You have a job in tech.
Congratulations! You work in an exciting and important industry, you’re interested in your field, and you passed the damn whiteboarding interviews to prove it. Your friends are very impressed.
But also, congratulations because you’re rich!! (This website is about money)
Yes, you’re rich.
Or at least you will be if you’re paid similarly to other tech workers AND can learn to handle your finances intelligently.
The median wage for software developers at tech companies is a cushy $108,667.1 Developers in the Silicon Valley area make a fat median wage of $128,714. The 90th percentile of these developers in Silicon Valley (for example, people working at companies like Amazon, Apple, Facebook, Google and Netflix) make a jaw-dropping $195,409.2
How much SWEs make compared to all US workers
This chart shows the yearly wage (Y axis) of full-time software engineers (SWEs) compared to all US workers at each percentile (X axis).5 For example, the 75th percentile for full-time SWEs is $138k, meaning 75% of full-time SWEs have a wage lower than $138k.
You can enter your own yearly wage into the "Inputs" section to compare it to other SWEs and US workers.
Inputs (try your own wage)
- is percentile for all US Workers
- is percentile for SWEs
You’re rich, BUT...
You'll only stay rich if you consistently make good financial decisions. Just ask all the lottery winners and retired football players who are currently in the poor house -- money does not last without a plan.
A high-earner in tech today can often accumulate enough money to invest and become a millionaire in less than a decade. But so many of us end up screwing up and failing to make the most of our good luck. This "failure case" doesn’t require making a huge mistake; just carelessness, over-confidence, or some combination of the two resulting from a lack of education in personal finance.
Please, don’t fall into that trap! Although the basics of personal finance aren't widely known by tech workers, they are quite simple. If you have the skills to get a job in tech, you can learn them easily.
The tech worker's unfair advantage
Let's start with your unfair advantage: the ability to start saving and investing significant money early.
For tech workers who invest in standard investments over the course of their career, the money earned from those investments will dwarf the income saved from working.
This idea is unintuitive to most people and the reasons behind it will be explained in the next post. But before getting into the details, it's important to emphasize the basics:
- Investments and the returns they provide can be critical to your future
- The earlier you start to invest, the more your money will grow (much more than someone who invests the same amount of money but later)
- Because tech workers are so well-paid, they have no excuse not to capitalize on this unfair advantage
If you start investing as much as you can, as early as you can, it will be nearly impossible for you to come up short. The easiest way to prove this to you is with an example.
Example: The new grad
Let’s say a new 22-year old grad gets hired to work for a social networking startup in Silicon Valley (this may not be your case, but it’s just an example. You can play with your own numbers below). Some facts6:
The grad has a total compensation of $120,000. They manage to save half of that ($60,000) each year (a very ambitious savings rate but not impossible when they're pulling that much income)
They are starting out with $0 in savings and $0 in debt (lucky, with today’s cost of education, perhaps they went to a state school on scholarship)
They never get any kind of promotion, raise, or extra bonus or stock compensation for 30 years (now this is conservative!)
They invest their yearly savings in a Total US Stock market index fund (we’ll explain what that means later), which we’ll estimate to return 8.73% per year on average (since this is the average the US stock market has returned between 1871 and 20187)
Example continued: What does their bank account look like after 30 years?
The graph below shows the grad's income over 30 years of investing, and how much of their income they saved from work (savings) vs. how much they earned from investments. The graph is stacked (investment returns sit on top of savings) so you can see their total account balance.
Enter your own inputs in the form next to the graph to see how your bank account might grow over time.
Inputs (try your own numbers)
|Year||Net Worth||$$ saved||$$ earned from investing||% earned from investing|
First of all, when I said rich, did you realize I was talking that rich? Can you believe that this new grad would have almost $8 million after 30 years?
Second, looking at the graph, you can see that for their first 10 years of work, most of the money in the account comes from the savings they’ve accumulated (the $60,000 they’re stashing away each year). But after year 10, their "investment returns" are adding more money to the account than their savings. By year 20, the investments have produced more money (in total, over the years) than their six-figure job did.
I’ll explain later where all this "investment return" is coming from, but it’s important to stress that while the savings from the new grad’s salary accounted for most of the grad’s net-worth in the early years, the investment returns end up having more total impact.
Investments and the returns they provide are important! Investment returns are likely to earn you way more than your job compensation over the course of your career.
It takes time for investments to start returning significant income. The earlier you start investing and the more you invest, the sooner you are likely to start seeing significant returns.