How Personal Finance Acumen Can Accelerate Your Career Growth
As engineers, we are often focused on acquiring technical skills and knowledge to succeed in our careers. Whether it is pursuing a PE license or earning certifications there are a variety of prescribed avenues for engineers to advance their career. When you are in pursuit of these skill sets it can be easy to overlook the importance of having the right mindset to achieve personal and professional growth.
The Power of Mindset
If you aren’t familiar with the concept of a growth versus fixed mindset, the short version of the theory is that people with a fixed mindset believe that their abilities and qualities are fixed traits that cannot be changed. In contrast, those with a growth mindset believe that they can develop their abilities and qualities through hard work, perseverance, and learning from their mistakes.
For example, someone who runs into a problem they don’t know how to solve and thinks “I can’t do this” has a fixed mindset. There is no room in the way they think for them to learn how to overcome the problem. The person who runs into a problem and thinks “I don’t know how to do this yet” has a growth mindset.
This is an important distinction because a growth mindset allows for personal and professional growth, while a fixed mindset directly limits your potential. By adopting a growth mindset, you can embrace challenges, learn from failures, and continuously improve, which is essential for achieving success in any area of life, including your career.
Abundance versus Scarcity
Similarly, a financial mindset can be either a positive or negative factor in your life. A person with a healthy financial mindset is generally aware of their financial situation, has a plan to achieve their financial goals, and is disciplined in their spending and saving habits. They prioritize financial stability and security over short-term gratification and avoid unnecessary debt or financial risk.
It doesn’t take much imagination to see how the inverse of this mindset can be detrimental to a person’s life. Whether it is spending more than you bring in, not having enough cash reserves, or not investing for the future, living on the financial edge leaves you more susceptible to risks.
Just as a strong foundation is critical for a building’s stability and longevity, a strong financial foundation is essential for an individual’s financial stability and success. A solid financial foundation can help provide a sense of security and enable individuals to weather unexpected financial hardships or emergencies. In short—it allows you to move your financial mindset from one of scarcity to one of abundance.
This change in mindset provides you with greater flexibility and the ability to pursue opportunities such as promotions, career changes, or starting a business. A strong financial foundation is built through careful planning, cash flow management, saving, and investing. Similar to constructing a building, it may take time and effort to establish a strong financial foundation, but the payoff in terms of long-term stability and success can be significant.
A $10,000 Lesson
A few years ago, I ended up in the ER needing to make an on-the-spot decision of whether I wanted to get the rabies vaccine or not. The doctors told me there was a small chance that the dog who bit me actually had rabies, but if I did end up getting sick (which could randomly happen anytime over the next 10+ years) I would die and there would be no helping it by the time I had symptoms.
As I am sure you know, dealing with medical expenses is incredibly frustrating because you never know what it is going to cost before you do it. You have to make the decision and then accept the consequences. On the drive to the ER I was frantically googling the rabies vaccine and saw multiple articles of people talking about it costing $10k, $20k, $30k+. Not to mention it isn’t just one shot, it is a series of multiple shots.
What would you do in that situation? Ultimately the logic I used was, if money was no object what would I do? I would get the shot, because that seemed like the prudent thing to do to eliminate any future worry. So that’s what I did. My bill ended up being around $10,000 but insurance covered part of it, so I ended up paying about half of that. It was an expensive visit to the dog park that day.
This story can be translated to the career world as well. Living in fear of losing your job income is a scary place to be. You aren’t able to speak your mind, you worry about every time your boss asks to see you, and making big career changes seem too scary to fathom. And when you’re your own boss, financial decisions can be even scarier if you’re living with that scarcity mindset.
What can you do about this? Having financial security leads to not having to worry about these “unforeseen” circumstances. Back to my rabies example, I had enough money in my HSA to cover my deductible and I was pretty sure that my insurance would cover the rest. So despite not knowing exactly what the bill was going to be, but knowing it would probably be large, I knew that I already had enough money specifically set aside to pay for something like this. That made the decision much easier.
Having a cash reserve can be incredibly empowering because it allows you to make decisions based on what you really want and not be limited by the fear of a negative outcome. What’s the worst thing that could happen at work? Getting fired? Why is that the worst thing? There are many great jobs and employers out there, what is so special about yours?
Humans love comfort and resist change. If you weren’t scared about the consequences of losing your current job because you knew you could support yourself for an extended period of time and you knew you could get another that would be just as good, if not better, wouldn’t that inspire you to go after what you truly want? Don’t let your finances be the reason you don’t pursue that lateral promotion, career change, starting a business, or asking for a raise.
