You got that nice tech salary, now what? with Tim Schilling

Hi everyone, thank you for joining me today. My name is Tim Schilling. I'm an engineer. I am not a financial planner. I'm not a financial expert. Do not treat this as a financial plan. I'm sharing what I know so that it can help you build a baseline level of knowledge. So that when you do talk to an accountant or financial planner, you have a little bit better understanding. Professionally, I've been using Django since 2012. I started contributing to open source in 2014. I work at a company called Aspire EDU. We do education analytics. We help schools identify students who are at risk so that the school can intervene and help get them back on track. If this type of product is of interest to you, please come talk to me. Over the last couple years, I've also become much more involved in the community.

On that slide is a number of organizations I'm a part of. You've probably heard of some of them at least. If you want to talk about any of them, feel free to talk to me about them. There's also some activities I enjoy doing. I'm happy to talk about those too. Specifically, I am a DjangoCon US organizer and a DEFNA board member. If you had feedback about the conference, please let me know. So, why am I giving this talk? Honestly, it's meant for younger me. And besides a haircut, that kid needed some financial knowledge. So when I was entering the industry, the only financial knowledge I had was: if your company offers a 401k match, match it. Which is, by the way, fantastic and true advice. Always use the match.

But my parents' life planning for me ended when I got accepted into college. We never had a discussion about needing to save for retirement or how much to save or how to go about it. I imagine there are several people in our community that can relate to that. And if you've been feeling uncomfortable or overwhelmed when you think about finances, I've been there. And I hope I can help. Because being assured in your financial standing means being less stressed. When you're less stressed, you're more likely to be happy And you're more likely to be able to help others. And I would make the argument by extension, it makes contributing to open source easier. My goal for this talk is that you will know more than you do right now. That you're more comfortable when you're thinking about your finances, and that in the future, when you're less stressed, we can collaborate on more interesting topics like Django.

So, in the interest of helping you know more, here's everything. Big fan of repetition, so we're just gonna rip through them. One, set up financial goals. Two, determine your savings needs. Three, determine your current expenses. 4. Define a monthly budget. 5. Check in financially every 3 to 6 months. 6. Max out your tax advantage accounts. 7. Index funds, not managed funds. Eight, term life insurance, not whole life insurance. Nine, go read the personal finance subreddits wiki. The other bit I want to mention up front is what my wife tells me every time I stress out over finances. It's only money, it'll all be okay. So let's get to it. The first step is goal setting. What do you want your future to look like? We need to know what we're aiming for

so we know how much money it'll take to make that a reality. Personally, I find goal setting a challenging exercise. It's hard to slow my mind down from the here and now to contemplate my future If goal setting is not your thing, try mixing up with something else out of your normal routine. Go for a walk in a new neighborhood, stop at a new cafe, go to a new park. Try to contemplate what you want your retirement years to be like. Think about the day-to-day. Are you looking to support anyone? Consider vacations and holidays. You're trying to determine your standard of living in comparison to yours today. So now that we have an idea of where we want to be, we can work backwards. We need to reduce that future down into two numbers, what age we're looking to retire at and the amount of savings needed for retirement.

We need to know how much we need to save and by what age. Thankfully, we can calculate those using a tool. In the last few years, I was introduced to financial independence retire early calculators, also known as fire calculators. In its most simplistic form, it takes your current savings, your monthly savings, and your future expenses, expected future expenses, to determine when you can retire. So I'm going to run us through an example. We're gonna say we are oh good that looks nice. We're a 25-year-old. We just got a job making $70,000 after taxes, which makes things easier for us. First of all, it's a pretty good gig. Uh to see when we retire, this is actually nestegly. com 's uh calculator. I took a screenshot because it was not easy to read otherwise.

So uh running through it at the top it says how old are we? We are 25 years old. How much have we currently saved? Big whopping zero. How much are we currently saving? So we're going to assume we spend $65,000 a year. So we are saving $5,000. We make $70,000, spend $65,000, $5,000. Lastly, how much do we want to spend in our retirement? I'm gonna make a decision for us. We're gonna spend more than we do right now. We're gonna spend eighty thousand dollars. We want to take a couple extra vacations, you know, live it up a little. Unfortunately, we'd have to work until we're 80 before we can stop working. Not really ideal. But that's just part of the story. If we continue to work hard, learn more, we can get a senior role. So let's flash forward to number 30. And we've just gotten a job earning $135,000

after taxes. So we start plugging in our information. The things are gonna get a little weird because we have to account for inflation now, but bear with me. It's math. Uh so we're 30. How much have we saved? Nearly twenty-eight thousand. Uh there's some inflate uh interest in there. How much are our current expenses? So I'm gonna make the assumption that we are super duper super duper frugal and have not changed our spending habits at all. Yes, this is unrealistic, but it makes the hypothetical more fun However, just because we haven't changed our spending habits does not mean that 65,000 stays the same. Five years in advance with inflation, that turns into 73,500. So we take our income, 135,000 minus 73,500. comes to $61,500. That's our new amount that we save every year.

