Troy Hunt: 10 personal financial lessons for information technology professionals
Preface to the Russian translation
Troy Hunt, an expert on cyber security, Microsoft Regional Director for 2016, founder of a resource like Have I Been Pwned ?, Pluralsight courses. His article “10 Personal Financial Lessons for IT Professionals” resonated with my views. Moreover, shortly before its writing, I started working in the IT field as a specialist in software testing, and the theses in the article formulate my own ideas and views with a high degree of accuracy. Therefore, I wanted to translate this article, firstly, for myself, and secondly, for people who also want to live without denying themselves what is important to them.
I want to make a reservation right away that parts of the article about the specifics of the tax system, securities, real estate handling (these are lessons 4 and 5) may have inaccuracies, since I am not an expert in these areas, even if we talk about Russian realities, not to mention about Australian. The translation, although not verbatim, is as close as possible to the test. Therefore, if there are comments, additions, criticism of the translation, I will only be glad to listen. Well, on the topic of the post, Troy Hunt is happy to listen to your thoughts. Enjoy reading.
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Further and lower translation of the original article of Troy.
December 31, 2018
This video is part of an open monologue of the Ozark series , and when I first heard it, I immediately stopped it and posted it on my blog. This post has matured for many years, I started sketching about 5 years ago. I threw little pieces into it year after year, but did not finish it, because it was just that the moment was not right. The post was finalized after considering the reaction to the following tweet:
This is a measure of my choice. My wife’s choice. A few decades of elections. The machine itself is just a small part of this measure, but I met so much enthusiasm on my tweet for those who also longed for one day to buy the same machine, which prompted me to finish the post. There was also a negative reaction from a small part of readers that I spent the money in such a way, which also prompted me to finish the post. There were also those who considered success or a manifestation of success in physical things as a kind of taboo. The latter will not get anything useful from this post, but it does not matter to them. This is important for those who want their choice to be more similar to what I described on a tweet.
Getting Started - 10 Personal Financial Lessons for IT Professionals.
Introduction: Technology Industry Steers!
I want to start with the fact that this post is mainly addressed to people working in the same field as me. I hope the article will have a lot of useful things for people from other fields of activity, but, to be honest, people from IT have a huge advantage in terms of opportunities to be financially successful. I mean not only super-rich people (4 of the 10 richest people in the world from the field of technology - Bezos, Gates, Zuckerberg and Allison), but also people of all levels of our profession. Of course, these guys are very cool examples of how to build awesome things from scratch, and I'm sure that many of those who read this will start to create something with the same enthusiasm as, say, Zuckerberg created Facebook in 2004. Of course, success at this level extremely rare, but my position is that in this industry, more than in any other, I think we can create amazing things from the smallest undertakings.
We have the following:
The highest salary according to SEEK for architects (IT architects, non-construction) is $ 138,000. The third most highly paid - IT management - 132 000 dollars. Of course, the real numbers can vary around the world and in reality even from report to report, in addition, there are many positions in IT that are paid much less than top positions (in particular, when we are just starting a career). The point is that the technology sector provides people with an almost unprecedented earning potential throughout their careers. This gives them the opportunity to do so much in life being at a young age than many other people, and having less formal education. Most of all I care about people in the field of technology skills than academic degrees, but if we talk about my doctor / lawyer / pilot, it is better if they have a formal qualification, which is worth many years of training.
This is the cornerstone of what I was going to write about in this post: IT professionals have much greater opportunities to earn money than in other areas, and do it at a young age. Having learned how to handle money sensibly as early as possible, you can get the opportunity to invest it in cooler things again. Take this into account because I will come back to this in lesson 2, but first, let me explain why this is so important.
Lesson 1: Money Buying Choice
Let me clarify the very first lesson: money is not about owning a Ferrari or living in a mansion. This is not about expensive jewelry and designer clothes. No, money is about choice. This is about the opportunity to have the choice to decide to spend money on what is important to you. This may be helping your relatives, donating to local charities, or getting away earlier to spend more time with your partner or children. And yes, if this is important to you, it can mean buying luxury goods, and that's cool, because it's your choice. Answering those who believe that this is imposed on you without your knowledge: this is the choice you received with money.
Let me share examples of what I mean from my personal experience and, I hope, they will be understandable to many of you and find a response in you. About 2 years ago, my wife (Kylie) underwent spinal surgery . You can read her post about this experiment, the meaning of which is not so much fun and for many months was accompanied by pain due to damage to the intervertebral disc. The choice that the money gave us was to focus on her treatment and recovery without worrying about the fact that she needed to work. We asked each other many times, “how can we deal with the situation if so far she has had a full-time job?”, And the unequivocal answer: the job must be left.
Kylie did not work when her back was sore, because we chose this option. She left a very successful corporate position at the end of 2014 and very soon after that, and I fell under the reduction in my work . We never made a definite decision that she should not return to work, but a series of events, including her disappointment in the corporate culture and our decision to move to another state, meant that she would never return to work (although she continued to consult on irregular basis). Money allowed us to choose. It was a choice that meant that one of us or we both will always be in the morning with the children, will always pick up their schools and will always be present at every tennis match, friends' birthday or other random events that happen to the children every day . Having the opportunity to choose, we allowed ourselves to spend more time together as a family. Literally, we bought time for our family, especially in recent years.
This refers me to the phrase “but it’s impossible to buy happiness for money,” which so many people repeat year after year. Doggy Shit. Anyone who has ever uttered this frusa simply does not know where to buy. Leaving aside intangible things, money buys what I described above, money spent on things in the physical world can bring great pleasure to people. I’m not one of those who pursue fashion (I wear jeans and a T-shirt on almost all the recordings with me ), but I can also understand that a good look can bring a lot of joy to people. Obviously, I am obsessed with cars, and one of them at the beginning of the post, and the Nissan GT-R, which I bought in 2013 , gave me endless pleasure. I smile every time I drive one of the cars, and the latter in particular leads to such an interaction with people that I enjoy extremely: children take pictures, adults want to talk and all the reviews are positive without exception. Now imagine the most remarkable thing in this situation when I buy a car is that I have no idea how to evaluate the impact of value on the level of happiness, the point is that tangible things that cost money can bring a lot of happiness, but only if you have the choice to possess them or not.
I am fully aware that for some people belonging to the rich leads to indignation that this status must be maintained. Similar answers came to me in remarks to my tweet about Mercedes in Australia that we belong to tall poppy syndrome (the term is used in English-speaking countries, I did not find an exact Russian analogue. According to Wikipedia: the term describes the cultural aspect when people with high status are attacked , indignation from others, criticism, because people with a high status have superiority over others with people of the same age, with the same education, etc. - Approx . (I'm still at a loss why someone takes the time to explain to me how disappointed they are with my happiness; some people just lose their minds in front of the keyboard). I also came across this when I first recorded the Hack Your Career conversation in Norway in the last year, when they were called Janteloven (the video starts from the moment I describe it):
The purpose of the first lesson was not to convince anyone of the correctness of my path, but despite your position, one thing you should understand for yourself that money allows you to choose what is important to you, whatever it is. This is a way of thinking that you need to carry through the entire article.
Lesson 2: Money earned in youth is the most valuable money that will ever be earned.
Let's start with the chart. You may have seen it before, or at least interpreted this kind of data:
This is the Vanguard 2018 Index Chart and you can fall inside it and see the details or just believe the data from the picture: investments are growing over time. I know this is revolutionary, isn't it? Now honestly, some investments are tanks, others - space rockets, but more important than the immediate benefits, these are global market forces that allow money to multiply over time. Take a look at the date 30 years ago and you will see that $ 10k invested in 1988 will be more profitable than almost $ 59k invested today at an interest rate of 6.1% per annum, or $ 85k in international stocks or $ 206k invested in US stocks (and these calculations take into account the period of the global financial crisis). It is also necessary to take into account the impact of the consumer price index (CPI), because of which $ 10k is now cheaper than 3 decades ago, but the average CPI growth is 2.8% per year, which is damn much less than a balanced investment portfolio.
The phrase, often spoken, illustrates the value of starting as early as possible and allowing time to increase investment:
In fact, all this and buying something at a low price will obviously allow you to earn more than buying at the peak of the price. But the point is that starting in youth multiplies the potential for earning, and if you apply it to IT, those of us who work in the industry are more likely than most to make good money in youth. Let me bring a personal context to this topic:
Nearly 9 years ago, I wrote an article on a real estate forum looking for feedback and inspiration . By that time, we had already bought a lot of property and this became the basis on which the much that we had already done allowed us to create a new one until now. It was a time when I mixed two worlds - my experience in real estate and my public blogging, such as many readers know it - but this is an important context. Read this article as it will take a long time to explain why I am writing this post and in general, why I now have financial resources.
Kylie and I started investing when I was young. We started to buy real estate in 2003 when we were in the middle of the third ten, and we saved every cent to invest in real estate. Of course, some purchases were better than others, but the constant idea that united all this was the understanding that a good investment made in youth would bring many times more in the long run. It also prompted us to adopt a strict savings plan; money in real estate is not “liquid”, because you cannot withdraw it instantly, like from a savings account, to spend as you wish, and loans require payment on time every month or the bank starts to get nervous. (Incidentally, this is also a strong point of owning your own home, as it is an effective compulsory savings plan). We maximized our potential for loans, took advantage of all available tax incentives and constantly pursued the goal of becoming owners so soon as to have savings on our next contribution. We took risks, but all of them were counted and took them only when we had two sources of income and there were no dependents. Everything became more complicated when we had children; more spending, less time and more often, less income if one of the partners decided to stay at home or work less.
