#2 The Biggest Financial Mistakes Tech Professionals Make - And How to Avoid Them

You are listening to WealthBytes, the best show on the planet for tech professionals who wants to take tax-smart decisions, make money, and retire early with clarity and confidence. You are about to get the real deal from building your emergency funds to investing like a pro. I am the founder of MyWealthChoice, with 20 years of experience helping tech professionals take tax-smart decisions. Welcome to today's episode of WealthBytes. Today I'll be talking about the biggest financial mistakes tech professionals make. I have worked with tech professionals for years and I've interviewed them on different occasions to understand their relationship with money and what mistakes they made during their careers. Inspired by 20 years of experience and interviews with top tech industry leaders from Amazon, Microsoft, Uber, and Apple. So the first mistake tech leaders spoke about was underestimating lifestyle costs. Many high-income tech professionals assume that their salary will always cover their expenses. But lifestyle creep is real, and that's what they usually miss. As income increases, so do expenses. Tech professionals usually aim for better housing, more frequent travel, and more high-end gadgets. Not to mention eating out and dining out. What you need to understand is that there are a lot of things that you can do to save money. The first thing to understand is that your salary today may be high, but expenses can grow just as fast if not planned for. If you lose your job or want to take a break, will your savings support your current lifestyle? And here comes the importance of having a solid budget. A good practice is to track expenses and set lifestyle boundaries, ensuring you are saving and investing a portion of your income. A very healthy exercise for you is to consider creating a burn rate. Which basically means, how long you could sustain your current lifestyle if you stopped working today. So, to sum it up, what I want to say is, you need to be mindful of your expenses and how they change when you make more money or get a raise. The second mistake that got discussed in those interviews is that many tech professionals accumulate a large portion of their wealth in company stocks through RSUs or ESPPs. The third mistake that got discussed in those interviews is that many tech professionals accumulate a large portion of their wealth in company stocks through RSUs or ESPPs. While this can be a lucrative option, it also has its own risks. If you have a concentrated portfolio, it means your financial future is tied to one company's performance. If the stock drops or the company faces challenges, your wealth could take a huge hit. You have to remember that those companies are led by human beings, and human beings make mistakes. My advice for you: do not overexpose yourself, and your wealth, and your financial future to uncertainties that you cannot control. We have seen before examples at companies like Meta, Amazon, and Google, and how first-hand those employees saw the stock downturns wiped out significant wealth. This can significantly change your plans if you're planning to get a bonus by the end of the year and put it as a deposit for investment property, or planning for holidays. This can be significantly changing. I have seen many professionals keeping their shares and delaying diversification because of tax concerns, or loyalty to their companies and also expecting further stock growth. However, it is essential to sell vested stock regularly to spread your risks. So you need to consider a structured diversification plan that considers selling stocks in a tax-efficient way over time to minimize capital gains tax. But many fail to structure their wealth effectively to reduce their tax burden in the short and long term. One of the most common mistakes I see with clients is that they start holding all investments in their personal names. And this basically means paying maximum tax rates on investment returns. Instead, what you can do is using a tax-efficient structure like superannuation for your long-term wealth building. It's worth noting that superannuation is the best tax environment in Australia. No matter how smart you are and how complex your strategies are, you cannot beat the superannuation 15% tax. The difference between the 15% tax inside super and your top marginal tax bracket, which is approximately 45%, is actually 30%. This 30% can make a significant difference in your wealth building on the long term. The other attractive structure that I usually use with my clients are investment bonds. Investment bonds is actually another great alternative for tax deferred growth. They are treated individually or separately from your income tax bracket. What this means is that you're able to invest in a tax bracket lower than your tax bracket. And in the long term, if you hold these investment bonds long enough, you could potentially sell them capital gains free. There are a lot of features in the investment bonds. And there are also a lot of eligibility criteria to be able to claim those tax deductions. It's worth noting that investment bonds have a strange name. They're not actually bonds in the traditional name of being invested in safe investments like bonds. you life, disability, and perhaps income protection that is paid through them. It's actually a great perk, but you need to ensure that the insurance that is set up for you is relevant to your circumstances. I know for a fact that some tech companies offers you multiples of your income as insurance, but usually this is not sufficient if you have significant debt or you have a young family. Another aspect is having no will or power of attorney. It means that your assets may not go to your intended beneficiaries. If something happens to you, your family could face legal complications and financial hardships, especially in situations of mixed marriages or co-parenting. Worth mentioning that lack of income protection insurance means losing your ability to earn could wipe out your wealth in month. I recently worked with a highly paid engineer, who has been doing a lot of research on how to save money and how to save money. He suffered a health issue, and he couldn't work for more than 12 months, and he had to burn through savings instead of relying on insurance. This was a hard lesson to learn. And in that sense, I highly recommend that you review your insurances with a financial planner. If it's enough for your circumstances and your protection needs, then no harm, but it's worth checking. You need to understand that the right protection plan ensures financial security for your family and preserves the wealth you have been building for years. A number seven is solely relying on salary instead of building passive income. If you rely only on salary, no matter how high, it limits your financial independence. The goal is to build assets that can generate income even if you stop working. As we all know, tech salaries are great, but they come with job risks like layoffs, burnout, and career shifts. So passive income sources like rental properties, dividends, side businesses, or investments provide you financial flexibility. I recently worked with a highly paid engineer, who has been doing a lot of research on how to build a real estate business for over 10 years, and now he earns passive income that covers almost 60% of his expenses. And that is what I call walkaway money. This walkaway money is your plan B. It allows you to walk away from anything that you don't like. An employer that's putting you under stress for 50 or 60 hours a week, or a toxic work environment that you don't really want to be part of. So having this walkaway money gives you the ability to work from home, and it gives you the independence and the option to make a choice. You don't really have to have a significant portfolio of assets. You can start small by allocating a portion of your income to assets that generate income, so you are not 100% dependent on your job. And on that point, I would like to highlight that you need to allocate a percentage of your income, not a set amount. Because what I usually see with my clients is that they are setting a fixed amount, like $2,000 a month, and then they go through a pay rise or a change in job, and they are earning more while continuing to have only $2,000 invested. An example is a client that I had who was earning $180,000 per year, and he allocated $700 a month for investments. Fast forward 12 months, he had another job earning $300,000. And guess what? He kept the $700 a month. And this is not the right way to do it. The right way is actually to allocate a percentage so that when you get a pay rise, your percentage increase automatically. This ensures that your wealth building plan is catching up with your career progression. Now, I have summed up the most common mistakes for high-earning tech professionals, and avoiding these mistakes can accelerate your journey to financial independence and having more wealth choices. So now, your action steps are to review your finances and identify which mistakes you might be making. Consider working with a professional, a financial planner, to optimize your taxes, investments, and wealth, strategies. And most importantly, start diversifying your income and investments to protect against financial risks. Your RSUs and ESPPs can be a significant start point for you. Thank you so much for your time, and thanks for listening to this podcast. If you found it valuable, connect with me on LinkedIn, or email me on moe at mywealthchoice.com.au. Have a great day. Thank you.