When feeling financially confident, one of the most critical aspects of anyone’s financial plan is to “expect the unexpected.” From an expensive car repair to emergency surgery, costly surprises will pop up throughout your lifetime. But just because they’re surprises doesn’t mean you can’t prepare for them.
The tech industry, while known for redefining the employee experience, can also be notoriously unstable – especially compared to employers like the government or large corporations. Start-ups often run on ambition and vision. Sometimes, that means growing rapidly into a household name. Other times, it can lead to sudden layoffs or cutbacks.
What can you, as a tech employee, do to prepare for the unexpected? From layoffs to home repairs, here’s how to feel more financially confident no matter what comes your way.
Assess Your Current Financial Situation
Before making any changes, focus first on establishing your baseline. First, add up all of your savings accounts, retirement accounts, investments accounts, or other assets, and subtract your outstanding debts (student loans, credit cards, auto loans, etc.). What’s left is your current net worth.
Then, take stock of all sources of income, including your salary, bonuses, dividends, rental income, etc. Review your monthly budget based on your current income and expenses. Are you currently putting money aside regularly into an emergency fund? If not, what discretionary dollars can you afford to reallocate to one? After meeting your recurring financial obligations (utilities, mortgage, phone bill, etc.), prioritize contributing to your emergency fund next.
Build a Robust Emergency Fund
If you don’t already have an emergency fund, now’s the time to start one. Everyone’s financial situation is different, but a good rule of thumb is to have around six month’s expenses in your fund. Based on this number, if you have $10,000 in monthly expenses, your emergency fund should have about $60,000.
That may sound like a lot right now, but the key is slow and steady growth. Make it a habit to contribute a portion of your paycheck to your emergency fund each month, just as you would with a 401(k) or IRA. Contact your bank and request an automatic transfer if you’re able. When your paycheck hits your account, a portion will automatically be redistributed to your savings.
High-yield savings and money market accounts are commonly used for emergency funds because they’re highly liquid but still potentially earn higher interest than a traditional savings account. Be sure to research the terms of any account you’re considering opening, as they’ll differ by institution.
Invest in Insurance Coverage
One of the most effective tools you have at your disposal is insurance. You have no shortage of options available, some of which your employer may already provide. Ensure your property, family, and yourself are all protected from unexpected events by having the appropriate amount and type of coverage in place. If it’s been a while since you reviewed your policies, consider reviewing them with the help of a financial advisor.
Common types of coverage include:
- Health insurance
- Short- or long-term disability insurance
- Life insurance (term or whole)
- Home or renter’s insurance
- Auto insurance
Create a Financial Safety Net
So far, we’ve been talking about protecting yourself from things that could happen to you — a layoff, medical emergency, costly home repair. But what about protecting your portfolio from a sudden market downturn, inflation, or rate hikes?
It’s essential to understand what your unique tolerance for risk is. In other words, how much can you stand to lose and still feel financially secure? In general, the closer you are to achieving a work-optional lifestyle, the less risk you can tolerate. Again, this is something to review with a financial advisor who understands your financial picture and can help you make informed investment decisions.
Most people have some form of debt, whether in the form of student loans, a mortgage, credit cards, personal loans, or something else. The problem is the more money you put toward paying off debts, the less you can contribute to your savings or brokerage accounts.
Working with an advisor, create a plan for paying down debt. While there are plenty of different strategies, most people prefer to pay off debt based on the interest rate. If you have a personal loan with a 10% interest rate and a credit card with a 22% interest rate, you would likely want to prioritize paying down the higher-interest loan first (in this case, the credit card).
Develop a Contingency Plan
Just as it’s essential to diversify your portfolio, more and more people are learning how to diversify their income streams as well. Job security isn’t guaranteed, especially in tech. Work with your financial advisor to run through possible scenarios, such as losing your job or taking a pay cut. Consider developing other sources of income as well, from freelancing or gig work. Just be sure that any work you do on the side doesn’t break the terms of your employment contract.
Automate Your Finances
Never underestimate the power of “set it and forget it.” An easy way to protect your financial well-being is to automate your finances. As we mentioned earlier, your bank may allow you to reallocate funds from your paycheck to your savings account automatically. Your brokerage account likely has a similar feature. Don’t forget to look for autopay options for your utilities and other recurring expenses. Companies will often reward autopay enrollees with discounts or perks.
Stay Informed and Educated
While we don’t recommend getting too caught up in the day-to-day market movements, it can be helpful to stay up-to-date on the latest industry trends or legislative changes that could impact your financial life. Ask your financial advisor for recommendations on workshops, seminars, books, or online courses that you can use to increase your financial knowledge and make more informed decisions.
Cultivate Healthy Financial Habits
If you’re concerned about expecting the unexpected, focus on establishing (or reinforcing) healthy financial habits.
For example, schedule time to regularly review your financial plan and budget. Find a time frame that works for you, whether quarterly, twice a year, annually, etc. Staying in tune with your goals and strategies can help avoid impulse buying or lifestyle inflation.
And Finally, Seek Professional Financial Advice
While you can take steps to protect your financial well-being, there’s no substitute for working with a knowledgeable financial professional. At Brightview, we use a holistic approach to help you make decisions that account for your entire financial picture. From tax planning to preparing for a work-optional lifestyle, we can help you work toward your goals while protecting the assets you’ve already built.
Want to learn more about how we can help? Feel free to schedule an appointment today.