It does not matter whether to “invest all your money in property” or to start investing small amounts of money in a portfolio of stocks or management funds as early as possible. The point is that time increases money (at least everyone should understand how compound interest works). This in itself is the best financial decision we have ever made and it happened before my life became what its people now know: there were no Pluralsight, no workshops, no public appearances or Have I Been Pwned or sponsorship blog - nothing. Today, the existing portfolio of property is a significant happiness for our well-being, because even if we do not make a lot of money on it, nevertheless, property multiplies again and again.
I want to touch on two more things, because, I know, they will arise if you do not mention them now. Firstly, if you have crossed the age that is considered “young,” the same logic that time multiplies money is also applicable. Obviously, you have less time and there are other considerations such as postponing for retirement (and related tax consequences), the point is that the sooner you start this path, the better. And secondly, no, all this was achieved by us without the support of parents. There were no deposits that would be given to us, there were no financial guarantees that would have been given without our participation, each cent was earned, saved and invested. But there was still one help that we received to move along this path - this is financial literacy.
Lesson 3: Invest in Financial Literacy
I regret many things in my education at school and university. I'm sorry to learn French in high school. I regret that I had chemistry, as part of an IT degree that I started, but never finished. But most of all, I regret that I never studied financial literature. I never knew the importance of the things that I wrote about on this blog, just as I didn’t know how the dividend and property market is structured, or even something as simple as the effect of compound interest on a credit card, which is now critical for many people here in Australia . In my opinion, these things are vital and, I hope, they will come at least partially to the education system from now on.
We met our parents' understanding when it was time to get advice on finances. The two most remarkable things that came to mind are my father’s constantly repeating lesson 1 mentioned above (money gives you the opportunity to choose) and Father Kylie’s help in understanding how the property market works (he worked in this industry). But it was a tiny bit of education compared to the much more extensive one we got from books and magazines, attending seminars, hanging out in forums and, to be honest, learning from our mistakes. We were losing money on stocks. We missed opportunities that could bring us great results. We had property deals that broke down. We did many wrong things, but also we did many right things.
Part of developing financial literacy is that the more you learn about money, the more conflicting advice you get. Last week I tweeted about working on a draft of this article and got a lot of answers from people who have their own ideas on the topic. One wrote to me about a lot that coincided with my vision, but he also said “buy only the property that you feel you can live in, this is both a house and an investment at the same time”. I never wanted to live in any of my properties bought as an investment. When you buy an investment — any — you should stick to the numbers; what will bring income, what are the growth prospects, tax breaks, etc. When you buy a house for living, you buy with your heart, because a house is in many ways an acquisition based on emotions. This does not mean that you cannot buy a house, which will also be a good investment, but you have different priorities, and a good house for living is almost always not the best investment for investing. I do not want to live in any of our properties, but they are located in regions of rapid growth with good access to public transport and a low level of competitive supply. However, this does not make me right, but it’s wrong, it’s just an illustration of the fact that there are many different views, and the real challenge for you is to understand the logic of this or that and the development of an option that matches your ideas. This knowledge is the investment you must make.
Financial literacy is a fundamental skill that we all need, but in reality few people invest in it. There are a lot of available resources that you can study for free and while there is frankly a lot of garbage in them (there are a lot of dishonest individuals trying to sell investment opportunities!), All this requires filtering a large stream of different ideas and information. I realize that for many people, developing financial literacy seems like something incredibly difficult, requiring a lot of time. And I agree with that. I find it difficult and I found that I spent a lot of time on it, but I believe that we techies have some advantage in this.
Those of us who work in information technology usually look for information online. What can I say, I still use Google every time I need to write text to a file in C #! We also usually support each other online to learn, we have been doing it on Stack Overflow for many years, and we can do this endlessly on investment forums, debt support communities or other resources created to receive knowledge, the same from which we techies addicted to. I posted 414 posts on property forums that I mentioned earlier, and this number is more than the number of my questions and answers on Stack Overflow combined.
If you are not sure where to start, there is one area of ​​financial literacy that is absolutely vital to understanding, these are taxes.
Lesson 4: Learn the Tax System
There is a famous movie with Kerry Packer (for many years he was the richest man in Australia), who was asked at a court meeting in 1991 about his approach to working with taxes. It is worth taking a look at it (just 2 minutes):
The key sentence is the latest in this video:
Despite the fact that you are thinking about the approach to the taxes of billionaires, it is difficult to argue with this statement (it is also difficult not to chuckle at this!). Taxes are a damn complicated thing that we all need to deal with one way or another. It also eats up a significant part of your income and this part only increases with the growth of your earnings.Understanding how your local tax system works is an important part of financial literacy, which I wrote about above.
For example, Australia has a fairly attractive negative gearing tax for real estate, the definition of which on Wikipedia gives a clear idea of ​​what this means:
This means for us the ability to buy property and ask for a tax deduction for cashless payments (since this money is not out of your pocket), thus reducing the tax burden and ultimately increasing the income left after tax. For example, buildings, furniture, and plumbing lose their value over time. Think about the curtains - they are removed and they need to be returned to their place, and the Australian tax system makes it possible to declare this a drop in value before you need to spend money on them. There may be other laws in your country, but the point is that tax schemes exist to help legally reduce payments. (Moving away from the topic: there have been calls for many years,to terminate the negative loans in Australia in this form, and indeed there were significant changes in the 80s ... but everything was back to square one).
Pension funds are another great example. In Australia, our “old-age pension” scheme (just like 401k in the USA) makes it very attractive for investing in excess of the required amount, which are taxed less. Only from a certain level does it begin to work, and even there are differences for different ages, but again there are schemes created by the Government to help everyone maximize the effectiveness of each dollar earned by minimizing tax payments on it.
Taxes are where professional help is really important. Even if you have a low income, the cost of the service is comparable to your weekly earnings, in my experience ROI (return on investment) from a professional is to get a good accountant as early as possible. In particular, even if you spend more, a very small percentage of the benefits that a tax expert will bring to you will easily cover your expenses ( you can also claim a tax deduction for them ). Over time, our accounting needs to be transformed from the basic, which we turn to once a year, to the more complex, which we review regularly. Your needs may also change decently as you move through the different phases of life, but hire someone you can trust as early as possible.
Tax optimization frees up money. Free money legally, there are many, many ways to do this. In the IT industry, this is everything from revenue-generating conference equipment to charitable contributions to organizations such as Let's Encrypt , which will reduce your tax bills (of course, consult an expert if you are not sure). Sometimes, it is as easy as simply transferring taxes at the latest possible time, so that you will have access to the money for a longer period of time and may bring bonuses on interest received from this money. Pay taxes, but don’t donate beyond what you need.
Lesson 5: Distinguish Good Debt from Bad Debt
The word "duty" for many people has a clearly negative connotation. Many of these people have many “bad” debts and little or no “good” debts. The last definition may sound paradoxical, but I will return to this. Let's deal with the bad.
Bad debt is, for example, what you have on your credit card. It almost always increases from the acquisition of things that are depreciating over time (for example, a new TV) and are often taken at a high interest rate. Currently, credit cards in Australia can easily be issued at 20% per annum, which means that not only the purchase will cost more than indicated on the price tag (suppose that credit card debt will not be paid in full in one month), but the value of the purchase also decreases, leaving you in a situation where you own a thing for which you paid more than it costs. From the fact that credit cards have such a high interest rate, a good investment that you can make right now is to fully repay the credit card debt, and as soon as possible.Remember the chart from Vanguard magazine - the most profitable stocks in it (US stocks) grew by 10.6% and the full repayment of credit card debt can allow you to earn twice as much. (Slightly departing from the general idea: the last sentence is not accurate enough, since investment income is usually taxed, while repayment of a consumer loan is often tax-free. Or, if you dig deeper, these US stocks are up 10.6% include capital gains, taxes on which it is quite possible to pay only in the event of a sale, in other words, both of these remarks make paying off credit card debt even more important than investing in other types of valuable things).(Slightly departing from the general idea: the last sentence is not accurate enough, since investment income is usually taxed, while repayment of a consumer loan is often tax-free. Or, if you dig deeper, these US stocks are up 10.6% include capital gains, taxes on which it is quite possible to pay only in the event of a sale, in other words, both of these remarks make paying off credit card debt even more important than investing in other types of valuable things).(Slightly departing from the general idea: the last sentence is not accurate enough, since investment income is usually taxed, while repayment of a consumer loan is often tax-free. Or, if you dig deeper, these US stocks are up 10.6% include capital gains, taxes on which it is quite possible to pay only in the event of a sale, in other words, both of these remarks make paying off credit card debt even more important than investing in other types of valuable things).taxes on which it is quite possible to be paid only in case of sale. In other words, both of these remarks make paying off credit card debt even more important than investing in other types of valuable things).taxes on which it is quite possible to be paid only in case of sale. In other words, both of these remarks make paying off credit card debt even more important than investing in other types of valuable things).
