There are lots of guides on financial planning. But how should they change for hackers? Here’s 5 rule tweaks to follow:
- Buy lattes
- Don’t buy a house
- Buy more bonds
- Keep a larger cash reserve
- Don’t try to beat the market, even if you can
Number 1: Buy lattes.
Every financial planning book has some example where if you cut out buying a latte each day, then you’ll end up a millionaire in 30 years. Take this into account, but as a hacker you should be buying more lattes than the average person, as long as you’re having them with other people. Why? Because in the startup world you need to network, network, and network. How much would you pay now to have a coffee with Zuckerberg or Page or Brin? Well, 15 years ago it would have been just a couple of dollars. Hackers meet more future CEOs than other people, so they should be investing more in developing their social networks, and that means buying more lattes.
Number 2: Don’t buy a house
Rather, be less eager to buy a house than other people. Renting is buying flexibility – the flexibility to move around Silicon Valley or across the country to join a promising new thing. You can take advantage of that flexibility more than the average person, so tilt towards renting more.
Number 3: Buy more bonds
As a hacker, you’re in a risky business, and already highly exposed to the stock market via possible options. You should buy more bonds than the average person to reduce that risk.
Number 4: Keep a larger cash reserve
Everyone should have a cash reserve, but you should have a larger one than most. First, because we’re in a bubble and who knows when it’s going to burst. But, most importantly, it gives you the freedom to not have income for some time while you’re building the next big thing. Other people aren’t going to do this – they don’t need as much as you.
and finally, Number 5: Don’t try to beat the market, even if you can
You probably can’t beat the market, so don’t bother. But suppose you (think you) can. Even then, don’t bother getting fancy. Why? Because the time you spend on perfecting your trading algorithm is time taken away from networking, increasing your skills, or perfecting your real money-making idea. (Of course, if you’re planning to work in finance, then your trading algorithm is your money-making idea, so work on that, and get coffees with hedge-fund managers.) Scott Locklin recommends you invest in small businesses rather than the stock market, but that sounds like work.
The average return is fine – wouldn’t you rather have 5% return on a billion dollars than 7% on ten thousand?
(Disclaimer: I am not a financial planner. You should not get your financial planning advice from some random guy on the Internet.)