Money Makes Business Go ‘Round
Even if you’re not concerned about making a move at work or losing your job, at the end of the day businesses revolve around money. If a business is not profitable, it will cease to exist. As you grow your career and move up in the company, your decisions will become more influenced by optimizing for company profitability (and other primary company objectives) so financial acumen becomes an essential skill. Understanding the fundamentals of finance and having strong money management principles for yourself, will translate into making better decisions in your job.
If you’re not yet in a position at your job where you make decisions based on the company’s financial position, a great place to start is by building your skills and decision making in your own personal finances. I’d recommend focusing on the Balance Sheet and Income Statement. These are the two primary documents for any business, and they also exist for your personal finances.
The Balance Sheet
The Balance Sheet is the equivalent of a personal Net Worth Statement. It shows assets and liabilities and determines if the business is worth something. If your assets are worth more than your liabilities then the business has a positive value. If liabilities are greater, then the company has taken on too much debt.
Tracking your Net Worth is as simple as logging all of your assets (bank accounts, investments, properties, etc.) and your liabilities (mortgage, loans, credit cards, etc.). Subtract the two and update the values every quarter or once a year to watch it grow. Once you’ve started tracking your Net Worth, you can keep track of which way your wealth is trending.
The next step is to pay down debts and/or grow your assets to increase your Net Worth which gives you more options when it comes to making financial decisions.
Another benefit of tracking your Net Worth is understanding how diversified your assets are. If you are overly concentrated into a single asset you leave yourself open to losing a high percentage of your overall Net Worth if something were to happen to that asset. Being well balanced and diversified across your assets will protect you from unforeseen events that may impact one asset but not another.
Engineers with the majority of their net worth tied up in their company’s stock is an example of poor asset diversity. While investing in your company can be a good thing and can certainly lead to building wealth, this often becomes too high a percentage of someone’s overall assets. As the common phrase goes, you don’t want all your eggs in one basket.
The Income Statement
An Income Statement outlines your revenue and your expenses. If your revenue is greater than your expenses, you are making money. If not, then you are going the wrong direction. It can be hard to imagine that a company bringing in millions or even billions of dollars could be losing money, but the fact is, operating a business is hard. There are many expenses and to even turn a profit, many things have to go right.
Understanding where revenues come from and where the money goes, is key to understanding how a business is operating as well as what its future potential is. An income statement is probably the most valuable tool for fine tuning the profitability of a business or a person.
If you don’t know how much money you bring in, or where that money goes, chances are you will be anxious around any kind of financial transaction. Uncertainty leads to doubt which leads to fear. Knowing exactly what is going on with your money and why, gives the peace of mind to know what you can and can’t do.
The best way to organize your income and expenses is to create categories (or buckets).
- Fixed Expenses (Bills)
- Variable Expenses (Spending)
Do you know how much money you spend each month in these categories? If you don’t, then you don’t understand your current financial situation, and I would highly recommend completing the following exercise:
- Print off the last 3 months of your bank statements (this should include any bank accounts you regularly withdraw from)
- Go through each month and tally up your transactions into the buckets (income, savings, investing, debt payments, fixed expenses, variable expenses)
This gives you a good idea of what your current percentages are (three months of spending isn’t just a fluke, it’s a habit), and it also answers the most important question: do your income and expenses balance every month?
Where your money is going is important, but most importantly you want to make sure that you’re not:
- a) going backwards and spending more than you bring in
- b) leaving money laying around when you could put it to work for you
Financial abundance is both the reality and mindset that you have enough.
Enough to take the risk.
Enough to weather the storm.
Enough to step out of your comfort zone.
It goes beyond just having enough money to cover basic needs and involves having an abundance of resources to support one’s goals, aspirations, and desired lifestyle. Financial abundance allows for the freedom to pursue one’s passions and interests without being limited by financial constraints. It provides a sense of security and peace of mind, as well as the ability to enjoy life’s pleasures and experiences.
Invest in yourself. Build your financial foundation. Find your path to freedom.
P.S. Click below for a Free Download of my Personal Finance Spreadsheet that will help you track your Assets, Liabilities, and Cash Flow.
Ryan Sullivan, PE
After successfully building an engineering department from the ground up to over $1M in annual revenue in under 5 years, Ryan founded Off the Beaten Path Financial in pursuit of his passion for finance, investing, and the perfect spreadsheet.
Now he provides comprehensive financial planning, cash flow management, and investment management to guide architects and engineers along the path to financial freedom.