Short-term loans are another great example of how you can get quick, easy access to cash, but pay astronomically high interest for this opportunity. For example, turn to Nimble, the most famous Australian lender:
What does it look like in real money? Let's imagine that you need a few thousand for 12 weeks:
I highlighted the most important part in red, because for some reason this part is very inconspicuous and rather difficult to read ... In other words, for a loan for several months you pay an additional 32% in addition to what you actually borrowed. This means that no matter what you buy with this money, it costs 32% more, and yes, I know that many people have financial obligations and may not have other options, but the point is to understand the real impact of such a debt . Remember also that compound interest is also included in debt, not just in savings. The more time you have debt, the more you pay. (One note: I recently watched a really interesting Netflix documentary on short-term loans, which is part of the Dirty Money series -see Payda y episode .)
Good debt is an investment. All our property, for example, was taken on loans not only because we could not afford to pay in cash, but also because the debt was profitable. Instead of paying, say, $ 250k in cash at a time, you can pay, say, 10% of the deposit and pay maybe 5% per annum at the interest rate. After that, you will have cash from the acquisition (rent from the tenant of the property) and, as mentioned earlier, there can also be cashless deductions, which gives you tax advantages. You will also have expenses, mainly on loan payments, but also upkeep, consular fees, insurance, and possibly property management fees. I do not want to delve into this issue (we will return to the importance of financial literacy),but the point is that debt can be used to increase wealth at a fairly fast pace. (In addition, a similar approach can be applied to stocks and fund managers, this applies not only to real estate.) Education loans can also be a good debt. Kylie and I also had student loans fromHECS in Australia, which we had to pay as soon as we started making money. This is an investment in our future and return on investment is our education.
On the other hand, what is traditionally considered a “bad” loan can be good, and I will give an example. This post can be thrown to hell with me, if we talk about cars and how much I love them, let me clarify this: a fashionable car is one of the worst things you can spend money on! They are functionally identical to the models that can be bought for a fraction of their cost, they depreciate very quickly and part of the cost simply dissolves in the air as soon as you bought them (for example, put a registration stamp) But these are the basics, which I understand very well, so I made acquisitions in full awareness of their financial influence. The idea that bad debt is potentially good is that although the car is a price-losing acquisition, in the past we became owners of cars for which the manufacturer has set a much more attractive interest rate than the interest we could earn anywhere so paying cash for a car might not be the best way to spend money.
Time and time again, we return to financial literacy, and most of this is understanding not only how to efficiently use debt, but also how to manage the risks it creates. As techies, I guess we tend to think more analytically than the average person, and one of the best things you can do for your financial well-being is to tabulate everything. A debt situation, for example, can be multifaceted, so if you are thinking about taking a loan, summarize everything in Excel and analyze the details of your venture: the impact of cash flow, capital gains / losses, cost opportunities (what else could you do with a deposit or payments on a loan), etc., etc. I have had many cases in the past when I literally sat down and wrote down all my analytic calculations in C #,because I understood the code better than finance! But by doing this, I studied, and this is a great way to improve financial literacy. (Note: a service such asMint is also very cool for tracking your financial situation.)
Lesson 6: Diversify your earning potential and risks
This statement opens the heart of where the money comes from and how to protect it. In relation to our industry, we have a greater potential for earnings and accumulation - let me explain.
Traditionally, it is believed that earnings come down to trading time for money from one source (your employer). I also did for many years, and for me it meant going to Pfizer every day, doing my architectural pieces and getting paid every month. As we have already established above, a software architect can make good money, but such a traditional approach to work poses a risk, and I observed its manifestation in a series of reductions over the course of 14 years. I saw the stress of people going through this when their positions were shrinking and they were laid off, and there were 2 main reasons for stress:
We ourselves went through a similar stress; about 7 years ago, Kylie was cut. She was 6 months pregnant (seriously, who would have suggested such a thing for a pregnant woman who was about to go on maternity leave) and this was extremely unexpected and portended us a very uncertain future. Fortunately, we had my salary in order to provide for us, and we obviously planned according to the decree, but it still shocked us.
So, let's talk more about the concept of "diversification of earnings potential." And the first thing I want to pay attention to is your personal competitiveness. My very first blog post was “Why Developing Your Online Account Helps Career Development”and the cornerstone of this post was that you never know when you will be looking for another job. Making yourself competitive is not a thing that you can do well from time to time, it can take considerable effort and this is what you need to plan ahead. It is not necessary to think of it as a bridge to making money, but this can have a key impact on the ability to make money.
One of the suggestions received on my tweet last week was this:
[* The original uses the word pwn, which in the slang of video games is derived from English. "Own" (possess, have) - approx. per.]
This is a great example to illustrate my point: when I first went for an interview with Pfizer in 2001, I showed my project about pets. The project was a classic ASP and a database in Access (stop laughing) that managed the photos I took. The project was very simple, but it gave me the opportunity to demonstrate my abilities. I clearly remember how the project showed the boss of my boss, and he was impressed, despite its simplicity. It was a personal project, made in my free time, as part of my training, and played an important role in my getting a job for the next 14 years. This work has made a significant contribution to my investment portfolio!
A pet project, a contribution to open source projects, a strong Stack Overflow profile, support for local communities and many other things you can do in your free time all contribute to market competitiveness and ultimately diversify your earning potential . (By the way, talking about Hack your career , which I mentioned earlier, reveals the details of what was said.) This is one of the cool advantages in our industry that you can just expand your professional skills in your free time. I will give an example of an antithesis for this. Some of the people who were fired from Pfizer were in the position of the Signorers, which they held for a very long time (I will be a little vague in case they suddenly read it) and, to be honest, they had very little experience (or did not have at all?) outside of their work. They were professionals at their work, but they did not have the skills applicable within the industry as a whole, and when the time for cuts came, they were out of work. Forever and ever. It all ended up requiring them to retrain in another area, which was stressful enough for them.
We move on. Another cool thing about techies is the ability to diversify sources of income. Now I am aware that there are cases when the employer may prohibit doing such things (even in private time), but, as an example, I made many small independent websites with a permanent place of work. Nights, weekends, holidays were often busy with typesetting sites or other small work that brought income. Independent income that could be invested in our financial well-being. This money was invested in the property portfolio and continued to grow, so think about the possibility of new investments: the extra money earned is good in itself, but it can then be used for new loans (this becomes an investment) for which you can buy valuable property. These nights, weekends and holidays have undoubtedly become very valuable.
In 2012, I began to create what people know me for: Pluralsight courses. Again, this is something that could be done independently, without conflict with my work during the day. There are many, many similar small opportunities that contribute to both of the things called diversifying your experience and actually generating income. Today, one source of income accounts for no more than 20% of total income, which is extremely important when it comes to diversification. This means that if, for example, Pluralsight, go down the toilet, I will be very upset, but this will not be an event that changed my life .
This leads us to the issue of risk. Risk is reduced when you have more choices and again reduced when you have more sources of income. Returning to the investment strategy, as you know, you should not put all your eggs in one basket, as well as not to invest money in one unit of ownership. As they say, do not use all your savings to buy one magic bean. When we buy real estate, we buy at a level where diversification is not possible; I prefer to have 2 small apartments in different areas instead of 1 house, because it gives insurance from everything: from the vacation period of tenants to repairs after an emergency, such as a fire. And you definitely don’t want to risk money by investing in one value class; ownership, stocks, cash and all kinds of other investment instruments allow you to share risks. Enter in the Google search engine “life savings lost in investment schemes” [it is better to type in English life savings lost in investment scheme - Approx. trans.] . The point is how people lose money when I invest all my savings in one investment tool] and you will understand why this is so important.
Invest in diversifying your earning potential and your values ​​to reduce risks.
Lesson 7: Get Ready for Good Luck
When a few years ago I started making rough notes for this post, one of the things that I was thinking about was this book :
Outliers: The Story of Success in the Russian translation is called Geniuses and outsiders: Why is one everything and nothing else? - Note per.
Malcolm Gladwell is a sensational writer and his previous books, The Tipping Point [In Russian translation: “Tipping Point. How minor changes lead to global change ”- Note. trans.] and especially Blink [In the Russian translation: “Illumination. The Power of Instant Solutions ”- Approx. per. ] are simply required to read. But what I especially love about Genius and the insiders is how the author systematically debunks the factors that contributed to the success of extremely notable personalities such as Bill Gates, The Beatles and even outstanding athletes. Ultimately, let me cite an excerpt from Wikipedia illustrating one of the success factors that Gladwell highlights:
There are two things related to success factors, and one of them is that elite hockey players are exceptionally talented. Despite the other opportunities available to them, it is simply impossible to play at their level without being in the top of the very best. The second thing is the understanding that older children have natural superiority because of these few extra months of age. Some might say an unfair advantage, but all the benefits are the same. But not everyone succeeds in using this advantage: there are many children born in January who cannot compete with younger players, because they simply do not have natural talent or family support, or the desire to train, or anything else. To be successful at this level requires both luck and talent.
Bill Gates, whom I mentioned with pleasure, is perfect as an example for this tech-oriented article. Yes, obviously he was the most ordinary guy, but he had (very random) access to computers at his mother's work, which strengthened his talent and allowed him to create Microsoft. This is the thought that I learned from this lesson: we all come across random opportunities - you can call it “luck” if you want — and you need to be prepared to take advantage of the opportunities. Such situations can be something like, ranging from an unexpected job opportunity to a chance to invest. Both of these situations often require preparation in order to take advantage. For example, do you have a representative resume or portfolio for this job? Do you have an up-to-date tax return or financial investment opportunity? Are you able to apply your skills and use your existing property (which we all have) to take advantage of the opportunities that have arisen. I did not always succeed in this and I regret that I was not ready.
