5 Essential Investing Skills to Accelerate FI for Tech Employees

Hey there!

Reaching financial independence (FI) is a significant milestone, and for many tech employees, leveraging your equity compensation is the first step.

Having built a significant equity base, I can tell you that the journey to FI isn't just about earning—it’s about mastering essential investing skills. Here, I’ll share the five investing skills that can accelerate your path to financial independence, helping you manage your money more effectively and achieve your goals faster.

Lesson 1: Budgeting and Saving

Many people underestimate the power of budgeting and saving. They might assume they don't need to budget meticulously because they earn a high salary.

The Challenge:

It is easy to slip into living paycheck to paycheck despite a high income. Lifestyle creep is real!

The Answer:

Take control by dividing your income streams into different buckets. Your Equity Compensation should be in a separate account and not mingled with your salary.

My Simple Framework:

Create an operating budget (household, personal, and child expenses) that fits within your paycheck. Use your bonus for larger expenses and vacations. All equity is placed into a separate account that can’t be regularly touched.

By setting clear buckets and a budget, you can identify areas for reduction and constantly direct funds into savings and investments.

The first time, my wife and I created a detailed budget. It was eye-opening to see how much we were spending on non-essentials. By reallocating just a portion of those funds, I could save an additional $20,000 in the first year alone.

A surplus in income, consistently saved and invested, is the cornerstone of building wealth.

Next, let’s discuss managing debt, an often-overlooked aspect of financial health.

Lesson 2: Debt Management

Many believe all debt is bad and should be avoided at all costs.

The Misconception:

Thinking all debt is detrimental to financial health.

The Reality:

Properly managed debt can be a powerful tool for building wealth. The ultrawealthy use debt to get more leverage.

My Simple Framework:

Embrace the concept of leveraging debt within safe thresholds. Focus on low-interest long-term debt, not floating interest rates.

Be careful; even seasoned professionals fall into the trap of fearing or misusing debt.

Honest Truth:

• Debt can be a strategic tool.

• High-interest debt should be avoided.

• Low-interest debt can enhance your investment capacity.

Intelligent debt management involves leveraging low-interest debt for high-return investments while maintaining a healthy debt-to-income ratio.

It's tempting to eliminate all debt, but learning the strategic use of debt can accelerate your financial goals.

Now, let's move to a vital area: tax planning.

Lesson 3: Tax Planning

A common mistake is focusing on getting your tax return in at the last minute and neglecting long-term tax planning.

The Mistake:

Buying into the mindset that many CPAs sell, preparing an end of the year return is all you need.

Why It’s a Mistake:

Failing to create a multi-year plan for taxes can significantly reduce your annual net returns and delay your FI goals.

What to Do Instead:

Develop a multi-year tax strategy to minimize liabilities and work with a Certified Tax Planner, not a CPA

Personal Story:

Early in my career, when I started working for equity, I had no idea about tax planning, which resulted in a large six-figure tax bill after my first IPO.

Those dollars I gave away cut deep into my savings that year. After consulting with a tax planner, I implemented annual planning and execution of several strategies which saved me thousands in taxes annually. Even today, I am constantly working to lower my tax bill.

Effective tax planning is crucial for maximizing your investment returns and achieving FI sooner.

You’ve learned how budgeting, debt management, and tax planning are pivotal in your financial journey. Next, let’s dive into due diligence.

Lesson 4: Due Diligence

Overlooking due diligence is a stumbling block for many new investors. They have money in the bank and want to put it to work.

Due diligence allows reason to rule over emotion in investment decision-making. 

The Mistake:

Jumping into investments without thorough research.

Why It Limits Progress:

Poorly vetted investments can lead to significant financial losses.

What to Do Instead:

Always conduct stringent due diligence before committing to any investment.

Personal Story:

I once invested in a startup based on a friend's recommendation without doing my research. The company failed within a year, and I lost my entire investment. Since then, I’ve developed a rigorous vetting process for all investments, ensuring I fully understand the risks and potential returns.

Diligent research and informed decisions are your best defense against investment losses.

Now that you understand the importance of due diligence let’s talk about the ongoing management of your investment portfolio.

Lesson 5: Portfolio Operations

Many tech employees neglect the ongoing management of investments and rarely do it or leave it to someone else.

The Mistake:

Assuming a "set it and forget it" approach will work.

Why It’s Limiting:

Portfolios require regular adjustments to align with your financial goals and market conditions. No one will be the CEO of your portfolio like you will.

What to Do Instead:

Implement routine check-ups and rebalancing strategies for your portfolio.

Personal Story:

Ever since I went through my first IPO, I have been actively managing my portfolio, and I brought in other experts to help with portions of it. I own, and drive the vision and results.

Running my portfolio as a business has been my biggest accelerator to getting to financial independence.

Regularly reviewing and adjusting my portfolio ensured it remained on track with my financial objectives, ultimately increasing my returns.

Final Takeaway

In summary, mastering the skills of budgeting, debt management, tax planning, due diligence, and portfolio operations are critical for accelerating your path to financial independence.

These lessons contribute to a holistic approach to managing your wealth, ensuring you make informed, strategic decisions that align with your long-term goals.

Start Here

While this seems like a lot, start with one and work on it. If you start making improvements week by week, things will start to add up over time.

Thanks for reading.

If you have any questions or comments, just hit reply. I answer every email.

Tech Equity and Money Talk is a weekly podcast showing you how to work for tech equity as a wealth-building strategy and meet your financial goals.

055 🎙️ Navigating Equity in Tech Companies with Fred DeWorken

In this episode Fred DeWorken, founder and CEO of Blue Yeti, who shares his journey from working in the Peace Corps and as a claims adjuster to transitioning into the tech industry. 

He breaks down his journey from tech outsider to going through two amazing IPOs with Tableau and Snowflake!

Fred discusses the value of storytelling, building relationships, and articulating one's worth in career transitions. 

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Disclaimer: This newsletter is for informational purposes only and does not constitute financial or career advice. Always consult with qualified professionals before making any decisions based on the information provided.