Build wealth and reach financial freedom with these insights from a certified expert.
As a financial advisor, I work with tech professionals in all stages of their wealth-building journeys. Over the last ten-plus years, I’ve seen hundreds of clients make common money mistakes.
Some of my new clients come to the table with preconceived notions that are either completely false or half-true at best. Oftentimes, these well-intentioned folks bring ideas to me, citing a scantily researched blog post or a podcaster who isn’t qualified to speak on financial topics. I don’t blame them — it’s hard to know what you can and can’t believe on the internet when anyone can chime in about topics like money. The good thing is, you can turn to our blog for credible financial insights from certified experts.
Whether through making mistakes or being misinformed, I’ve seen professionals spend energy on the wrong things. I’m taking these lessons and boiling them down to seven key points so you can learn from others who were recently in your shoes.
7 money lessons for tech professionals
1. Ditch your paycheck mindset
This is the most key point because it serves as a foundation for wealth building.
Many of my new clients have scarcity mindsets around their finances. They tend to look at their life as a series of paychecks, which I attribute to the idea that the amount of money you earn is positively correlated to the amount of effort you exert. Though it’s not necessarily true, we’ve been conditioned to think of our achievements as a direct result of effort since grade school, where we earned good grades for doing our homework and studying for tests. This continued in the real world, where we earn paychecks for our work.
Viewing good grades and money as effort-fueled rewards got you through school and your early career. However, continuing to take that approach when building wealth puts a ceiling on your potential. It’s also not the right approach for building the kind of wealth that can catapult you to financial freedom.
Think of a limited financial mindset in terms of addition and subtraction:
- You “add” to your net worth by working more, earning more, and taking on more responsibilities
- You “subtract” liabilities by controlling expenses
The thing is, unless you’re highly paid, your additional effort will only result in small rewards. Your paychecks may incrementally grow, but only when effort increases. It’s okay to think of finances in terms of addition and subtraction early in your career since you don’t have money. At that point, addition is the only way to begin accumulating wealth. But once you have a decent chunk of change, you’ll want to shift your focus.
On your path to financial freedom, unsubscribe from the idea that building wealth is connected to the effort you input. Start viewing your finances in an abundant way that entails multiplying rather than adding to your wealth. With this mindset shift, you’ll realize a compounding effect that earns you multiples of returns for no additional work.
Adopting a new mindset around money also involves shifting your focus from your paycheck to your balance sheet. When I discuss big financial moves with clients, the paycheck-focused ones think they can’t afford it because they only consider the disposable income they’ll get next month. But the truth is, smart financial moves don’t always make sense when all you consider is your paychecks.
Though uncomfortable, adopting a big vision is critical to building wealth. One way we help clients think big is by formulating a five-year vision unique to them. It isn’t until we unlock more compound returns within your balance sheet that achieving wealth ten times greater than your current standing becomes more feasible — regardless of your paycheck. I’ve had clients who began with a limiting, paycheck-focused mindset, and a couple years into working together, they’re surprised by how much their net worth increases year over year. Clients I’ve worked with for at least five years average a 22% increase in their net worth per year, which equates to increasing their net worth by 2.5 times over five years. Three main factors contribute to that compounding return: paying down a mortgage, contributing to investment accounts like a 401(k), and investment returns. It’s amazing how this simple stuff that requires no additional effort starts to multiply into compound returns… a bunch of small things working together to produce big returns.
2. Taxes shouldn’t dictate your financial decisions
It may pain you to pay increasingly more taxes each year, but in the grand scheme of things, they’re simply a bump in the road of your wealth journey.
I see busy professionals make the mistake of putting taxes on a pedestal and letting them dictate financial decisions. While optimizing for taxes is well-intentioned, doing so often limits returns. Here are three common ways my clients have mistakenly prioritized taxes in the past (these are moves you should *not* emulate):
- Delaying a stock sale to avoid taxes. Some folks put off a sale to dodge taxes, but they risk the price crashing to the point where their unrealized investment loss far exceeds the taxes they tried to avoid.
- Investing tax-efficiently with inefficient returns. Municipal bonds are a good example of this. I’ve seen folks invest in municipal bonds to save on taxes because they can quantify what their tax savings might be. What they don’t realize is their returns do not compensate for the tax savings they’re chasing and they’re better off disregarding taxes and chasing higher returns.
- Spending money to create deductions. Folks who spend money thinking it’ll help them save on taxes would have been better off allocating their funds elsewhere. Spending a dollar just to save 30 cents doesn’t work. Taxes are always a fixed percentage of a much larger whole.
I always say, you should be tax aware, not tax scared. Taxes inform how we should do things, but they never inform what we should do. Don’t make them a top priority.
3. There’s a high cost to being cheap
Being cheap is a side effect of the addition-subtraction approach we discussed in Point #1; It costs units of your time and effort to be overly frugal. Though it seems like a sure way to save money, optimizing costs can ultimately destroy returns because the money you save is often less than the returns you forgo.
Folks who are cheap to their financial detriment avoid paying:
- Taxes. See Point #2 above.
- Financial advisors. This often leads to mistakes that cost multiples of what the advisor would’ve charged.
- Assets under management (AUM). Similar to forgoing an advisor, making poor investment choices can cost multiples of what the AUM would’ve cost.