I hate it when people’s success is referred to as “luck” or “chance” without any further context. Not because they use the wrong words, but because they assume that people achieved success by chance. Such thoughts also do not inspire others who do not believe in their luck, so I love the following quote:
There is a lot of controversy about the authorship of the quote , but that doesn’t matter, since the statements sound plausible even without it. I hope that people will learn from this that hard work and preparation reinforce the success that we encounter from time to time.
I want to say one more thing about “luck”, because anyway, there will be questions about this in the comments. Just as older hockey players took advantage of the month in which they were born, so did I get benefits from the factors of my birth. My gender. My ethnicity. The country in which I was born. Even the countries where I lived: I spent the last few years of high school in Singapore, which was an absolute technical giant compared to most of the rest of the world in the mid-90s, just at the time when I was there. Getting to know a guy who worked for a satellite system design company at a local windsurfing club in 1992 gave me the opportunity to get my first part-time job at a technology company. These are factors that I did not have control over, but I strengthened this luck by working, rolling up my sleeves when I had the opportunity. Whatever the circumstances, understanding that opportunities occasionally arise on their own and that preparing for their use is necessary is an important lesson.
Lesson 8: Evaluate Your Time - And Your Family's Time
I stopped playing video games something about 10 years ago. At this time, Half Life 2 was my favorite game, and I could calmly kill for several hours by shooting everything that moves. So far this has not acquired a level of dependence, but still took enough time, which in the end it became clear to me that this is not the best way to use my time. I also want to clarify: investments do not always relate to money, there can be investments in one’s health or mental state, or in one’s family, and currently I spend time playing tennis every week instead of playing HL2. But return on investment is much better for my mental state and my health than it was when I played HL2.
Returning to the assessment of my time, I fully realized that I better focus on our investments and my personal development than on games. Over time, I became more and more aware of how valuable my time was. Sometimes this is a clear monetization. I take money from companies for conducting security working groups, which is a direct exchange of time for money. Sometimes this is something less tangible, but I felt that promoting these things is what I want. This blog is a great example of the fact that in terms of money, it does not directly bring me a single dollar, but I feel that I am doing the right thing, because the blog helps to improve the lives of others. Understanding the value of time (in particular, how it changed over the years) also helped me decide where to spend money to return the time spent: a cleaning lady home several times a week, a car washer, business class flights.
Then evaluate the time for your family. People hate it when I put it this way - “which means that I should evaluate the time for my family, my family is priceless!” - and they continue to adhere to this position, as if they stopped going to the office every day. The reality is that we all trade our time with our family to share time with her on activities that can support her. But most people do not like to think in such terms. This does not sound like it to them, but it can be said in another way: “Imagine how much family time you can donate for your well-being and how long you can wait for the investment to return.” If you do not have a family, evaluate the time in terms of personal activities that you can trade. I traded games, others can trade social activities or holidays, or sacrifice something else, which will lead to the path to their own well-being.
When I talk about assessing time for my family, I mean that you should develop a position when it is more important to spend time with your family, and when it is better to invest time in order to focus on other things. Many people do not want to devote more than 40 hours a week to earning a living, and this is fine as long as the existing lifestyle corresponds to what they want, and as a result they do not feel incomplete. It amazes me when I see people who are dreaming about a certain financial situation and life goals, but still not able to make sacrifices in order to achieve what they want (more about this in the next lesson).
My balance changes over time. In the early years of my career, when I was most often on hourly contracts, my working day could be 11 hours, because (what a surprise!) Paid more than an 8-hour working day (and remember that this allowed me to invest in property, which has grown in value over the years). It was a good option when there were no children, and Kylie studied and built her own career, spending as many hours, we both worked tirelessly, and we put up with it. It is always harder when children appear, in particular because it inevitably leads to a greater work load for the spouse if he is forced to perform additional actions for his career. Now I have discovered that because we made sacrifices before the advent of the children, we enjoy the benefits while the children are still small.
If there is nothing else, at least consciously make a choice where to spend time, and the best way to do this is to set a goal.
Lesson 9: Set a Goal
This thesis is best explained by the speech of Arnold Schwarzenegger. Take 12 minutes to listen:
Do not waste a minute. Get started. You have 24 hours a day, 6 of them you sleep, maybe 12 hours takes work and road, so you have 6 hours. You eat or talk a little, but you will see how much time is left.
The goal allows you to be focused. The goal drives you to invest time in working on something. The goal allows you to love the pain required to achieve the goal. Schwarzenegger talks about physical pain in achieving his goals, but the same can be said about gaining knowledge when you spend time on what is consistent with the theses of this article. Honestly, he chose a very extreme approach to achieving his goal, because the goal was also extreme. I am not saying that everyone needs to go and spend every free minute to think about how to increase their condition. I want to say that you need to know why you are doing this, what you are working on. Depending on how high the goals are, efforts can indeed be significant over a long period of time.
In our industry, we constantly work with goals, we all use tools to help us achieve them. We have a backlog [list] of tasks that need to be completed and tasks can be such as arranging insurance, determining a retirement strategy (yes, even if you are young), or setting goals for training. We carry out units of work in sprints [1-4 week periods of time to complete the tasks selected at the beginning of the sprint - Approx. per.] , and when your goal is long-term, you need to break its achievement into many separate sprints. Kylie and I constantly did retrospectives [review, analysis - Approx. transl.] : what works, what doesn't work, what should we do differently. And if you draw an analogy with agile (Agile software development methodology, which uses the concepts of sprint, backlog, retrospective - approx. Per.), Nothing requires such a flexible plan as finance, because there are so many changing environmental factors: your work , family composition, interest rate and some other things that require course adjustment. We techies understand that. This is what we do day after day, and you can implement this approach for your personal financial well-being.
Inevitably, each of us has several goals, and they also change over time; for many years, while I lived in Sydney and worked at Pfizer, my goal was to achieve independence and return to the Gold Coast [a city on the coast of Australia - Note. per.] , where my family was. In 2015, we did this:
After that, I had new goals. Of course, I had others too, and they were not so long-playing and life-changing. For example, I had a goal to purchase specific cars, and some of them I acquired only after many years. Some of the goals are still in the process of achievement, but they are still in my field of vision, they move me and set the direction.
Goals can be very personal. Perhaps your goal is to retire young. Perhaps the goal is to support your replenishing family. The goal could also be to give as much as possible to charity (Gates is a great example of this). All these goals are good, the main thing is to have them, because without them ... you hang out.
Lesson 10: Financial Well-being in Partnerships
I want to end with this thesis, because this is the most important point to make all previous theses work. If you are in a relationship with someone (a wife, a young man, anyone), perhaps the most valuable advice I can give is to strive with your partner for financial well-being, to have a common vision. If you have no coherence, if you have fundamentally different goals, you will not be able to set the goals for the focus they deserve.
I remember friends who suffered from this. For example, one of the partners could not accept how much the other spent on its own weaknesses. Or they were angry that the family was sacrificing on what the other was doing. Or one is satisfied with life at a living wage, while a partner dreams of millions. Lack of coherence not only makes it difficult to achieve financial goals. This can lead to a split in the relationship. I am sure that we all saw such errors due to the fact that couples could not agree on fundamental things.
I will give a few examples of what I mean, and the first example that came to my mind (for some strange reason) is when Kylie and I planned a family. As with many couples, it is time to discuss this. We began to seriously discuss family formation around 2008. When we started planning, we literally went to a quiet place in a local restaurant with a laptop and drew tables, which for us would mean having a baby. We did this together and planned everything: loss of income due to decree, state privileges for parents, tax consequences for both, and even medical expenses and child support. I am sure that we did not provide for everything (in particular the latter), but the point is that we made a financial decision together (the child is a big obligation), taking into account as many facts as we know.
Partnership manifests itself in everything from investments being made to my travels and our insurance (Important: things such as income loss insurance and life insurance are separate topics of financial literacy). This not only ensures consistency, it also allows for cleaning. When you are in a relationship, you are sure to find aspects that relate to overall financial well-being, which one of you does better than the other. For example, I see the big picture and is focused on numbers, Kylie is focused on the details and, frankly, much more patient than me! Explaining things to each other allows you to move along the same road.
But perhaps most important of all, that relationship means partnership. The journey that you take together. Hopefully a very long trip that requires planning, and there are a few more fundamental things in a relationship than your vision for money.
Summary
If you work in IT, you work in one of the best-paid industries with great growth potential and career prospects. Your financial potential is almost certainly higher than the majority around you. You already win simply because you are here, and I hope that if the first tweet in this post was to motivate you, then the whole post helped inspire you.
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Troy Hunt, an expert on cyber security, Microsoft Regional Director for 2016, founder of a resource like Have I Been Pwned ?, Pluralsight courses. His article “10 Personal Financial Lessons for IT Professionals” resonated with my views. Moreover, shortly before its writing, I started working in the IT field as a specialist in software testing, and the theses in the article formulate my own ideas and views with a high degree of accuracy. Therefore, I wanted to translate this article, firstly, for myself, and secondly, for people who also want to live without denying themselves what is important to them.
I want to make a reservation right away that parts of the article about the specifics of the tax system, securities, real estate handling (these are lessons 4 and 5) may have inaccuracies, since I am not an expert in these areas, even if we talk about Russian realities, not to mention about Australian. The translation, although not verbatim, is as close as possible to the test. Therefore, if there are comments, additions, criticism of the translation, I will only be glad to listen. Well, on the topic of the post, Troy Hunt is happy to listen to your thoughts. Enjoy reading.
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Further and lower translation of the original article of Troy.