Similarly, how much we are going to spend in the future has also changed because of inflation. So $80,000 five years later is $90,500. As you can probably read multiple times now, you could retire when you're 52, significantly better than 80. The other thing I want to point out here, so we drop that. Initial savings down to zero, it still says you can retire at fifty-two. That's because these calculators are trying to determine when is the earliest you could retire. The major difference here is how much money would be left for your survivors. Now this calculator is pinned to 100, and they have further down on the charts or on the page, there's a chart that shows how much money you have, like your wealth every year. The difference here is at the end, it stops at 100, is how much money is left?

6 million versus roughly 2. 75 million, which we're talking about $3 million. That's a lot of cash, right? But that's seven that's in dollars 70 years from now. So to really make sense of that number, we need to convert it back to today's dollars. So reversing that inflation ends up at 1. 1 million on the left and 500,000 on the right. So $600,000 difference by saving for a little bit in our 20s. That's a pretty big difference. And so I'm hoping by showing this example, like you can understand how you can start planning a little bit for your future. And then also, if you save well, you can really create generational wealth. And so every time I use these fire calculators, I end up doing a bunch of hypotheticals and I spend way more time than I should. So I'm gonna run through one hypothetical.

And I had this plan sort of before Jacob talked earlier today, but Let's say we wanted to donate some money to the DSF out of our estate. Let's say we wanted to do $10 million. Just go really big with it, which by the way ends up like converting down to nearly two million, so that's even more than you wanted. Um with these tools, there's actually an input that says how much money do you want for your survivors, like you've got for your state? We put 10 million in there. This calculation in this exact scenario, it would show that you'd only have to work till you're 54. So two more years of working. And you end up with that much more for the future. Compound interest is wild. Okay, so now that we know how How we want to live during retirement, we know how much we want, how much we need to save, and by what age, we need to start saving each month. And since our income is relatively fixed, our savings are determined by our expenses.

If you're unsure of what all your expenses are, I recommend downloading a CSV from all your bank accounts and credit cards for the last three to six months. And then categorize every single transaction The point of this is to understand where your money is going on a regular basis. The other option is you can estimate it as best you can. So I've listed several expenses that I'm familiar with. Um may not be the same for everybody. At the end, you want to be able to categorize Block your group your expenses from with fixed and adjustable. Fixed expenses are the ones you can't really change without getting in trouble. So think taxes. Uh the ones adjustable expenses are the ones you could probably change to meet any savings goals. I was gonna say streaming apps, but I think this crowd might be more um

attuned to buying domains. To uh help with any budgeting day-to-day budgeting needs, check out the Y uh You Need a Budget app, YNAB. com. It's the go-to tool with budgeting. Um they have several resources to help people stick to their budgets. It's a really great piece of software. What works for me is I have a spreadsheet that lists off all my expenses. Once a year I'll do that three-month exercise where I Download all my CSVs and re-update all my estimates. And then every three months I'm also checking every single one of my retirement accounts to see where they're at The purpose of this for me is awareness. I want to know where my family stands financially so that once a new opportunity comes up or something unexpected, I know where we are and we can make a pretty good decision quickly.

I'd also like to mention something that changed my perspective on expenses, and that is being aware of when I'm on the hedonic treadmill. If you're not sure what the hedonic treadmill is, it means you're permanently spending money for only a temporary increase in happiness. My example of this for me is my relationship with coffee. So When I first started drinking coffee, I was drinking generic grocery store coffee. You know, it was good. I got my caffeine boost, I was happy. And then I discovered my town has a local roastery, and that coffee was amazing. Like every time I drank it, over the moon. Fantastic. Over time, it was still good, but it wasn't giving me that same boost. It just leveled off. The trouble is, when I drink the grocery store coffee, no, it tastes like dirt water.

