Here's a TLDR plan for reaching Financial Independence:
- Get multiple job offers & negotiate compensation
- Max out tax advantaged accounts (especially any with employer match): 401k, HSA, IRA
- Participate in discounted ESPP (and always divest immediately)
- Have a savings rate goal and invest leftover savings in a taxable investment account
- Automate your investments and use index funds
- Keep the big expenses as low as possible: housing, transportation, food
Maxing out tax advantaged accounts is no small feat — you'll be saving roughly $29k per year. If you're able to participate in an ESPP and contribute even more to a taxable investment account, you'll be well on your way to financial independence.
In More Details
1. Get multiple job offers & negotiate compensation — whenever you interview for a new job, interview at multiple companies and negotiate your compensation (base, equity, bonus, and/or benefits)! A small increase, early in your career will have drastic effects on savings due to compound interest. Learn More →
2. Max out tax advantaged accounts Maxing out a 401k is a good idea to get employer match and tax benefits. Some employers also offer a match for an HSA, which you can contribute pre-tax dollars. In addition, you can open up your own Roth IRA for even more savings on taxes.
3. Participate in ESPP (and have a plan to divest immediately) — Employee Stock Purchasing Plans are usually offered with a discount to buy company stock. A common strategy is to purchase as much as you comfortably can, and when those stocks become available to sell — sell them and diversify the sale into index funds immediately. Not all ESPPs offer discounts though, so it may not be worth it to participate in yours. Learn more →
4. Have a savings rate goal and invest leftover in a taxable investment account — any leftover savings can be invested in a regular, taxable investment account. If your employer doesn't offer a 401k or HSA, you can invest in your taxable account instead. Learn More →
5. Automate your investments and use index funds — diversify your investment accounts by using index funds! Index funds are funds that mimic a financial index. For example, instead of buying a single company stock, get VTSAX to have exposure to all US companies. These funds are low cost, low risk, and low maintenance. Consider using two or more funds to form a lazy portfolio. Learn More →
6. Keep big expenses low: housing, transportation, food — keep your expenses low so you can contribute more to your savings. Do the math to decide if you should rent or buy a home. Don't buy or rent a luxury home, find an affordable one. Don't buy a luxury car, get a used one. Don't eat out daily, consider cooking at home. Learn More →
Assumptions and Modifications
This plan makes a lot of assumptions.
- You're not living paycheck-to-paycheck. If you are, please focus on building an emergency savings.
- You don't have high-interest debt. If you do, you'll want to focus on paying those off first.
- At the beginning of your career, you won't be able to max out all benefits. That's ok! Save what you can and increase your savings rate overtime.
- If your employer doesn't offer a benefit (eg 401k, HSA, or ESPP) -- that's ok! Leftover savings can go into a taxable investment account.
This plan will not apply to your circumstances. While it's relatively broad, you may prefer to adapt it to your own preferences. For example:
- instead of maxing out your ESPP, use that money for a down payment on an affordable home
- instead of maxing out on index funds, use that money to buy your first rental property
- instead of getting a high deductible health plan with an HSA, get an insurance plan that meets your specific needs that may not come with an HSA
- instead of working for a company that offers an HSA and ESPP, work at a smaller startup where you can make major contributions and grow quickly as an engineer
Home / Next →
Negotiate Your Salary Negotiate your base, equity, bonus, and benefits
Max Out Your 401k Take advantage of employer match and tax savings
Max Out Your Roth IRA Save additional money in an IRA (via a backdoor)
Participate in ESPP Buy discounted stock purchase and divest immediately
Max Out Your HSA Invest money in a pre-tax (and post-tax!) free account
Use a Taxable Investment Account Don't lose your money to inflation
Use Low Cost Index Funds Save on fees and diversify your nest egg
Budget Expenses Save on the big expenses and keep track of your net worth