December 31, 2018
Patience.
Thrift.
Donation
If the husk is weeded out, what do these three words have in common? General is a choice.
Money is not a way of thinking.
Money is not happiness.
Money, in its essence, is a measure of a person’s choice.
This video is part of an open monologue of the Ozark series , and when I first heard it, I immediately stopped it and posted it on my blog. This post has matured for many years, I started sketching about 5 years ago. I threw little pieces into it year after year, but did not finish it, because it was just that the moment was not right. The post was finalized after considering the reaction to the following tweet:
“New family car! I am so delighted with her! ”
This is a measure of my choice. My wife’s choice. A few decades of elections. The machine itself is just a small part of this measure, but I met so much enthusiasm on my tweet for those who also longed for one day to buy the same machine, which prompted me to finish the post. There was also a negative reaction from a small part of readers that I spent the money in such a way, which also prompted me to finish the post. There were also those who considered success or a manifestation of success in physical things as a kind of taboo. The latter will not get anything useful from this post, but it does not matter to them. This is important for those who want their choice to be more similar to what I described on a tweet.
Getting Started - 10 Personal Financial Lessons for IT Professionals.
Introduction: Technology Industry Steers!
I want to start with the fact that this post is mainly addressed to people working in the same field as me. I hope the article will have a lot of useful things for people from other fields of activity, but, to be honest, people from IT have a huge advantage in terms of opportunities to be financially successful. I mean not only super-rich people (4 of the 10 richest people in the world from the field of technology - Bezos, Gates, Zuckerberg and Allison), but also people of all levels of our profession. Of course, these guys are very cool examples of how to build awesome things from scratch, and I'm sure that many of those who read this will start to create something with the same enthusiasm as, say, Zuckerberg created Facebook in 2004. Of course, success at this level extremely rare, but my position is that in this industry, more than in any other, I think we can create amazing things from the smallest undertakings.
We have the following:
“Today, Information Technology, the Internet and telecom dominates: out of the 20 highest paid positions, 6 are within the industry.”
The highest salary according to SEEK for architects (IT architects, non-construction) is $ 138,000. The third most highly paid - IT management - 132 000 dollars. Of course, the real numbers can vary around the world and in reality even from report to report, in addition, there are many positions in IT that are paid much less than top positions (in particular, when we are just starting a career). The point is that the technology sector provides people with an almost unprecedented earning potential throughout their careers. This gives them the opportunity to do so much in life being at a young age than many other people, and having less formal education. Most of all I care about people in the field of technology skills than academic degrees, but if we talk about my doctor / lawyer / pilot, it is better if they have a formal qualification, which is worth many years of training.
This is the cornerstone of what I was going to write about in this post: IT professionals have much greater opportunities to earn money than in other areas, and do it at a young age. Having learned how to handle money sensibly as early as possible, you can get the opportunity to invest it in cooler things again. Take this into account because I will come back to this in lesson 2, but first, let me explain why this is so important.
Lesson 1: Money Buying Choice
Let me clarify the very first lesson: money is not about owning a Ferrari or living in a mansion. This is not about expensive jewelry and designer clothes. No, money is about choice. This is about the opportunity to have the choice to decide to spend money on what is important to you. This may be helping your relatives, donating to local charities, or getting away earlier to spend more time with your partner or children. And yes, if this is important to you, it can mean buying luxury goods, and that's cool, because it's your choice. Answering those who believe that this is imposed on you without your knowledge: this is the choice you received with money.
Let me share examples of what I mean from my personal experience and, I hope, they will be understandable to many of you and find a response in you. About 2 years ago, my wife (Kylie) underwent spinal surgery . You can read her post about this experiment, the meaning of which is not so much fun and for many months was accompanied by pain due to damage to the intervertebral disc. The choice that the money gave us was to focus on her treatment and recovery without worrying about the fact that she needed to work. We asked each other many times, “how can we deal with the situation if so far she has had a full-time job?”, And the unequivocal answer: the job must be left.
Kylie did not work when her back was sore, because we chose this option. She left a very successful corporate position at the end of 2014 and very soon after that, and I fell under the reduction in my work . We never made a definite decision that she should not return to work, but a series of events, including her disappointment in the corporate culture and our decision to move to another state, meant that she would never return to work (although she continued to consult on irregular basis). Money allowed us to choose. It was a choice that meant that one of us or we both will always be in the morning with the children, will always pick up their schools and will always be present at every tennis match, friends' birthday or other random events that happen to the children every day . Having the opportunity to choose, we allowed ourselves to spend more time together as a family. Literally, we bought time for our family, especially in recent years.
This refers me to the phrase “but it’s impossible to buy happiness for money,” which so many people repeat year after year. Doggy Shit. Anyone who has ever uttered this frusa simply does not know where to buy. Leaving aside intangible things, money buys what I described above, money spent on things in the physical world can bring great pleasure to people. I’m not one of those who pursue fashion (I wear jeans and a T-shirt on almost all the recordings with me ), but I can also understand that a good look can bring a lot of joy to people. Obviously, I am obsessed with cars, and one of them at the beginning of the post, and the Nissan GT-R, which I bought in 2013 , gave me endless pleasure. I smile every time I drive one of the cars, and the latter in particular leads to such an interaction with people that I enjoy extremely: children take pictures, adults want to talk and all the reviews are positive without exception. Now imagine the most remarkable thing in this situation when I buy a car is that I have no idea how to evaluate the impact of value on the level of happiness, the point is that tangible things that cost money can bring a lot of happiness, but only if you have the choice to possess them or not.
I am fully aware that for some people belonging to the rich leads to indignation that this status must be maintained. Similar answers came to me in remarks to my tweet about Mercedes in Australia that we belong to tall poppy syndrome (the term is used in English-speaking countries, I did not find an exact Russian analogue. According to Wikipedia: the term describes the cultural aspect when people with high status are attacked , indignation from others, criticism, because people with a high status have superiority over others with people of the same age, with the same education, etc. - Approx . (I'm still at a loss why someone takes the time to explain to me how disappointed they are with my happiness; some people just lose their minds in front of the keyboard). I also came across this when I first recorded the Hack Your Career conversation in Norway in the last year, when they were called Janteloven (the video starts from the moment I describe it):
The purpose of the first lesson was not to convince anyone of the correctness of my path, but despite your position, one thing you should understand for yourself that money allows you to choose what is important to you, whatever it is. This is a way of thinking that you need to carry through the entire article.
Lesson 2: Money earned in youth is the most valuable money that will ever be earned.
Let's start with the chart. You may have seen it before, or at least interpreted this kind of data:
This is the Vanguard 2018 Index Chart and you can fall inside it and see the details or just believe the data from the picture: investments are growing over time. I know this is revolutionary, isn't it? Now honestly, some investments are tanks, others - space rockets, but more important than the immediate benefits, these are global market forces that allow money to multiply over time. Take a look at the date 30 years ago and you will see that $ 10k invested in 1988 will be more profitable than almost $ 59k invested today at an interest rate of 6.1% per annum, or $ 85k in international stocks or $ 206k invested in US stocks (and these calculations take into account the period of the global financial crisis). It is also necessary to take into account the impact of the consumer price index (CPI), because of which $ 10k is now cheaper than 3 decades ago, but the average CPI growth is 2.8% per year, which is damn much less than a balanced investment portfolio.
The phrase, often spoken, illustrates the value of starting as early as possible and allowing time to increase investment:
“This is not market time, this is market time.”
In fact, all this and buying something at a low price will obviously allow you to earn more than buying at the peak of the price. But the point is that starting in youth multiplies the potential for earning, and if you apply it to IT, those of us who work in the industry are more likely than most to make good money in youth. Let me bring a personal context to this topic:
Nearly 9 years ago, I wrote an article on a real estate forum looking for feedback and inspiration . By that time, we had already bought a lot of property and this became the basis on which the much that we had already done allowed us to create a new one until now. It was a time when I mixed two worlds - my experience in real estate and my public blogging, such as many readers know it - but this is an important context. Read this article as it will take a long time to explain why I am writing this post and in general, why I now have financial resources.
Kylie and I started investing when I was young. We started to buy real estate in 2003 when we were in the middle of the third ten, and we saved every cent to invest in real estate. Of course, some purchases were better than others, but the constant idea that united all this was the understanding that a good investment made in youth would bring many times more in the long run. It also prompted us to adopt a strict savings plan; money in real estate is not “liquid”, because you cannot withdraw it instantly, like from a savings account, to spend as you wish, and loans require payment on time every month or the bank starts to get nervous. (Incidentally, this is also a strong point of owning your own home, as it is an effective compulsory savings plan). We maximized our potential for loans, took advantage of all available tax incentives and constantly pursued the goal of becoming owners so soon as to have savings on our next contribution. We took risks, but all of them were counted and took them only when we had two sources of income and there were no dependents. Everything became more complicated when we had children; more spending, less time and more often, less income if one of the partners decided to stay at home or work less.
It does not matter whether to “invest all your money in property” or to start investing small amounts of money in a portfolio of stocks or management funds as early as possible. The point is that time increases money (at least everyone should understand how compound interest works). This in itself is the best financial decision we have ever made and it happened before my life became what its people now know: there were no Pluralsight, no workshops, no public appearances or Have I Been Pwned or sponsorship blog - nothing. Today, the existing portfolio of property is a significant happiness for our well-being, because even if we do not make a lot of money on it, nevertheless, property multiplies again and again.