So now I'm paying a higher regular cost just to maintain my level of happiness. And that's the nature of the hedonic treadmill. And it can prevent you from saving adequately. Though to be clear, you've earned your money. Spend it however you want. It's only money. Excellent. Now that we know what we want for our future, how much we need to save, and by what age, and we're saving the mount to get there every month, we've won, right? Sort of. We now need to put that money into retirement accounts and effectively the stock market. Now this is a logical inclusion for some people, but for younger me, it wasn't. Remember the sunglasses with a sticker on them? I always viewed the stock market as a place to lose my money. In fact, by the time I built up the courage to do something, I had accumulated four to eight times as much money as I should have had in my 0.

5% savings account. And if this is you right now, don't worry. It's a minor mistake. It's only money. Before I continue, I also want to mention another thing. And uh I'm skipping over two very important steps because I'm covering only the investment side of things. You should build up a emergency fund of three months of expenses and payoff high interest debts like credit cards. So back to our question where to invest our savings My general plan is to use any employee matching, max out tax advantage accounts, and buy index funds. So let's start with the employee match, because it's an easy win. We've already covered it. If your employer offers any type of matching, you should absolutely utilize it. For example, if they offer you 100% match on the first 4% of your contribution, that means for every paycheck, you're contributing 4%

into your own retirement count, and then your employer will match that with the same amount. So if your paycheck is $1,000, you would contribute $40 to your retirement account, and then your employer takes another $40 outside of your salary and puts it into it. So another way to think about this is on your initial $40 investment, you see a hundred percent gain. There are zero investment strategies that are ever going to match that. So always use the employer's match. The next statement was to max out tax advantage accounts. Tax advantage means that it's exempt from some taxes. Not all of them, but some. This comes at a cost though. Typically it's that you can only contribute so much per year and that you can only access this money when you

reach a certain age. There are some exceptions, but I'm not covering those. Uh it's outside the scope here. The two relevant taxes in the US are income and capital gains tax. Capital gains tax, if you're not familiar, is the money you pay the government for any profit you make off an investment. If you buy a tax advantage account will avo help you avoid one of these two taxes. And so let's look the other way. If you buy an index fund for your own personal brokerage account, You'd be paying income tax, so you're buying that fund with money that's already been taxed there, and then any profit you make off it, you then pay capital gains tax. So with a tax advantage account, you're avoiding some of that tax. So you have more money to accrue interest and generate more wealth. That's why you want to maximize your tax advantage accounts before purchasing funds for yourself or on your own.

The other thing to mention is not everybody has access in the US to all these tax advantage accounts. If you are a freelancer or a small business owner, please contact an accountant. They will help you navigate this. If you're a full-time employee, check your benefits guides for any of these terms. If you see them, do some additional research, then reach out to an accountant or a financial planner. For folks not in the US, things it's gonna be dependent on every country. I recently found out that some countries have a nationalized pension that you have to contribute into. But yeah, I would suggest reaching out to a trusted colleague, talk to an accountant, talk to a financial planner. They can help you with that. There's also international personal finance subreddits that are helpful. They're not for every country, but there are some out there

Also, I'm not gonna go into detail on all those accounts. I do want to mention two of them though because they're special. That is the HSA and the 529. So the HSA is something you can invest in through if you use a high deductible health insurance plan. You can also only spend that money on healthcare expenses. And then the 529 is something you can only spend on education expenses. So while these are useful to everybody, when you start having dependents, they become much more useful. Alright, so with any of those previous account uh accounts that I mentioned, you still face the question, what do I invest in? If you're using the employer plan, you're gonna have pretty limited options. So it's it 's a little difficult. Uh if you're purchasing funds for your own personal brokerage account, say like a Roth

IRA, you're gonna have access to many more funds My current long-term investment strategy is to maintain a balance of 50% US stocks, 30% international, and then 20% bonds. As you gain more confidence, you're gonna realize all those numbers are subjective and they should be tweaked. The reason though why you want sign at least when you're younger, earlier on before retirement, why you want fewer bonds. is because they're going to have less growth. However, they are less risky. A bond can be thought of as a loan that you provide an entity. So when you buy a bond, you give an entity some money, they agree to pay you back a set amount a certain amount of time later. With stock, you're buying ownership into a company and you only make or lose money when you sell it. So if the company's worth more, you make some money. If the company is worth less, you've actually lost money.

