that emergency funds come in handy, in actuality they keep your family fed, lights on, and stress low allowing you to focus on the important task of job searching. Especially in tech, the journey isn't easy to a new job with the stereotypical interview process.
Emergency funds are a savings account with easy access money that you can utilize when it's needed. It's best to strive for a base amount asap (1K), then contribute over time to reach your desired amount (3 months, 6 months, 1 year) of savings dependent in your situation.
while (enjoyingLife) {
if (hasNoEmergency) {
emergencyFund += monthlySavingsGoal;
} else {
// withdraw extra cash to help with emergency!
bankAccountBalance += emergencyFund
}
}
I believe we all stand with our fellow developers from NPM, wishing them the best!!
Resource: Duke of Dollars Emergency Fund
Paying Down Debt
Depending on the type of debt to your name, it may make sense to pay it down before investing in a 401(k) or IRA.
You may want to start with a smaller emergency fund (1K) and pay off debts from there. Making a decision on this can be as easy as asking yourself this question: is the debt you have higher than 6% interest rates?
If so, then I recommend paying it off, otherwise pay it off over time and focus on investing your extra coinz instead.
Why?
Investing has returned a higher than 6% return in the past, with the main function being time in the market for compounding to occur.
while (financiallyStable) {
if (debtApr > .06) {
totalDebt -= minPayment + extraPayments;
} else {
totalDebt -= minPayment;
retirementAccount++;
}
}
Retirement
Get Yo Free Money - 401(k) Matches
Before diving into how you can get free money over time and why you should do so, let's start with the basics of 401(k)s.
401(k) basics
401(k)s replaced pensions as employers decided to put retirement into their employees hands. They are our biggest weapons to yield overtime to save pre-tax (save more, pay less taxes) money over time. Company's will pay a company to manage their plans, allowing employees to pick funds that suit them best.
Eventually you do have to pay taxes upon withdrawal, but the key is you will most likely be in a lower tax bracket at that time.
while(age < retirementAge && haveMatchingContributions) {
if (userWantsFreeMulaaaaaa) {
retirementAccountBalance += (salary * contributionPercent) + companyMatch;
}
}
Resource: Duke of Dollars 401(k) Series
How you get free money
Let's say you make 100K per year for ease of numbers sake.
Your company says they will contribute 4% to the dollar if you contribute 8%.
What in the world does that actually mean for you?
It means if you contribute 8k of your 100k pre-tax money, your company will contribute 4k more for free. That is only a difference of 4k every year, but it makes a huge impact!
What does that look like in 30 years when achieving 7% returns?
- 8K Pre-tax Annual Contributions => $755,686
- 12K Pre-tax Annual Contributions => $1,133,529
A difference of $377,843 for your retirement thanks to taking advantage of matching programs!
Resource: Investment Calculator
Utilize Opportunities - IRAs
IRAs are like those 20% side projects that help your career or introduce improvements to your company. There is effort involved, potentially extra hours of work, but the rewards are worth it - even if it's just learning it working with someone new !
Individual Retirement Accounts are an additional tax-advantaged account in your toolbox. I recommend choosing Roth IRAs to balance out the pre-tax 401k.
Roth IRAs (funded through post-tax dough) are beneficial for two main reasons:
- Earnings / dividends / withdrawals are tax free.
- You can withdraw your contributions in the event of a true emergency tax free
These wonderful accounts add a second income source in retirement without the tax bill to boot.
while (age < retirementAge) {
if (userHasHandledAllOtherFinancialObligations &&
userWantsToRetireWithMoreMula &&
userWantsTaxAdvantages) {
// assuming we're tracking it all in one place :)
retirementAccountBalance += iraContribution;
}
}
Concluding Thoughts
What if the stock market doesn't have average returns in the future based on the past?
What if the economy as we know it changes?
Challenges to personal finance or saving for the future commonly used to the argument similar to: "you might not be here to enjoy the sacrifices in the future and stocks are risky" or "I want to enjoy life while I'm living"
I say here here!!
I'm not here to convince you to take risks or think of your future because I too am not a fortune teller. The stock market might not have strong returns in the future. Banks could collapse. The economy we know today could disappear as robots take over and we live like the people in Wall-e.
The best we can is making decisions based on the knowledge and data you currently have, and like all plans, they can be subject to change. Additionally, if you think to your future self, you're 65 and ready to retire, would the risk of having no money saved be worth saying yolo now?
My personal policy is balance. Live for experiences and enjoy life to the fullest while using your budget to save in accordance to your current situation.
You are the CEO, the executive, and the head honcho of your life. Run it wisely!
disclaimer: The information in this article is for general information purposes only, and are the opinions of myself, Kaleb McKelvey. The content in this article is for academic, educational, and social engagement purposes among members of the site. Nothing in this article is intended or should be construed as investment advice, financial advice, tax advice, or legal advice. You are solely responsible for your own financial decisions, agree that you will seek the advice of your own qualified professional advisors, agree that you, and you alone, are solely responsible for any financial consequences or losses as a result of your actions, and use of the article constitutes your agreement that you will not rely upon any information found within it, including the comments. All text, images, and resources are provided on an “as is” basis with no guarantee of accuracy and with no obligation to update or correct information.
Top comments (6)
This
...however means that if finaciallyStable and age < retirementAge no longer satisfies, you'll stop having money going to accounts, saved money, and you enjoying your lifeexperiences without stress will remain whatever it is.
That is true 😁 I'll update it when I return home. Thank you !
Overall, what you said here is true! Thank you for sharing :)
Thank you for reading! The code examples were meant to developerify it :) hope you enjoyed!
A fellow FI path follower! Yes! I was going to write something similar soon about how I was able to take a 6 month sabbatical after only 4 years of working and how others can make it happen too.
The resources mentioned like ESIMoney are great, as well as the Choose FI podcast. They have made a significant impact on my life and I always recommend them whenever anyone is open to learning more.
Thanks Kamran! 6 months doing what you want to sounds great, and I have a friend about to start his journey of one year!
Thanks for the podcast recommendation and look forward to the post !!