I want to touch on two more things, because, I know, they will arise if you do not mention them now. Firstly, if you have crossed the age that is considered “young,” the same logic that time multiplies money is also applicable. Obviously, you have less time and there are other considerations such as postponing for retirement (and related tax consequences), the point is that the sooner you start this path, the better. And secondly, no, all this was achieved by us without the support of parents. There were no deposits that would be given to us, there were no financial guarantees that would have been given without our participation, each cent was earned, saved and invested. But there was still one help that we received to move along this path - this is financial literacy.
Lesson 3: Invest in Financial Literacy
I regret many things in my education at school and university. I'm sorry to learn French in high school. I regret that I had chemistry, as part of an IT degree that I started, but never finished. But most of all, I regret that I never studied financial literature. I never knew the importance of the things that I wrote about on this blog, just as I didn’t know how the dividend and property market is structured, or even something as simple as the effect of compound interest on a credit card, which is now critical for many people here in Australia . In my opinion, these things are vital and, I hope, they will come at least partially to the education system from now on.
We met our parents' understanding when it was time to get advice on finances. The two most remarkable things that came to mind are my father’s constantly repeating lesson 1 mentioned above (money gives you the opportunity to choose) and Father Kylie’s help in understanding how the property market works (he worked in this industry). But it was a tiny bit of education compared to the much more extensive one we got from books and magazines, attending seminars, hanging out in forums and, to be honest, learning from our mistakes. We were losing money on stocks. We missed opportunities that could bring us great results. We had property deals that broke down. We did many wrong things, but also we did many right things.
Part of developing financial literacy is that the more you learn about money, the more conflicting advice you get. Last week I tweeted about working on a draft of this article and got a lot of answers from people who have their own ideas on the topic. One wrote to me about a lot that coincided with my vision, but he also said “buy only the property that you feel you can live in, this is both a house and an investment at the same time”. I never wanted to live in any of my properties bought as an investment. When you buy an investment — any — you should stick to the numbers; what will bring income, what are the growth prospects, tax breaks, etc. When you buy a house for living, you buy with your heart, because a house is in many ways an acquisition based on emotions. This does not mean that you cannot buy a house, which will also be a good investment, but you have different priorities, and a good house for living is almost always not the best investment for investing. I do not want to live in any of our properties, but they are located in regions of rapid growth with good access to public transport and a low level of competitive supply. However, this does not make me right, but it’s wrong, it’s just an illustration of the fact that there are many different views, and the real challenge for you is to understand the logic of this or that and the development of an option that matches your ideas. This knowledge is the investment you must make.
Financial literacy is a fundamental skill that we all need, but in reality few people invest in it. There are a lot of available resources that you can study for free and while there is frankly a lot of garbage in them (there are a lot of dishonest individuals trying to sell investment opportunities!), All this requires filtering a large stream of different ideas and information. I realize that for many people, developing financial literacy seems like something incredibly difficult, requiring a lot of time. And I agree with that. I find it difficult and I found that I spent a lot of time on it, but I believe that we techies have some advantage in this.
Those of us who work in information technology usually look for information online. What can I say, I still use Google every time I need to write text to a file in C #! We also usually support each other online to learn, we have been doing it on Stack Overflow for many years, and we can do this endlessly on investment forums, debt support communities or other resources created to receive knowledge, the same from which we techies addicted to. I posted 414 posts on property forums that I mentioned earlier, and this number is more than the number of my questions and answers on Stack Overflow combined.
If you are not sure where to start, there is one area of ​​financial literacy that is absolutely vital to understanding, these are taxes.
Lesson 4: Learn the Tax System
There is a famous movie with Kerry Packer (for many years he was the richest man in Australia), who was asked at a court meeting in 1991 about his approach to working with taxes. It is worth taking a look at it (just 2 minutes):
The key sentence is the latest in this video:
“Now, of course, I will minimize my taxes and if anyone in this country does not do this, it’s only because I want to be heard, because you, as the Government, I assure you, do not spend them wisely so that we pay you also taxes in excess of the minimum. "
Despite the fact that you are thinking about the approach to the taxes of billionaires, it is difficult to argue with this statement (it is also difficult not to chuckle at this!). Taxes are a damn complicated thing that we all need to deal with one way or another. It also eats up a significant part of your income and this part only increases with the growth of your earnings.Understanding how your local tax system works is an important part of financial literacy, which I wrote about above.
For example, Australia has a fairly attractive negative gearing tax for real estate, the definition of which on Wikipedia gives a clear idea of ​​what this means:
A negative loan is a form of financial loan through which an investor takes money to get a profitable investment and the total generated income from the investment (at least in a short period of time) will be less than the cost of owning and managing the investment, including a drop in the cost and interest payments on loan (but excluding loan repayment).
This means for us the ability to buy property and ask for a tax deduction for cashless payments (since this money is not out of your pocket), thus reducing the tax burden and ultimately increasing the income left after tax. For example, buildings, furniture, and plumbing lose their value over time. Think about the curtains - they are removed and they need to be returned to their place, and the Australian tax system makes it possible to declare this a drop in value before you need to spend money on them. There may be other laws in your country, but the point is that tax schemes exist to help legally reduce payments. (Moving away from the topic: there have been calls for many years,to terminate the negative loans in Australia in this form, and indeed there were significant changes in the 80s ... but everything was back to square one).
Pension funds are another great example. In Australia, our “old-age pension” scheme (just like 401k in the USA) makes it very attractive for investing in excess of the required amount, which are taxed less. Only from a certain level does it begin to work, and even there are differences for different ages, but again there are schemes created by the Government to help everyone maximize the effectiveness of each dollar earned by minimizing tax payments on it.
Taxes are where professional help is really important. Even if you have a low income, the cost of the service is comparable to your weekly earnings, in my experience ROI (return on investment) from a professional is to get a good accountant as early as possible. In particular, even if you spend more, a very small percentage of the benefits that a tax expert will bring to you will easily cover your expenses ( you can also claim a tax deduction for them ). Over time, our accounting needs to be transformed from the basic, which we turn to once a year, to the more complex, which we review regularly. Your needs may also change decently as you move through the different phases of life, but hire someone you can trust as early as possible.
Tax optimization frees up money. Free money legally, there are many, many ways to do this. In the IT industry, this is everything from revenue-generating conference equipment to charitable contributions to organizations such as Let's Encrypt , which will reduce your tax bills (of course, consult an expert if you are not sure). Sometimes, it is as easy as simply transferring taxes at the latest possible time, so that you will have access to the money for a longer period of time and may bring bonuses on interest received from this money. Pay taxes, but don’t donate beyond what you need.
Lesson 5: Distinguish Good Debt from Bad Debt
The word "duty" for many people has a clearly negative connotation. Many of these people have many “bad” debts and little or no “good” debts. The last definition may sound paradoxical, but I will return to this. Let's deal with the bad.
Bad debt is, for example, what you have on your credit card. It almost always increases from the acquisition of things that are depreciating over time (for example, a new TV) and are often taken at a high interest rate. Currently, credit cards in Australia can easily be issued at 20% per annum, which means that not only the purchase will cost more than indicated on the price tag (suppose that credit card debt will not be paid in full in one month), but the value of the purchase also decreases, leaving you in a situation where you own a thing for which you paid more than it costs. From the fact that credit cards have such a high interest rate, a good investment that you can make right now is to fully repay the credit card debt, and as soon as possible.Remember the chart from Vanguard magazine - the most profitable stocks in it (US stocks) grew by 10.6% and the full repayment of credit card debt can allow you to earn twice as much. (Slightly departing from the general idea: the last sentence is not accurate enough, since investment income is usually taxed, while repayment of a consumer loan is often tax-free. Or, if you dig deeper, these US stocks are up 10.6% include capital gains, taxes on which it is quite possible to pay only in the event of a sale, in other words, both of these remarks make paying off credit card debt even more important than investing in other types of valuable things).(Slightly departing from the general idea: the last sentence is not accurate enough, since investment income is usually taxed, while repayment of a consumer loan is often tax-free. Or, if you dig deeper, these US stocks are up 10.6% include capital gains, taxes on which it is quite possible to pay only in the event of a sale, in other words, both of these remarks make paying off credit card debt even more important than investing in other types of valuable things).(Slightly departing from the general idea: the last sentence is not accurate enough, since investment income is usually taxed, while repayment of a consumer loan is often tax-free. Or, if you dig deeper, these US stocks are up 10.6% include capital gains, taxes on which it is quite possible to pay only in the event of a sale, in other words, both of these remarks make paying off credit card debt even more important than investing in other types of valuable things).taxes on which it is quite possible to be paid only in case of sale. In other words, both of these remarks make paying off credit card debt even more important than investing in other types of valuable things).taxes on which it is quite possible to be paid only in case of sale. In other words, both of these remarks make paying off credit card debt even more important than investing in other types of valuable things).
Short-term loans are another great example of how you can get quick, easy access to cash, but pay astronomically high interest for this opportunity. For example, turn to Nimble, the most famous Australian lender:
What does it look like in real money? Let's imagine that you need a few thousand for 12 weeks:
I highlighted the most important part in red, because for some reason this part is very inconspicuous and rather difficult to read ... In other words, for a loan for several months you pay an additional 32% in addition to what you actually borrowed. This means that no matter what you buy with this money, it costs 32% more, and yes, I know that many people have financial obligations and may not have other options, but the point is to understand the real impact of such a debt . Remember also that compound interest is also included in debt, not just in savings. The more time you have debt, the more you pay. (One note: I recently watched a really interesting Netflix documentary on short-term loans, which is part of the Dirty Money series -see Payda y episode .)