It's why stocks are more risky. It's why you want a balance between stocks and bonds. And that balance is going to be different for every single person. Everyone has their own life expens uh life circumstances. And so your risk tolerances are going to be different. Also, as you get older, your risk tolerance changes. You're probably going to be less willing to risk your savings for future growth the older that you get. So now while you can go out and buy a company stock directly, that's not something I do. I instead prefer to diversify, reduce my risk by purchasing an index fund. Index funds are funds that track a specific Uh stock market benchmark. For example, there's VTI, Vanguard Total Stock Market Index Fund. This index fund tracks the entire US stock market. So when you buy a share of this fund, you're investing into a pool of money.

that is holdings that represent the entire US stock market. So stocks are naturally risky, but this type of stock is less risky because a single company tanking isn't going to deplete your retirement account. On the other hand, your gains are gonna be more measured because not every company in the US is gonna do well. Eventually with these index funds, you're gonna want to know something about large cap, medium cap, small cap. And then a few months ago I even realize Found out that there's something called microcaps. Be honest, I barely I understand them a little bit. The overly simplified version is that they are relative to the company's size. And you want to maintain roughly 70% large cap with the remainder being medium and small. When looking at a fund, I like to make sure that I'm purchasing an index fund, and so I will check to make sure it says index in the name or the description.

The alternative is a managed fund. A managed fund is one that is a human buying and selling stocks. Effectively, they're timing the market. I have a Future reference to this, but yeah. You also should check the expense ratio. The expense ratio is the amount you pay on any gains for the year. So again, the lower this number the well not again. Again, uh The lower this number, the better, because you're retaining more of the money for your future interest. You should be looking for values that are close to 0. 18%, though you can find values closer to 0. 03% through providers like Vanguard. An alternative to selecting your own funds and balancing your portfolio yourself would be to use an index target uh target date index fund. I have never gotten that right yet.

This means that someone is there allocating your money across index funds to match the level of risk that is common to a person that's looking to retire retire by a certain date. Which is a lot. So let's go uh break it down a little. So if you invest in a target date fund of 2070, that means right now it's gonna be pretty stock heavy. Uh if you're investing in a target date of 2070, it means you want to retire in 2070. So right now it's stock heavy. In 2060, however, they're going to reallocate it to be more bond-heavy because you're not going to have as much time to have future gains make up for any current losses. If you're looking for the easiest option, this is a good one. You do want to check though that you're using an index target date fund, because otherwise you're using that actively managed plan and you're potentially paying more

for worse results. So we're through all the main information I want to provide. Now we're to the part where I caution warning about some things. So these are from my experience. They are entirely catered to my life circumstances. They do not apply to everybody, but I do feel strongly about them enough to say something here publicly. The first is whole life insurance. It's marketed uh it's not marketed, it is two things. It's part life insurance and part uh retirement account. So it acts as life insurance. So if something happens to you, there's money for your survivors. But then there's also a component that at a certain age you can start withdrawing money back from it. Now it the premium on this is much higher than term life insurance. So

that blurred line of being life insurance and an investment account, I I could never argue confidently with a financial planner. Like this doesn't make sense, because I just didn't understand it. And so like that lack of confidence, I couldn't tell a financial planner no, ended up investing in this for a significant amount of time. But everything I've read since then indicates a person like myself doesn't make sense for. Because when you can use term life insurance, it's a very low cost when you're younger. And then if you build up enough savings that kind of exceeds what your life insurance, your term life insurance policy is, then you don't need life insurance anymore. So why pay for having an entire another retirement account that has worse results that you're paying even more into? It just didn't make sense for me. However, when I did look this up to try some find some definitive answer, like this is a scam, couldn't find it.

Because there are cases in which this does actually make sense. For example, if you have long-term dependence, this might be a good option for you. The other warning is around managed funds. A managed fund is one where a human buys and sells stocks according to their knowledge and understanding of the market. Like these are your professional brokers. There's evidence that shows over the long term a broad index investment strategy outperforms uh a human any human controlled one. One of um additionally, besides earning you less money, there's additional cost to it. One of the first funds that I invested into had a 8% charge on all money coming in. So for every dollar I put in, I was actually only able to accrue interest on 80 cents of it.

So now looking back at it and knowing a little bit more, like, yeah, that was that one wasn't good. And so if you've made these similar choices and you find that they are mistakes, don't worry. They're not catastrophic mistakes. It's only money. So, yeah, that's everything I wanted to share with you. If you'd like to learn more, please check out the Personal Finance Subreddits wiki. Regardless of your feelings about Reddit, this subreddit and its adjacent communities have curated and collected so much financial information. They cover things from timeshares to health insurance to forget what the other one was estate planning. There we go. That's all public and free. It's all curated for you. It's very helpful. They also have this amazing flow chart. That actually walks you through how exactly you should spend your money.

And then yeah, beyond that, now you should be able to go talk to an accountant or financial planner more confidently. I truly do appreciate everyone spending your time with me today. I hope you're able to learn something new. Thank you.