Building Equity Away From A Career
As a Software Engineer in San Francisco, my day job gives me plenty of satisfaction: I write code, solve problems, mentor and help people grow. In exchange, I get paid a great salary that most people can only dream of. But ultimately, I'm trading time for money. If I stopped working for my employer, I lose all the things I like about my job. In engineering, this is a single point of failure. It's a single source of income.
I'm lucky to be doing what I like, but what if I don't enjoy this anymore? I still have to earn a living to support my family.
The average person changes career 3 - 7 times during their working lives, and the more I climb the career ladder, the less satisfied I am due to increases in stress, so I can definitely see myself changing careers at some point, maybe do something adjacent from being a start up founder to something more drastic like investing and travel blogging for living.
W2 Income is Inefficient
W2 income is the income you get from a paycheck. Today, most of our income comes from paychecks. For a high income earner trying to build wealth this way, the american tax system doesn't treat us well. This year, we are on track to paying nearly 50% of our gross income in taxes thanks to a combination of living in the great state of California and the marriage penalty. So this is a really poor way to build wealth. It's much better to build equity in a company or asset, and get long term capital gains treatment which have more favorable tax treatment because you benefit from both tax deferral as your asset is growing as well as a lower tax rate when you finally decide to sell.
I want to build equity, more specifically, equity in passive income streams.
Software projects (SaaS?)
As a software engineer, it's also tempting to start my own software project and try to get customers to pay for my software, however, most employed software engineers have a moonlighting clause in their contract, and I would be violating this if I did that.
Successful software projects are much more than software, there's product market fit, design, sales and marketing which requires a lot of effort to launch software product from scratch.
When I come home, I don't really want to spend time brainstorming ideas, writing a bunch of code, planning, and other software development work when I do that at work already. This is a recipe for burn out.
Real estate is one of the best ways to build wealth thanks to its tax deductions and flexibility of investment strategies. However, unless you're investing in REITs, owning and managing real estate is not very passive.
So far, my favorite form of passive investment has been real estate crowd funding like EquityMultiple or CrowdStreet. You get to invest patient capital in debt or equity that's backed by a real asset and generates income from the money you put in. Yes, there will be reale state down turns, but I feel better about it than investing in stocks today, especially this late in the economic cycle.
Blogging isn't a business for me, and from having just started this blog and seeing the meager amount of traffic it gets, it sure doesn't feel like it would ever be a business. However, it is building equity, maybe not equity that will have any monetary value, but every new post adds value. I can come back to it and reflect on past ideas, and one day some of these thoughts will be valuable to an audience.
I'm still looking for other ways to build equity. "Side Hustle" is a popular term for things you can do to earn more income. I'm not looking to do things like being an Uber or Lyft driver. That doesn't build any equity, it just trades time for money. If I have another side hustle, it would have to be one where I'm building equity, so building a business is the most likely route I would take.
Invest in my career
Software engineering is a lucrative career, and I'm at a point where I could specialize and become an expert or learn to build teams, and get paid more for it. Investing in myself for my career is the most straightforward way that also builds equity. But it still ties me to a single employer at any given time. Plus, I don't want to be doing this forever. The average person changes careers 5-7 times during their working lives, and while I like what I do today, I can't see myself doing it forever. As I climb the corporate ladder, I'm already feeling more stress from office politics or difficult people I now have to deal with. The cool-aid I drank as a young impressionable engineer in a FAANG company is wearing off and at the end of the day, it's just another job that happens to have some perks like free food.
I want to build equity without increasing stress, and as I take on more responsibilities to advance my career, my stress only increases, so it's not a direction I want to go long term.
CouchFI is about building passive income while relaxing on a couch. Not stressed out working a corporate job or busting my ass on a startup in the hopes of winning the lottery. I still might take the route of a start up just for the excitement, but I don't want to do it for money. Building passive equity away from my career is the best path to wealth that will allow me to decouple my daily work with earning a living.