In this post, I’ll discuss tactics for achieving Financial Independence while working as a permanent employee in the Tech industry.
I’ll start by saying that it’s my belief that for most of us a long-term permanent job is the least optimal route to financial independence. It lacks the flexibility and higher incomes offered by contracting and isn’t scalable like owning a business. You’re generally in a situation where you’re working to make others richer (i.e. the shareholders of the business that you’re working for) and therefore the economic incentives are stacked against you. However, it does come with some pretty neat tactical advantages. Let’s go through some of these.
Techies need to keep our skills updated and relevant to increase our employability and value in the job market. The best way to do this is through employer-sponsored training or just working on projects that will give you the skills that you’re after. Taking on a permanent role in order to pick up new skills is perfectly reasonable and it’s fine to mention this in a job interview. Saying, “I’m really interested in this position because I see that you’re using Agile/React/Jira (or anything else) and this is something that I’d love to add to my skill set”, shows initiative and many employers like hearing this sort of thing.
Super and KiwiSaver
By hiring you as a permanent staffer your employer is going to have to contribute to your Super (in Australia) or KiwiSaver (in NZ). This does add an annoying financial planning complexity for those of aiming to FIRE earlier than 65 in that we need to keep track of two streams of retirement savings. One is Super – which we can access after we hit preservation age and the other is our own FIRE investments that will take us up to our preservation age. Having a bunch of assets locked away like this isn’t ideal and actually counts pretty heavily against permanent work. For those of us with the discipline not to need forced retirement savings, it would be much better just to get our employer super contributions as extra pay. However, this isn’t to be and Super does provide a very tax efficient way of receiving income and investing it so having an employer dumping money into our retirement account isn’t wholly a bad thing.
Paid Maternity and Paternity Leave
Having kids is expensive and raising them through the first few years is hard, tiring work. Having a nice cushy job with an employer that offers flexible hours, sick leave and who lets you take a decent chunk of time off when the child is born is a really good thing. Family planning and Financial planning often coincide in life and during these times a family-friendly work environment is, tactically, the right place to be.
It’s really, really sad that the greatest financial windfall that most employees get is when they get booted out of their job. In every large company I’ve worked for, there’s been a restructure and with it a demoralized gang of staff hanging around to see if they’ll be the lucky ones to pick up a redundancy cheque. Despite considerable effort, I’ve never managed to get made redundant. However, I’ve been caught up in them and the amounts paid out to long-serving staff can be extremely lucrative. As in “now we can buy a house” lucrative. It’s not a valid FI tactic to pick up a job in the hope that you’ll be made redundant but it can have a major financial impact if it happens. Note, I’m assuming that because you’re in tech, that finding another job straight after your redundancy will be easy enough. Redundancy mightn’t be such a good thing if it takes you a year to find another job.
Share Schemes and Startups
Finally, some permanent jobs offer employee share schemes. This is usually the case in Startups and large enterprises like the Banks. For those for that have already adopted a FIRE mentality and are comfortable managing our own investments I honestly don’t see a share scheme in the large corporate to be of much value. If you’re being vested shares then it’s usually just another sneaky incentive to keep you hanging around. You need to ask yourself: if my employer just paid me cash instead of all these shares then would I use the cash to buy shares in my employer? The answer is most likely no, you’d invest in an ETF or LIC instead. It’s best to think of them as an annoying top-up to your salary and don’t fall into the trap of feeling tied to a company in order to access your next batch of share entitlements. The same applies to corporate bonus schemes, they’re just another incentive that works in the corporations’ favor rather than that of the employee.
Startup share schemes are different. They aren’t usually publicly traded and hence don’t have the same cash correlation that a corporate share scheme has. They can work out to be very lucrative, or worth nothing at all. Also, unlike a job at a corporation, you’ll likely be able to influence the success of the Startup and hence the value of your shares. They do usually mean that you’ll be taking a lower pay as the Startup will be giving you shares to make up for the fact that they can’t pay you market rates. Ultimately taking a permanent role at a startup that offers shares as part of its salary package is a gamble. If you’re young, have low living expenses, are prepared to work hard and are passionate about what the business is doing then go for it. If the Startup fails you’ll still learn heaps. If it succeeds then you might just be able to retire at 25. If you’re a little older, are coasting to FIRE and are willing to take a punt then maybe you could also give it a go.
Everything I’ve talked about above applies to both tech and non-tech permanent jobs. Except for the Startup opportunity. With tech skills, you have an option that is unavailable to people is almost every other industry. You can join a tech startup, get paid a decent salary and receive shares that might one day be worth an absolutely outrageous amount of money. If you’re a teacher, nurse, banker, truck driver or anyone else wanting to pursue financial independence then the path is a simple and predictable long hard slog of working, investing and working some more. In Tech we have a fast track we can take. And it doesn’t really come with any risk. My consul is to give that some serious consideration.