With each post, I cover a new topic to help you get your start (or keep progressing) in your IT career. If it’s your first time visiting this blog, start here. Or, see all my posts about interview questions you should definitely be prepared for.
8/24/19 Edit: When I first started this blog, I intended it to be a blog about achieving financial independence through a career in IT. I soon found that all I wanted to write about was how to get you into IT, though. This was actually the only post I wrote that actually had anything to do with finances. I thought about just deleting the post, but I’m leaving it in case it’s helpful to anyone.
I know the title of this post sounds pretty pessimistic, but bear with me here. I think by the end of this post, you’ll see that this is actually a positive message.
Each year on January 1st, folks around the states are making a New Year’s resolution. “I’ll go to the gym!” Or, “I’ll save more money!” And every February, 80% of people fail in those resolutions.
That’s staggering. 100% of people who make resolutions fully intend to fulfill them, but only 20% are actually still in the game a month later. If you’re an average person making a resolution on January 1st, wouldn’t it be logical to assume you’ll have failed in your goal by February?
Enter my not-yet-patented goal success plan. If you’re someone who always achieves their goals, you can stop reading. This isn’t for you.
If you’re still with me, here it is:
“Always assume you’ll fail. And plan accordingly so that doesn’t disturb your plans.”
What does this mean?
Putting this in computing terms, this might involve having disaster recovery techniques in place. Since we know that a hard drive (or whatever) will eventually fail, we make sure that our system is redundant against the failure of one drive. If our system is critical and we want to be extra safe, we may want to ensure more than one drive can fail without impacting our system. We could also set up the system to be highly available by having two versions of the critical server available at any time. If one fails, requests are automatically routed to the other server.
The same concept applies to anything else that your infrastructure might depend on. For power, you might have two sources for each server. Each side draws power from a different outlet, and those outlets draw power from different electrical substations. (You wouldn’t see this kind of setup in a residential setting, but you do see this in data centers.) Even if an entire substation goes down, your server keeps running. Add a generator to that and you’ve got lots of safety.
There’s such a thing as being too safe as well. You could add so much redundancy that your server now costs more to maintain than it brings in. In such a scenario, you’re losing money by keeping the server operational!
Four years ago, the company I was working for was bought by a much larger company, which prompted me to look at my finances in this manner. I was worried that I might lose my job during the acquisition, and I realized that if that happened I would be in a lot of trouble due to not having any fault tolerance. So I’ll use finances as an example, since this blog is about achieving financial independence through IT, after all.
Try this thought exercise and see how well you’re prepared for life’s curve balls.
Imagine that you are the critical server. Since you’re human and not metal, you power your life with money and not power. So where do you draw your ‘power’ from? For most, the main power source is a job.
That’s fine as long as the power continues to flow.
Now, what happens if you experience a blackout? If the power stops flowing for three months, do you have a backup generator that can tide you over that long? Or do you fail catastrophically? Take a moment now to do a rough calculation of what your minimum power requirements are for three months. This includes rent/mortgage, basic food (not dining out), electricity, and debt payments. It does not include any service that you can discontinue right away, such as video streaming, eating out, or entertainment.
That number is your emergency fund number. Have that sitting in a high yield savings account. As of this writing, there are several online banks that offer slightly higher than 2% interest on savings accounts balances with no fees or minimum balances. You’re actually making a little bit of money from your emergency funds!* Nice!
*This is not entirely true when you factor in inflation, but at least you’re not losing money! (Or worse yet, living with no emergency fund!)
If you live with a long term partner that also works, that’s your equivalent of drawing power from a different substation. BUT – if neither salary is enough to cover your combined minimum expenses for the month, then you’re not really safe are you?
This brings us back to needing that backup generator. If your significant other’s wages would fall $1,000 short each month of covering your combined monthly expenses, then you’d need at least $3,000 in the bank to cover a loss of your job for three months.
I personally would recommend aiming to have three full months of combined expenses rather than assume your better half will be able to cover any amount at all. An economic downturn may cause you both to lose your job at the same time. One of you might get a long term illness. Or, as was my case, losing your significant other might bring about your financial crisis.
While it’s fine to help each other out, you should both be able to stand on your own.
This kind of disaster recovery scenario can be applied to other aspects of your finances. I recently had a debate about the merits of homeownership versus investing in REITs. If you’re not familiar with REITs, they’re Real Estate Investment Trusts. These are trusts that hold real estate investments in malls, apartments, data centers, storage warehouses, you name it. The idea is that they do all the management for you, and you just reap a hefty dividend every quarter with no effort on your part. They can be bought just like stocks through an app like RobinHood.
My girlfriend and I had been advised to not buy a condo because you can make more money with REITs. This argument makes sense, to a point. Who doesn’t want to get the benefits of real estate without putting in the effort of managing it? However, while REITs invest in real estate, owning one is not actually owning real estate. You can’t live in an REIT, right? And if the market tanks, your REITs tank as well. You can’t do much with them then (other than keep collecting that sweet dividend), but you can live in your condo.
There are many arguments for and against each approach which I won’t get into here, but for the purposes of our disaster recovery scenario, which do you think I’m going to advise you pick?
If you guessed “both”, you’d be correct. Why box yourself in by going all-in on one choice? Remember, you want to assume whatever you pick will eventually fail. At some point, REITs will fail you. Real estate will fail you too. But if you own both, they may not fail you at the same time, and that’s what makes you safer.
You can drill down into this and continue applying this kind of disaster recovery thinking all the way down, by the way. For example, once you’ve made the decision to invest in REITs, don’t invest in just one. Remember, your assumption should be that any individual real estate type will fail. So spread out your investment across multiple types like warehouses, rental apartments, etc.
I’d rather own one stock each in ten sectors than ten stocks in one sector. Each one of the sectors you pick will eventually fail, but ten sectors won’t fail you at the same time.
And as you’re investing, don’t just invest in REITs, but buy some other types of stock as well. Diversify! Buy dividend stocks and buy growth stocks. Have some ETFs and some hand picked stocks.
Assuming that whatever you do will eventually fail will help you prepare yourself for the inevitable downturns in life. And in the long run, that will help you succeed.