Good debt is an investment. All our property, for example, was taken on loans not only because we could not afford to pay in cash, but also because the debt was profitable. Instead of paying, say, $ 250k in cash at a time, you can pay, say, 10% of the deposit and pay maybe 5% per annum at the interest rate. After that, you will have cash from the acquisition (rent from the tenant of the property) and, as mentioned earlier, there can also be cashless deductions, which gives you tax advantages. You will also have expenses, mainly on loan payments, but also upkeep, consular fees, insurance, and possibly property management fees. I do not want to delve into this issue (we will return to the importance of financial literacy),but the point is that debt can be used to increase wealth at a fairly fast pace. (In addition, a similar approach can be applied to stocks and fund managers, this applies not only to real estate.) Education loans can also be a good debt. Kylie and I also had student loans fromHECS in Australia, which we had to pay as soon as we started making money. This is an investment in our future and return on investment is our education.
On the other hand, what is traditionally considered a “bad” loan can be good, and I will give an example. This post can be thrown to hell with me, if we talk about cars and how much I love them, let me clarify this: a fashionable car is one of the worst things you can spend money on! They are functionally identical to the models that can be bought for a fraction of their cost, they depreciate very quickly and part of the cost simply dissolves in the air as soon as you bought them (for example, put a registration stamp) But these are the basics, which I understand very well, so I made acquisitions in full awareness of their financial influence. The idea that bad debt is potentially good is that although the car is a price-losing acquisition, in the past we became owners of cars for which the manufacturer has set a much more attractive interest rate than the interest we could earn anywhere so paying cash for a car might not be the best way to spend money.
Time and time again, we return to financial literacy, and most of this is understanding not only how to efficiently use debt, but also how to manage the risks it creates. As techies, I guess we tend to think more analytically than the average person, and one of the best things you can do for your financial well-being is to tabulate everything. A debt situation, for example, can be multifaceted, so if you are thinking about taking a loan, summarize everything in Excel and analyze the details of your venture: the impact of cash flow, capital gains / losses, cost opportunities (what else could you do with a deposit or payments on a loan), etc., etc. I have had many cases in the past when I literally sat down and wrote down all my analytic calculations in C #,because I understood the code better than finance! But by doing this, I studied, and this is a great way to improve financial literacy. (Note: a service such asMint is also very cool for tracking your financial situation.)
Lesson 6: Diversify your earning potential and risks
This statement opens the heart of where the money comes from and how to protect it. In relation to our industry, we have a greater potential for earnings and accumulation - let me explain.
Traditionally, it is believed that earnings come down to trading time for money from one source (your employer). I also did for many years, and for me it meant going to Pfizer every day, doing my architectural pieces and getting paid every month. As we have already established above, a software architect can make good money, but such a traditional approach to work poses a risk, and I observed its manifestation in a series of reductions over the course of 14 years. I saw the stress of people going through this when their positions were shrinking and they were laid off, and there were 2 main reasons for stress:
- , , ( , , )
- , .
We ourselves went through a similar stress; about 7 years ago, Kylie was cut. She was 6 months pregnant (seriously, who would have suggested such a thing for a pregnant woman who was about to go on maternity leave) and this was extremely unexpected and portended us a very uncertain future. Fortunately, we had my salary in order to provide for us, and we obviously planned according to the decree, but it still shocked us.
So, let's talk more about the concept of "diversification of earnings potential." And the first thing I want to pay attention to is your personal competitiveness. My very first blog post was “Why Developing Your Online Account Helps Career Development”and the cornerstone of this post was that you never know when you will be looking for another job. Making yourself competitive is not a thing that you can do well from time to time, it can take considerable effort and this is what you need to plan ahead. It is not necessary to think of it as a bridge to making money, but this can have a key impact on the ability to make money.
One of the suggestions received on my tweet last week was this:
“How to become rich and not to be raped *! Yes please. Maybe there will be enough advice about investing in your own education and about a project about pets. ”
- ️ Ruan Kranz (@krankit_io) December 27, 2018
[* The original uses the word pwn, which in the slang of video games is derived from English. "Own" (possess, have) - approx. per.]
This is a great example to illustrate my point: when I first went for an interview with Pfizer in 2001, I showed my project about pets. The project was a classic ASP and a database in Access (stop laughing) that managed the photos I took. The project was very simple, but it gave me the opportunity to demonstrate my abilities. I clearly remember how the project showed the boss of my boss, and he was impressed, despite its simplicity. It was a personal project, made in my free time, as part of my training, and played an important role in my getting a job for the next 14 years. This work has made a significant contribution to my investment portfolio!
A pet project, a contribution to open source projects, a strong Stack Overflow profile, support for local communities and many other things you can do in your free time all contribute to market competitiveness and ultimately diversify your earning potential . (By the way, talking about Hack your career , which I mentioned earlier, reveals the details of what was said.) This is one of the cool advantages in our industry that you can just expand your professional skills in your free time. I will give an example of an antithesis for this. Some of the people who were fired from Pfizer were in the position of the Signorers, which they held for a very long time (I will be a little vague in case they suddenly read it) and, to be honest, they had very little experience (or did not have at all?) outside of their work. They were professionals at their work, but they did not have the skills applicable within the industry as a whole, and when the time for cuts came, they were out of work. Forever and ever. It all ended up requiring them to retrain in another area, which was stressful enough for them.
We move on. Another cool thing about techies is the ability to diversify sources of income. Now I am aware that there are cases when the employer may prohibit doing such things (even in private time), but, as an example, I made many small independent websites with a permanent place of work. Nights, weekends, holidays were often busy with typesetting sites or other small work that brought income. Independent income that could be invested in our financial well-being. This money was invested in the property portfolio and continued to grow, so think about the possibility of new investments: the extra money earned is good in itself, but it can then be used for new loans (this becomes an investment) for which you can buy valuable property. These nights, weekends and holidays have undoubtedly become very valuable.
In 2012, I began to create what people know me for: Pluralsight courses. Again, this is something that could be done independently, without conflict with my work during the day. There are many, many similar small opportunities that contribute to both of the things called diversifying your experience and actually generating income. Today, one source of income accounts for no more than 20% of total income, which is extremely important when it comes to diversification. This means that if, for example, Pluralsight, go down the toilet, I will be very upset, but this will not be an event that changed my life .
This leads us to the issue of risk. Risk is reduced when you have more choices and again reduced when you have more sources of income. Returning to the investment strategy, as you know, you should not put all your eggs in one basket, as well as not to invest money in one unit of ownership. As they say, do not use all your savings to buy one magic bean. When we buy real estate, we buy at a level where diversification is not possible; I prefer to have 2 small apartments in different areas instead of 1 house, because it gives insurance from everything: from the vacation period of tenants to repairs after an emergency, such as a fire. And you definitely don’t want to risk money by investing in one value class; ownership, stocks, cash and all kinds of other investment instruments allow you to share risks. Enter in the Google search engine “life savings lost in investment schemes” [it is better to type in English life savings lost in investment scheme - Approx. trans.] . The point is how people lose money when I invest all my savings in one investment tool] and you will understand why this is so important.
Invest in diversifying your earning potential and your values ​​to reduce risks.
Lesson 7: Get Ready for Good Luck
When a few years ago I started making rough notes for this post, one of the things that I was thinking about was this book :
Outliers: The Story of Success in the Russian translation is called Geniuses and outsiders: Why is one everything and nothing else? - Note per.
Malcolm Gladwell is a sensational writer and his previous books, The Tipping Point [In Russian translation: “Tipping Point. How minor changes lead to global change ”- Note. trans.] and especially Blink [In the Russian translation: “Illumination. The Power of Instant Solutions ”- Approx. per. ] are simply required to read. But what I especially love about Genius and the insiders is how the author systematically debunks the factors that contributed to the success of extremely notable personalities such as Bill Gates, The Beatles and even outstanding athletes. Ultimately, let me cite an excerpt from Wikipedia illustrating one of the success factors that Gladwell highlights:
The book begins with a review that a disproportionate number of outstanding Canadian hockey players were born in the first months of the calendar year. The reason behind this is that since childhood, membership in the hockey league is determined by the calendar year. Children born on January 1 play in the same league as children born on December 31 of the same year. Due to the fact that children born earlier are statistically larger and physically more mature than younger rivals, older children are more often recognized as better athletes. This leads to the fact that they are even more involved and more likely that they will be elected to the major hockey league.
There are two things related to success factors, and one of them is that elite hockey players are exceptionally talented. Despite the other opportunities available to them, it is simply impossible to play at their level without being in the top of the very best. The second thing is the understanding that older children have natural superiority because of these few extra months of age. Some might say an unfair advantage, but all the benefits are the same. But not everyone succeeds in using this advantage: there are many children born in January who cannot compete with younger players, because they simply do not have natural talent or family support, or the desire to train, or anything else. To be successful at this level requires both luck and talent.
Bill Gates, whom I mentioned with pleasure, is perfect as an example for this tech-oriented article. Yes, obviously he was the most ordinary guy, but he had (very random) access to computers at his mother's work, which strengthened his talent and allowed him to create Microsoft. This is the thought that I learned from this lesson: we all come across random opportunities - you can call it “luck” if you want — and you need to be prepared to take advantage of the opportunities. Such situations can be something like, ranging from an unexpected job opportunity to a chance to invest. Both of these situations often require preparation in order to take advantage. For example, do you have a representative resume or portfolio for this job? Do you have an up-to-date tax return or financial investment opportunity? Are you able to apply your skills and use your existing property (which we all have) to take advantage of the opportunities that have arisen. I did not always succeed in this and I regret that I was not ready.
