Just before the Twitter IPO, Adam Nash, the CEO of Wealthfront, gave a personal finance talk to Twitter’s engineers. While the presentation was geared toward young, tech-savvy high-earners, much of the advice it contained can be applied to anyone’s finances. Some of the best tips shared with Twitter’s engineers:
Manage Emotions When Investing
Studies show that many people, especially those who work in STEM fields, consider themselves more rational than the average investor. People think that they can beat the averages. But, the truth is that very few people can beat the market. And, those who do are more often lucky than smart.
Instead of playing hunches, work from an investment strategy with an end goal in place. As Nash said in the presentation: smart investing is boring. But, where it lacks thrills and chills, it makes up for it all in financial security.
Have an Emergency Fund
The most basic building block for financial security is an emergency fund. You can’t build for the future if you are constantly being set back by emergencies. The ideal emergency fund should contain three to six months worth of living expenses. If that number is too daunting, start smaller. First build an emergency fund that can carry you through one week’s groceries; once you reach that number, aim for a month’s utilities; then, climb toward even larger goals.
Save for Retirement
The sooner you start, the better. One thousand dollars put into an interest bearing account when you are 25 will grow to several times the size of the same amount put into the same account when you are 40.
Retirement can seem like a very abstract goal when you have so many other things demanding your more immediate attention. But, even a few hundred dollars a year put into an IRA will make things easier on you when you get older.
Maintain a Balanced Portfolio
Never keep all your money in one investment or in one type of investment. The best portfolios mix stocks, bonds, CDs and other instruments. This way, you have a balance of safer but less lucrative investments and higher risk ones that generally pay more over time. You should also change where you invest based on when you will need the cash. As you get closer to retirement or another large financial goal, start putting your money into safer investments.
Most of us will never be high-paid employees of a big-name start-up. But, we can all live better, more exciting lives by managing our finances in ways that maximize the benefits of the money we do have.