- Investment fees. Using the lowest-cost investment vehicles means giving up returns they would’ve otherwise had access to.
Tying your money to the effort you put into managing it impedes your wealth’s growth potential. If I had to put a number on it, I’d estimate that being cheap, penny-wise and pound-foolish, can limit your net worth to around $5 million.
It’s not that costs don’t matter — they absolutely do — but you want to be value-conscious rather than cheap. When you examine and count costs, ask yourself, “Do these costs help me avoid mistakes that would cost me even more, or do they expand capabilities that maximize returns beyond the cost I pay?” This shifts the focus from a subtraction mindset to a multiplication one.
4. Catastrophic losses hurt… a lot
What if the one that got away was financial independence?
That’s what a catastrophic loss — when an investment loses 75% or more of its value — feels like. Holding onto an investment that’s significantly appreciated in value, only to see its worth erode is gut-wrenchingly painful.
It is traumatic!
You will suffer and recovering from the loss, emotionally and financially, takes years.
One of my clients received $5 million in an individual stock and he was unsure how to handle it. His grandfather advised him, “Make your money once.” In other words, sell. This money represents an opportunity for him to buy financial freedom and losing it would require making his money twice. After the events of 2022 and 2023, I’m working with a lot of professionals who suffered catastrophic losses and are stuck making their money again.
Like heartbreak, losing money that was yours at one point and grieving what could’ve been is incredibly painful. Don’t be the person who had financial freedom in their grasp and let it slip away by staying in a concentrated position through a catastrophic loss.
5. Prioritize your financial plan, even if you’re busy
What’ll happen when you eventually retire from your tech career? You’ll no longer receive a paycheck. How this affects your lifestyle and your finances depends on whether you set yourself up for financial freedom.
At this moment in time, your career is likely your number one asset. But as high as your pay may be, your career is still a limited asset. Busy professionals like yourself have it different than some of the people in my small town in Tennessee. These folks work in family businesses that have been passed down for generations. The key difference between their financial situation and yours is they own the business they work at, and it’s an asset that’s appreciated and will continue to do so. Owning a business also guarantees them an income so long as they keep it running, and they can pocket earnings if they decide to sell it.
In a position like yours, it’s up to you to create the wealth you’ll fall back on when your paychecks cease. You need to use a financial plan to turn your paychecks into wealth today so you can reap the benefits of it tomorrow. It’s easy to put off your financial plan when you’re busy focusing on your career, but the longer you take to begin building wealth, the less likely you are to have a future life that’s as financially good as your present one. That’s what financial freedom is all about: building a future where you don’t rely on paychecks to keep living the life you enjoy.
Prioritize your financial plan and stay organized. Better yet, work with an advisor so they can have your back and handle things for you so that you can dedicate more time and money to the things you enjoy.
6. You don’t have to fend for yourself
As you move through life, you’re almost always a rookie at handling situations that life throws your way. That’s especially true as you encounter financial situations you’ve only experienced none or one of. Tackling unfamiliar things on your own often brings a lot of worry and uncertainty, but you don’t have to go at it alone.
Collaborating with a financial advisor who focuses on helping busy professionals like you brings an experience of hundreds to the table, rather than that of one or none. Whatever stressful financial situation you’re in, they can assure you that you’ll be okay. Advisors have watched a hundred other people experience the same thing and they can tell you what you need to do to avoid mistakes others have made. Beyond their valuable expertise, advisors can take things off your plate so that you can dedicate more time and money to the things you enjoy.
Working with a financial advisor moves you beyond the limitations of the addition-subtraction world, into a world of multiples. Don’t underestimate the power of compounding effort and experience.
7. Focus on these key numbers
Your finances naturally involve an overwhelming amount of metrics, but some are more important than others. Allow these key three numbers to inform your financial decisions: net worth, stock price, and financial freedom.
Net worth. Your net worth is paramount to determining your financial standing. It’s the single most important number to look at. Focusing on your net worth is a side effect of breaking the paycheck mentality we discussed earlier, and comparing your net worth year over year gives you a clear snapshot of your overall progress. Let this metric guide your decision making.
Stock price. When you have a concentrated stock position or own a lot of shares in the company you work for, stock price is key. Other numbers in the mix aren’t nearly as important: The amount of shares you own will always be fixed, and the taxes you owe will always be a percentage of a whole that’s ultimately based on stock price. When you’ve got a really desirable stock price on your hands, you should sell without worrying about taxes. An advisor can help you determine how much to sell, and over time, devise a plan that’s driven by stock price. The goal is to help you sell over time at a higher price and avoid the pain of catastrophic loss.
Financial freedom. What price tag does your version of financial independence have? What size investment portfolio do you need to replace your paycheck and make your job optional rather than necessary? A financial advisor can determine your number and formulate an investment plan that ensures growth without the risk of catastrophe loss.
Let the wealth-building commence
There you have it. Those are seven money lessons to guide you through your wealth-building journey.
If you take anything away, I hope it’s a new mindset around your finances. Think in terms of compound returns and multiples, rather than addition and subtraction. Start thinking big and remember, you don’t have to go at it alone. Our team of money experts works with tech professionals like you every day. Book a call today to talk to myself or another advisor on our team about building your wealth.