I hate it when people’s success is referred to as “luck” or “chance” without any further context. Not because they use the wrong words, but because they assume that people achieved success by chance. Such thoughts also do not inspire others who do not believe in their luck, so I love the following quote:
“I firmly believe in luck. And I noticed: the more I work, the more successful I am ”
There is a lot of controversy about the authorship of the quote , but that doesn’t matter, since the statements sound plausible even without it. I hope that people will learn from this that hard work and preparation reinforce the success that we encounter from time to time.
I want to say one more thing about “luck”, because anyway, there will be questions about this in the comments. Just as older hockey players took advantage of the month in which they were born, so did I get benefits from the factors of my birth. My gender. My ethnicity. The country in which I was born. Even the countries where I lived: I spent the last few years of high school in Singapore, which was an absolute technical giant compared to most of the rest of the world in the mid-90s, just at the time when I was there. Getting to know a guy who worked for a satellite system design company at a local windsurfing club in 1992 gave me the opportunity to get my first part-time job at a technology company. These are factors that I did not have control over, but I strengthened this luck by working, rolling up my sleeves when I had the opportunity. Whatever the circumstances, understanding that opportunities occasionally arise on their own and that preparing for their use is necessary is an important lesson.
Lesson 8: Evaluate Your Time - And Your Family's Time
I stopped playing video games something about 10 years ago. At this time, Half Life 2 was my favorite game, and I could calmly kill for several hours by shooting everything that moves. So far this has not acquired a level of dependence, but still took enough time, which in the end it became clear to me that this is not the best way to use my time. I also want to clarify: investments do not always relate to money, there can be investments in one’s health or mental state, or in one’s family, and currently I spend time playing tennis every week instead of playing HL2. But return on investment is much better for my mental state and my health than it was when I played HL2.
Returning to the assessment of my time, I fully realized that I better focus on our investments and my personal development than on games. Over time, I became more and more aware of how valuable my time was. Sometimes this is a clear monetization. I take money from companies for conducting security working groups, which is a direct exchange of time for money. Sometimes this is something less tangible, but I felt that promoting these things is what I want. This blog is a great example of the fact that in terms of money, it does not directly bring me a single dollar, but I feel that I am doing the right thing, because the blog helps to improve the lives of others. Understanding the value of time (in particular, how it changed over the years) also helped me decide where to spend money to return the time spent: a cleaning lady home several times a week, a car washer, business class flights.
Then evaluate the time for your family. People hate it when I put it this way - “which means that I should evaluate the time for my family, my family is priceless!” - and they continue to adhere to this position, as if they stopped going to the office every day. The reality is that we all trade our time with our family to share time with her on activities that can support her. But most people do not like to think in such terms. This does not sound like it to them, but it can be said in another way: “Imagine how much family time you can donate for your well-being and how long you can wait for the investment to return.” If you do not have a family, evaluate the time in terms of personal activities that you can trade. I traded games, others can trade social activities or holidays, or sacrifice something else, which will lead to the path to their own well-being.
When I talk about assessing time for my family, I mean that you should develop a position when it is more important to spend time with your family, and when it is better to invest time in order to focus on other things. Many people do not want to devote more than 40 hours a week to earning a living, and this is fine as long as the existing lifestyle corresponds to what they want, and as a result they do not feel incomplete. It amazes me when I see people who are dreaming about a certain financial situation and life goals, but still not able to make sacrifices in order to achieve what they want (more about this in the next lesson).
My balance changes over time. In the early years of my career, when I was most often on hourly contracts, my working day could be 11 hours, because (what a surprise!) Paid more than an 8-hour working day (and remember that this allowed me to invest in property, which has grown in value over the years). It was a good option when there were no children, and Kylie studied and built her own career, spending as many hours, we both worked tirelessly, and we put up with it. It is always harder when children appear, in particular because it inevitably leads to a greater work load for the spouse if he is forced to perform additional actions for his career. Now I have discovered that because we made sacrifices before the advent of the children, we enjoy the benefits while the children are still small.
If there is nothing else, at least consciously make a choice where to spend time, and the best way to do this is to set a goal.
Lesson 9: Set a Goal
This thesis is best explained by the speech of Arnold Schwarzenegger. Take 12 minutes to listen:
Do not waste a minute. Get started. You have 24 hours a day, 6 of them you sleep, maybe 12 hours takes work and road, so you have 6 hours. You eat or talk a little, but you will see how much time is left.
“If you don’t have a vision, where you are going, if you don’t have a goal, which you are going to, you just hang out and you will never get anywhere.”
The goal allows you to be focused. The goal drives you to invest time in working on something. The goal allows you to love the pain required to achieve the goal. Schwarzenegger talks about physical pain in achieving his goals, but the same can be said about gaining knowledge when you spend time on what is consistent with the theses of this article. Honestly, he chose a very extreme approach to achieving his goal, because the goal was also extreme. I am not saying that everyone needs to go and spend every free minute to think about how to increase their condition. I want to say that you need to know why you are doing this, what you are working on. Depending on how high the goals are, efforts can indeed be significant over a long period of time.
In our industry, we constantly work with goals, we all use tools to help us achieve them. We have a backlog [list] of tasks that need to be completed and tasks can be such as arranging insurance, determining a retirement strategy (yes, even if you are young), or setting goals for training. We carry out units of work in sprints [1-4 week periods of time to complete the tasks selected at the beginning of the sprint - Approx. per.] , and when your goal is long-term, you need to break its achievement into many separate sprints. Kylie and I constantly did retrospectives [review, analysis - Approx. transl.] : what works, what doesn't work, what should we do differently. And if you draw an analogy with agile (Agile software development methodology, which uses the concepts of sprint, backlog, retrospective - approx. Per.), Nothing requires such a flexible plan as finance, because there are so many changing environmental factors: your work , family composition, interest rate and some other things that require course adjustment. We techies understand that. This is what we do day after day, and you can implement this approach for your personal financial well-being.
Inevitably, each of us has several goals, and they also change over time; for many years, while I lived in Sydney and worked at Pfizer, my goal was to achieve independence and return to the Gold Coast [a city on the coast of Australia - Note. per.] , where my family was. In 2015, we did this:
« @KylieMHunt, -!» pic.twitter.com/yNuQLUC7EK
— (@troyhunt) 16, 2015
After that, I had new goals. Of course, I had others too, and they were not so long-playing and life-changing. For example, I had a goal to purchase specific cars, and some of them I acquired only after many years. Some of the goals are still in the process of achievement, but they are still in my field of vision, they move me and set the direction.
Goals can be very personal. Perhaps your goal is to retire young. Perhaps the goal is to support your replenishing family. The goal could also be to give as much as possible to charity (Gates is a great example of this). All these goals are good, the main thing is to have them, because without them ... you hang out.
Lesson 10: Financial Well-being in Partnerships
I want to end with this thesis, because this is the most important point to make all previous theses work. If you are in a relationship with someone (a wife, a young man, anyone), perhaps the most valuable advice I can give is to strive with your partner for financial well-being, to have a common vision. If you have no coherence, if you have fundamentally different goals, you will not be able to set the goals for the focus they deserve.
I remember friends who suffered from this. For example, one of the partners could not accept how much the other spent on its own weaknesses. Or they were angry that the family was sacrificing on what the other was doing. Or one is satisfied with life at a living wage, while a partner dreams of millions. Lack of coherence not only makes it difficult to achieve financial goals. This can lead to a split in the relationship. I am sure that we all saw such errors due to the fact that couples could not agree on fundamental things.
I will give a few examples of what I mean, and the first example that came to my mind (for some strange reason) is when Kylie and I planned a family. As with many couples, it is time to discuss this. We began to seriously discuss family formation around 2008. When we started planning, we literally went to a quiet place in a local restaurant with a laptop and drew tables, which for us would mean having a baby. We did this together and planned everything: loss of income due to decree, state privileges for parents, tax consequences for both, and even medical expenses and child support. I am sure that we did not provide for everything (in particular the latter), but the point is that we made a financial decision together (the child is a big obligation), taking into account as many facts as we know.
Partnership manifests itself in everything from investments being made to my travels and our insurance (Important: things such as income loss insurance and life insurance are separate topics of financial literacy). This not only ensures consistency, it also allows for cleaning. When you are in a relationship, you are sure to find aspects that relate to overall financial well-being, which one of you does better than the other. For example, I see the big picture and is focused on numbers, Kylie is focused on the details and, frankly, much more patient than me! Explaining things to each other allows you to move along the same road.
But perhaps most important of all, that relationship means partnership. The journey that you take together. Hopefully a very long trip that requires planning, and there are a few more fundamental things in a relationship than your vision for money.
Summary
If you work in IT, you work in one of the best-paid industries with great growth potential and career prospects. Your financial potential is almost certainly higher than the majority around you. You already win simply because you are here, and I hope that if the first tweet in this post was to motivate you, then the whole post helped inspire you.
“Great car, buddy.”
Motivation No. 946,624 to start hacking your career this year. :)
, »
— BlueTeam_Ninja — Side Hustling (@BlueTeam_Ninja) 26, 2018
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Source: https://habr.com/ru/post/460967/
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