STEM careers and finances
You make a living wage and have a strong career, but have you stopped to think about retirement and saving? You are probably doing better than most, because you are good with numbers and have the smarts to be able to handle investing, but what are you doing with those smarts? I interviewed a few of my personal friends to get a better idea of some of the challenges they have with regards to finances and found that their struggles don't really differ that much from my average client.
I get a lot of advisors who target high net worth careers such as doctors and attorneys, but never have I come across someone who claims to specialize in STEM professionals. I don't think it is because of lack of income or need, but I think it is because we all assume you got it handled. Good news is you probably are on a good track, the bad news is you are human and probably are falling short on a few things that almost everyone tends to miss.
If you work a steady W-2 job (one where you have an employer and just get a paycheck), then you probably assume the employer gives you everything you need. If you work for a small firm or are on your own, you might find yourself alone and having to do a lot of personal research.
4 things every STEM Professional MUST have for a good financial life.
1. Long Term Disability Insurance- you worked hard to get the degree and licensing to do your job. Can you think of a friend or family member who got in an accident, was diagnosed with an illness or something else that made them unable to work any longer? This can be devastating as you invested so much of your life into you job yet it can be taken away in an instant. Protecting your income is always wise and easily done with a long term disability insurance policy. Prices can vary and quality of products can also vary. Find a good broker who can shop the right plan for your needs and can craft the policy so it at least fits your budget. It would be horrible to need to use the insurance, but it can be just as detrimental if keeping the policy meant the difference between paying the rent or keeping the policy.
2. Life Insurance- Do you have at least 10x your salary in term insurance? I am finding a trend amongst my younger friends who are sold really small policies based on the fact the policy stays the same [rice their entire life and builds cash value. These sound great, but they fall short from covering your actual needs. If you pass away, how quickly will your kids and/or spouse go through the money and then be stuck creating a GoFundMe account to pay the bills or move in with in-laws? Term life insurance can be super cheap. Don’t be afraid to shop the coverage and work with a good broker. Your auto insurance guy might be a great friend, but chances are he probably only sells one product or company. One size just doesn’t fit all here.
3. 401k/IRA- Some companies offer retirement plans and some smaller ones don’t. You might even be one of the lucky ones and have an actual pension. Whatever your situation is, participating in any retirement plan is a must. The earlier you save the better. Just do the math of compounding interest. If you have large debts, limit yourself to your employer match and/or your maximum allowable Roth IRA contribution limits. As your available savings increases, aim for 15-20% of your income to go towards retirement.
4. Emergency Fund- start with $1,000 but increase it to 3-6 months of income. STEM careers can sometimes fluctuate. One season you are in high demand and others, you struggle to find work. When you get used to a steady job and a good paycheck you can become complacent and often fall into the trap of living paycheck to paycheck. The danger I have found with this is you can easily become an indentured servant to a credit card company as they become your emergency fund.
Frequent questions most people have are more specific to their investments and how they go about saving. Most financial institutions have done an excellent job of confusing people to keep their commissions high, so ask questions. We live in a wonderful time because we can research and become experts in just about anything. The sad news, is you don’t always have the time to invest in becoming an expert in everything. Finding a good expert can make your life better and help you avoid long nights of googling, surfing the web, and reading articles that have nothing to do with you. The sad thing about financial advisors is pretty much anyone can use the title and it can take a little time to find a good one. #1 make sure the advisor understands math. This sounds silly, but you’d be amazed. #2 make sure they are registered as an Investment Advisor with the SEC or their state and it is always best to find someone who has taken the time to learn their industry and has actual initials next to their name just like you do. These do mean something in the industry and should be taken seriously.
Pay off your debts and be smart with your spending. Everyone has unique needs and circumstances. Don’t be afraid to ask questions and seek out the things that can make your life better. After all, you are making life for everyone else better, might as well return the favor to yourself.