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This chapter is from the book

Don’t Live “Three Steps Ahead”

If nothing else, software developers, particularly in the First World, are some of the most well paid people on the planet. Are they on the tier of Hollywood actresses, rap stars, CEOs, and plastic surgeons? Well, no. But they generally are in the top quintile (20 percent) with regard to compensation compared to the general population. Nobody is going to cry too much for the plight of software developers with respect to their paychecks.

Although a primer on personal finance best practices is well beyond the scope of this book, a chapter on surviving could not be considered complete without some words of wisdom about saving for a rainy day. The boom and bust cycles of technology, as pointed out earlier, can play tricks on your mind. For years, it can feel as though you do not need to save money so you can handle the possibility of a layoff. Why bother when you have recruiters calling you once a week, right?

In fact, this feeling makes some feel so invincible that they live “three steps ahead.” Also called “fake it until you make it,” it is the tendency for some to extrapolate current successes in a manner that makes them feel as though buying a 7-Series BMW for $80,000 is a good idea when they are making only $60,000. In general, it is the act of borrowing against an extrapolated expectation of future success. This is also known as “living above your means.”

Sadly, most of the time, what goes up does inevitably come back down. The comedown that occurs when you operate from such a feeling of invincibility is really tough on your mental health. When a recession hits, you discover just how mortal you are with respect to the job market. You can take up each and every survival strategy in this book, but if you work for a company that, for whatever reason, is experiencing sharply declining sales, there is nothing you can do, outside of changing companies, that will make it possible for you to keep a job. Remember, when it comes down to it, “you are what you bill.”

As an individual, you can’t control the sales force, and you certainly can’t control the economy. One truism in life is that it is much easier to control the sail of a ship than it is to control the wind. This is perhaps a more eloquent way of saying concentrate on what you can control. One of the things you can control is your personal standard of living.

Does this mean that technology consultants and their families need to live on Ramen noodles their whole life? Of course not. But it does mean that if you can help it, you should always be building a base of capital, otherwise known as money. Most personal finance experts recommend having three months’ worth of expenses in “safe” savings (no, cattle futures are not safe). My recommendation for consultant software developers is to extend it to 12 months—one full year of expenses.

  • Survival Strategy #10: Live within or, better yet, below your means. All the stuff in the world does not mean a thing if you are in a job you hate. Having low personal expenses and high savings allows you to be more selective about whom you work for and less likely to choose a bad consulting company just because it happens to offer employment.

So how do you do that? Well, notice I didn’t say one year of income. If you are doing this right, your expenses should be well below what your income is. If you make $5,000 per month after taxes, strive to have your total of all expenses, regular and occasional, average less than $3,500 per month. If you can manage that and save the money as though your career depends on it, you will probably be close to a goal of having a year’s worth of expenses saved in around two and one-half years. This does not count investing for retirement or other long-term savings; this is purely for building a hoard of money you can reach at a moment’s notice.

So what happens when you have this cash hoard? Well, for one, you become less likely to succumb to fear, which helps with survival skill #1—avoiding fear. It helps you make better decisions because you are making decisions based on what’s best for your client and your company, rather than what is least likely to put you in an unemployment line in the short term. Having a cushion allows you to sleep better at night, making you a more effective consultant.

Most importantly, though, having these savings helps you be more selective in what company you join, in the event you ever do become unemployed. People who live three steps ahead end up working for one of the Seven Deadly Firms from Chapter 2. Their choice is either do that or miss their mortgage payment and eventually get foreclosed on (unemployment insurance does not cover a $4,000 monthly mortgage, after all). Then they wonder why they are miserable, working grudgingly in a job they hate because they are slaves to their stuff. The stronger your own personal financial position, the lower your own expenses, the less likely such an awful scenario will come to pass.

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