Educating yourself in personal finance might be one of the highest leverage activities you can do to achieve your financial goals. As a software engineer, I love learning about systems, and what better system to learn about than personal finance?

Take compound interest, for example. If someone invests $100 per month from ages 25 to 35, and someone else invests the same amount from 35 to 65, the amount they’ll have at 65 will be approximately the same due to compound interest. The sooner you can start making and following a plan, the better your chances of achieving your financial goals.

It’s hard to grasp that decisions we make early in our careers can have long-term implications. We quickly learn not to touch a hot stove because it’s immediately painful, but some financial decisions may not be felt for a long time.

Financial concepts, like compound interest, can be powerful forces when they work in your favor. On the flip side, getting into debt (particularly credit card debt) can cause the same power to work against you.


Before we dive in, a few disclaimers:

  • Not financial advice: I am not a financial professional and have no specialized training or licenses. I’m presenting these findings as informational only. Please do your own research.
  • Consult a CPA or fee-only financial planner: If you have a complex financial situation or a large portfolio, it may be helpful to talk to a professional. Fee-only financial advisors can be a good resource, as they don’t have a vested interest in managing your portfolio and taking an ongoing cut. NAPFA is a good place to find these folks.
  • Not specific to software engineering.: While the title talks about software engineering, this post applies to people in any field. I mention it because it’s the lens I use.
  • US-centric perspective. My apologies if you’re in another country as I know those systems less.

Make a budget

If you research personal finance, one of the first steps (like in this flowchart) they recommend is creating a budget. It’s an important, if unexciting, step!

If you’re not tracking your spending, there’s a good chance you’re spending more than you think on non-essential items or those which don’t give you joy. Either way, it’s easy to lose track!

Options for preparing and maintaining a budget:

  1. Spreadsheet or pen-and-paper. Manual but effective!
  2. You Need a Budget: Allows you to track incoming money and categorize it into buckets of expected spending. Great for specific goals like buying a house.

3.Monarch (affiliate link): I use Monarch to get an overall picture of accounts and money flow. So far, I like it.

Pay yourself first

If you can, live below your means. Try to spend less than you make each month. For example, if you get a raise, adjust your savings rate so it automatically gets put into a retirement account or separate savings account.

It can be tempting to treat a bank account balance like one big pot of money. Setting up automatic payments and investments builds good habits. If the money doesn’t stay in your bank account for long, it’s easier to learn to live without it.

Lastly, investing in yourself is often a great investment. Education, health, etc, can all be high leverage for a low long-term cost.

Make a Plan

Do you have short-term goals like saving up for a car or getting out of credit card debt? That’ll change your priorities and the amount of risk you can take on.

After you’ve made a budget, you can follow a flowchart for recommendations.

In short:

  1. Pay necessary expenses
  2. Prioritize paying down high interest debt
  3. (If possible) save up to your company’s 401K match (more on this later)
  4. Invest according to your goals from there

Investment Policy Statements

Having a plan is helpful! I suggest creating an Investment Policy Statement (IPS). It can include your goals and your plan for managing investments. Add a time delay component to any changes. Write what you’re planning to change and see if you still want to make that change after 30-90 days before implementing it.

Dealing with emotion

We’re emotional creatures. Even when we think we can handle a big loss, seeing it in practice can feel different. We’re wired to pay more attention to painful losses than the gains. The best way to deal with emotion is to make and stick to a plan.

Long term savings: Pretax vs Post Tax vs Taxable

As part of your plan, consider how you want to save for long-term goals, like retirement. Understanding differences between pre-tax, post-tax, and taxable accounts can be helpful.

Here’s a brief summary of the most common account types:

  • 401k: Employee-sponsored retirement plan that allows you to contribute pre-tax income towards investments. This results in immediate tax savings because it lowers your taxable income for the year. When you go to withdraw from the account in retirement, it’s subject to income tax.
  • Roth IRA: Individual retirement account that allows tax-free growth and withdrawals. Contributions are made with after-tax dollars, meaning you don’t receive an immediate tax deduction for your contributions. However, withdrawals in retirement, including earnings, are tax-free.
  • Brokerage account: Taxable account that allows you to buy and sell a range of investments. Unlike retirement accounts, contributions here are made with after-tax dollars, and you don’t receive any special tax advantages.

This is a non-exhaustive list, but these are the ones you’re most likely to encounter.

Investment choices & philosophy

If you’re ready to start thinking about investments, here’s a few considerations and recommendations:

  • Diversify: Spread your investments across companies, industries, and investment types to reduce risk. By diversifying, you can minimize individual losses and improve your portfolio’s overall stability.
  • Stock vs bond: Stocks represent company ownership and
    have potential for higher return but come with higher volatility and risk. Bonds are issued by governments or corporations and provide regular interest payments with typically more stability. Balance between stocks and bonds based on your risk tolerance, goals, and time horizon.
  • US vs International: Investing in global markets can help with diversification. While the US stock market has delivered strong returns, international markets offer access to more industries and emerging markets with growth potential.
  • Favor passive funds over active management: Research shows that actively managed funds often underperform passive index funds over the long term, usually because of higher fees and lower diversification. Passive funds, such as index funds and exchange-traded funds (ETFs), follow a stock market index, allowing for diversification at lower cost.
  • Target date funds: These mutual funds automatically adjust their asset allocation based on your target retirement date. They start with a higher allocation to stocks in the early years and gradually shift towards more conservative investments (bonds) as your retirement approaches. They’re a great option if you’re just starting out or prefer a hands-off approach to investing.

Advanced Topics

As you become more experienced in personal finance and investing, you may be interested in exploring more advanced topics. Here’s some I recommend researching:

  • What to do with company stock: If you receive company stock as part of your compensation, consider how you want to manage it. Holding company stock can provide great upside if the company performs well, though it also exposes you to risk if the price declines. For example, if you worked at Enron before it went under and retained all your company stock, you may have lost your job as well as your portfolio’s value.
  • Backdoor Roth IRA: Allows higher-income folks to contribute to a Roth IRA indirectly, bypassing the income limits for direct Roth contributions.
  • Mega Backdoor Roth: Takes the concept of the backdoor Roth one step further by using employer retirement plans, such as a 401k or 403b, to go beyond the traditional 401k annual maximum.
  • 529 Plans: Allows families to save for future education expenses, such as tuitition or room and board. They grow tax-free and some states offer tax advantages for contributing to them.
  • Donor-Advised Funds: A way to give to charity and perhaps gain some tax advantages.

Learning More

I hope this post gave you a start for your personal finance journey, or at least items for further research. If you want to learn more, there’s a few books I suggest:

If you prefer forums, here’s two I’ve followed:

Thanks for reading and I wish you the best of luck on achieving your goals!