Developers tend to earn a decent amount of money. Although this varies from country to country and job to job, it is true most of the time. So what to do with all the money? Invest it!
How much money is enough money to even start thinking about investing it? As with so many things in life: it depends™.
How much money do you earn? Do you have a car? How much is your rent? Do you have to spend a lot of money on something in the near future? How good is the social security system in your country?
A general rule of thumb is to keep at least two months’ income in your bank account. Depending on your situation (see the factors I listed above) this number may be up to five or even ten times your monthly income.
In the end it’s up to you how much safety you want in your live. Keep in mind: money you invest may not be available for a long period. Your investment may temporarily loose a lot of value if you have to liquidate it at a certain time and there is always the possibility of a dead loss.
Invest in yourself
The safest and best way to invest money is to invest it in yourself. Learn new things, buy books, buy stuff that makes you more efficient, travel to conferences,…
Your time is a valuable resource, maybe the most valuable thing you have. Spend your precious time on things that make you smarter and a overall better human. Use your time to do something for other people. Don’t waste your time watching TV.
The return rate will be exponential.
Developers are in the privileged position, that there are tons of free learning resources available on the internet. Use them but don’t be cheap and miss out on some great non-fee resources that are out there.
My personal favorite learning resource is laracasts.com it has a ton of useful videos and Jeffrey Way, the guy behind Laracasts, is a overall great person.
Not everything you learn has to be related to programming. Most of the time I read books to become a more knowledgeable human in general. Recently I’ve read 7 Habits Of Highly Effective People by Stephen R. Covey and I learned some things about living an effective life.
Don’t try to save money by buying cheap hardware (if you are an employer, don’t try to save money by buying cheap hardware for your employees).
The tools required to be a developer are in itself very cheap (compared to many other professions). With an investment of 5.000 € you can easily build software worth hundred of thousands of Euros.
So don’t be cheap when it comes to buying hardware: buy a maxed out MacBook Pro, Dell XPS or Surface Pro. For the love of God stay away from Acer. Buy a decent monitor (or two) with at least 2560x1440 pixels resolution.
So you invested in yourself, learned a lot, bought books and great hardware and there is still money left? Now is the time to think about capital investment.
Although not the most profitable way of investing money (especially for small investors) real estate is one of the safer options you have. Mortgages are currently very cheap so if you plan on investing in real estate, now is a great time to do so.
Keep in mind though, that profit rates for real estate are historically in the 3-4% range. If you discount a 2% mortgage rate you can expect profits in the range of 1-2% per year. Which is pretty much the same you can expect from a (long term) savings account.
Keep your mortgage term low. Between 10-15 years is ok – lower is better (as long as you can afford the monthly payments).
Investing in stocks is risky – you can loose a lot or even all your money – but it is also one of the more profitable ways of investing. Historically speaking profit rates on stocks are between 6-7% per year (on average over the last 30 years).
If you do not want to spend a lot of time managing your portfolio, the smartest thing you can do is to invest in a broad-based index fund that tracks the S&P 500. That way your capital grows at the rate the S&P grows.
If you still want to pick stocks, only buy stocks from businesses you understand.
Investing in LEGO? Sounds silly and it may is – but for LEGO fans like me, it surely is the most fun way of investing money and it even can be quite profitable.
Rare LEGO sets gain value over time. The hard part is to know which LEGO sets will gain value (and that you are not supposed to build the LEGO sets yourself 😞).
The best place to learn more about LEGO investing is brickpicker.com.
Don’t spend (too much) money on…
Do not buy a new car – ever. A new car looses 30% of its value in the first year. I know there are many people out there who value cars much more than I do. Just ask yourself: “How much more happy I’m with a new car than I would be with a one year old car?”.
I like gadgets. I like smartphones and tablets and all of the other nice electronic stuff. But very often those are toys which waste more time than they gain you.
Try to keep your smartphones for more than one year and resist the urge to always have the latest and greatest gadgets.
There are a lot of possibilities for investing money. Some are safe bets (like investing in yourself) and some are very risky (stocks). Do not waste your money and most importantly: do not waste your time.