Personal Finance for Engineers 🏦
A practical, no non-sense guide to handle your finances
This is a guest post by . Nicola is the most knowledgeable engineer I know about personal finance — we talked about this in the past and thought it would be a great topic to explore.
This article gives you everything you need to know to get started: first principles, approaches, tools, and Nicola’s case study about how he manages his own finances.
When I started working in tech at the age of 18 and they told me about my first salary, I couldn't believe it. I was making more than most of the adults I knew at that time, and with basically no previous work experience.
Having so much money at your disposal at that age usually means just one thing: spending more than what you get.
And this is exactly what I did for years.
Then, when I started to mature a bit in my twenties, I became more cautious. But still, I was never able to save money, and believe me, I could have saved a lot.
It wasn't until my 30s, especially after having kids, that I understood that despite all my curiosity and passions, I had never studied one crucial topic: personal finance.
Today, I can say I'm educated in personal finance, and I've even managed to build some good savings. But I regret not doing that when I was in my early twenties, and that's why I decided to write this article.
I want to save you from making the same financial mistakes I did and help you start on the path to financial literacy much earlier than I did.
🚨 Disclaimer — what you'll read here is not financial advice, and you won't learn personal finance just by reading this. But I hope it will inspire you to dig deeper into some concepts I'll introduce here.
Here's what we'll cover:
🤔 Why personal finance is crucial for Engineers — high earning potential, career volatility, long-term impact
🏁 Getting started — know your numbers, set your financial goals, understand your risk tolerance
💼 The Engineer's money management toolkit — creating an emergency fund, saving accounts, bonds, ETFs, fun-money, etc.
📊 My asset allocation — a real example of how I allocated my assets and the thinking process behind that
📚 Resources — some good resources that will help you with personal finance
Ready to upgrade your financial knowledge?
Let's dive in!
🤔 Why personal finance is crucial for engineers
As engineers, we often focus on coding and solving technical problems, neglecting an equally important aspect of our lives: managing our finances.
However, mastering personal finance is not only crucial for engineers but can also be incredibly rewarding.
Let’s see why.
1) High earning potential 💵
Let’s be honest: engineers often make good money, especially compared to many other jobs. This financial advantage comes with its own set of pros and cons.
On the positive side, we have the opportunity to save substantial amounts over time, potentially even retiring early. However, the downside is that without proper money management, it’s easy to fall into the trap of spending more simply because we earn more.
I learned this the hard way by spending all my early paychecks, a common mistake many of us make.
2) Career ups and downs 🎢
The tech world has its ups and downs. One year might be great, the next might bring layoffs or company changes:
Job market changes — while engineers are usually in demand, this can change based on the role, the economy and industry trends.
Startup risks — many engineers work for startups, which can be risky. They might offer lower salaries and stock options that could end up worthless.
Higher competition — as more people enter the tech field, competition for top positions can increase, making it crucial to continuously update skills and stay ahead.
Having good finances can help you handle these changes and choose jobs based on what you like, not just what pays the bills.
3) Long-term effects 🔮
Here’s something I wish I knew earlier: the power of compound interest. As engineers, we are usually good with numbers, but we often don’t realize how much our early money choices matter.
Compound interest is incredibly powerful.
If you start saving even a little bit early in your career, it can grow substantially over time. On the flip side, it’s important to understand that every dollar you spend now is a dollar (plus growth) you won’t have later.
While it’s essential to enjoy your money, being aware of this trade-off can help you make better financial decisions.
Quick example:
If you save $5000 a year starting at 25, with 5% annual returns, you'd have about $635k by 65.
Start at 35, and you'd only have about $348k. That's why starting early matters!
4) Unique financial challenges 🎭
As engineers, we often deal with some money stuff that other jobs don't:
Stock options — these can be a big part of our pay, but they can be tricky with taxes and risks.
Fast-growing salaries — our pay often goes up quickly early on, so we need to keep adjusting how we handle money.
Changing jobs often — moving between jobs can affect things like retirement savings and health insurance.
Knowing how to handle these situations can really help your finances in the long run.
Remember, being good at engineering doesn't automatically make you good at money. But here's the good news: as engineers, we have the skills to get good at personal finance once we try.
🏁 Getting started with personal finance
Okay, so you're convinced that personal finance is important. But where do you start? Before even touching your money, it's crucial to establish some systematic approaches and, as engineers, we are lucky enough to have them in our DNA!