Why Now Is a Good Time for Financial Planning for Tech Professionals

The tech industry has largely escaped the widespread job losses and business disruption that other sectors are experiencing. That’s good news for now, but why not create plans that help you face turmoil and uncertainty with courage and confidence?

Here are seven reasons why NOW is a good time for tech professionals to start a financial planning regimen that ensures that they can emerge from any situation on track and well-positioned to meet their life goals.

Markets are down: Take advantage of historical sales prices

When is the best time to shop: during periods of rampant sales or when everything is at full price?

This is a trick question because it’s smart to invest consistently over time – during up and down markets. We call this dollar-cost averaging because you average out your costs over time by sometimes buying when prices are high and sometimes buying when prices are low.

However, if you’re holding off from investing solely because markets are down, this may be a great time to implement a cohesive investment strategy. Did you know that the stock market has been performing at record levels for the last decade? Would you rather buy at sales prices or wait for high prices to roll around again? While we can’t predict the future, we do know that strong recoveries and record growth have followed every past market downturn. So if you’re hesitating to invest, consider taking advantage of the sales. 

Defend yourself against company risk

Is it a good time to have most of your wealth tied up in one company? (Hint, the answer is no.) Reduce your risk now!

Many of you have been sitting on those vested RSUs and stock options, not quite knowing what to do next, and not wanting to sell them now that your company’s share prices may have fallen. I get why you might not want to sell now, but consider this question: is it riskier to put all your wealth in just one company versus different companies across different industries? Obviously if all your wealth is tied up in one company and something bad happens to that one company, you would lose a great deal of your assets. However, if your wealth is distributed across multiple companies, even if your employer’s stock takes a hit, your losses would be less severe.

This period shows us that speculating on one company or one sector can lead to disaster. Until you have established a substantial asset base, it’s best to sell your company equity and spread the proceeds over different investments to protect your wealth.

“Good things come to those who wait,” said no personal finance expert.

Personal finance math is pretty straightforward: the earlier you start investing, the longer your investments can grow. 

When you invest, your investments eventually generate returns. And then you earn more returns on those returns and so on. This is the concept of compounding returns. Compounding returns are a function of time. The more time your money can generate returns, the more you’ll earn. If you’re resting on your laurels waiting for the right time to start investing, you’re missing out on time to allow your money to grow enough to meet your goals. Did you know that if you started investing the same amount at age 25 until age 35, you’d have more money at retirement than someone who started investing the same amount from age 35 until retirement? That’s why the earlier the better to put you on the path to lasting wealth.

Scenario: Investor Blue starts investing $5,000 at age 25 and stops at age 35. Investor Orange starts investing $5,000 at age 35 until retirement. Assume 8% annual return. At retirement, Investor Blue has invested $55K, and has $904K. Investor Orange has invested $155K, and has $666K (over $200k less than Investor Blue).

The power of setting goals and making plans

Creating plans to achieve your goals will help you attain them – possibly even sooner than you could have imagined.

Although investments are a part of financial planning, don’t discount the value of setting goals and making plans to achieve them. While many people have been earning good money for some time, they’d be the first to say that they don’t feel any closer to achieving their goals. There is power in setting those goals now and developing measurable plans to achieve them. You’d be shocked at what you can achieve – even with modest pay – if you have well-developed plans in place. Those plans also keep you focused. You won’t be so quick to spend your money on frivolous items when you know exactly what you’re working towards.

Give every dollar a purpose and reduce financial stress

A key aspect of financial planning is having a plan for all of your hard-earned money.

If you’re like 75% of the population, you’ve been flying by the seat of your pants, hoping that you’re not overspending, but never quite knowing if you’re saving enough. You likely don’t have a plan for cash remaining after you’ve taken care of your bills. Do you have sufficient cash reserves for a job loss scenario? Do you have a plan that allows you to face such a situation confidently, knowing you have time to capture the next big opportunity? Use this period to figure out how to properly allocate your cash each month between your living expenses, taxes, and savings. A solid cash allocation plan will liberate you from worrying about your finances now and into the future. 

Protection will bring you peace of mind

There’s nothing like a global pandemic to highlight the need for adequate protection.

This is a great time to assess whether your health insurance, life insurance, and estate plans will cover you and your loved ones in the event of serious illness or untimely death. While many of us would prefer to procrastinate on this, the costs of failing to plan for the worst-case scenario can be catastrophic. Generally speaking, life insurance premiums are pricier the older you get, and your employer’s life insurance policy will terminate once you leave your company. An estate plan ensures that your assets and belongings will pass smoothly to your intended beneficiaries, your minor children will go to a guardian that you trust, and your end of life wishes will be respected. These protective measures will ultimately bring you peace of mind.

Consult with an expert

Don’t hesitate to seek out professional financial advice.

With everything going virtual these days, now is also a great time to seek out financial planning services from a virtual financial advisor. You can scour the internet for advisors across the country who work with tech professionals like you. Make sure to research fiduciaries who will put your interests ahead of commissions and financial product sales. A virtual financial planner will save you time and worry, fill your knowledge gap, and increase your chances of attaining your financial and life goals.

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Citrine Capital is a fee-only wealth management firm committed to helping business owners, entrepreneurs and tech professionals conserve and create wealth. We accomplish this by working with our clients to organize their finances, manage investments, define and prioritize goals, plan for major life events and/or early retirement, protect loved ones, and mitigate taxes.

Located in San Francisco, we work virtually and in-person with clients across the globe.