The startup environment is one of the most sought after work cultures today. With more and more people taking a different approach to building their careers and breaking the mold from previous “9-5” generations, startup employees are often chasing their passions and looking to change the world. Yet, the reward of this risk is often uncertain, and working at a startup presents unique opportunities and challenges.

While there can be huge upside if a startup becomes successful, startup employees typically work long hours, have a below market salary, and have no clearly defined career roadmap — making navigating a startup career sometimes difficult. If you’ve recently started a position at a startup or are simply considering moving into the startup career path, read on for top tips to achieve success.

1. Live below your means and keep debt low.  While this is an important rule of thumb for any career, it’s even more relevant to startup employees given the uncertain financial future of most startups, and that most startups are located in high cost of living cities like San Francisco, New York, and Boston.   

Living below your means allows you to stay at the startup longer if you have a below-market salary.   To live below your means, it’s important to keep your fixed expenses low. If the general rule of thumb is that no more than 30% of your salary should go towards housing, for startup employees, it’s smart to keep housing expenses below 20% of your overall income.

If you have the means to buy a home, you may want to consider putting more down to lower your risk and lower your monthly payments.

Overall, the more you live below your means, the more you can pay down debt resulting in less stress and a stronger financial future.  It also allows you to have a cushion to build an emergency fund, a crucial element in preparing for life’s unexpected turns.

2. Build that emergency fund.  While most startup employees have skill sets that are highly valued in the job market, you are going to need an emergency fund in case your startup loses momentum and runs out of funding.

If your startup doesn’t succeed, your emergency fund will help you pay for regular living expenses, and other living costs that will no longer be covered by your job like health care. While startups have some of the best perks like free lunch and free gym memberships, these are expenses you will have to consider in your emergency fund while you job hunt for your next opportunity. If you’re struggling to build your emergency fund, consider using an app like Digit or Qapital to make saving easier.  Here’s some guidelines and details on planning for an emergency fund.

3. Consider life insurance and disability outside the company. While some startups may offer life insurance and disability insurance, it’s important to consider getting coverage if your startup doesn’t offer it. For people without dependents, disability would be a higher priority than life insurance, since for most young professionals, the ability to earn income is your most valuable asset. If you have kids, you might want to consider term life insurance that would pay out a lump sum to provide for your dependents if you were to unexpectedly pass away. Term life insurance gives a specified death benefit only for a specific period (i.e. 20 years or 30 years). The annual premiums are much lower for term life insurance than whole life insurance, which gives a death benefit as long as you keep paying the premiums. Whole life insurance is probably too much of an expense for most startup employees since sometimes it can cost 10x term insurance, depending on your age, health and gender.

4. Get up to speed on equity compensation. Equity is one of the biggest perks of joining a startup. However, oftentimes, startup employees are not entirely clear on what their equity means. In light of this, it’s extremely important to get to know the ins and outs of your equity compensation including how and when your equity vests and if there is a holding period if the company goes public.

You should also explore what happens to your equity in different circumstances, such as if you decide to leave the company, get laid off or if the company is acquired. With equity being such an alluring part of startup employee compensation, it’s important to fully understand how it can impact your financial future.

A common oversight for many startup employees is not saving enough to pay for exercising their vested company stock options when they leave the startup. “When you leave your startup you may need to pay anywhere between $5,000 and $20,000 within 30 to 90 days to exercise your stock options, depending on what your employment and equity award contracts specify,” says Deep Gujral, head of the Principal of Withum’s Technology Advisory Practice in New York City.

5. Don’t consider your equity part of your retirement plan.  While it may seem like equity can play a role in retirement planning, there are countless startups that don’t ever have a liquidity event. It’s important to note that equity can be diluted, exit events are rare, and you could leave the company before your equity even vests.  In most cases, employees get common stock, which means investors get their money back first before employees receive any payout.

To be safe, you should be saving money from your regular salary and investing in a 401(k) and/or other savings vehicles in case there isn’t a liquidity event.

6. Be skeptical of crowd-sourced financial advice. We’ve met countless startup employees that have moved forward with some of the biggest financial decisions of their lives (the size of the home to buy, the timing of options exercise, etc.) basing their decision on polling colleagues on Slack channels. While startups are filled with many smart people that are financially savvy and willing to offer advice to help colleagues, it’s important to do your own research and perhaps talk to a professional financial planner when it comes to major life decisions.

7. Maximize your tax deductions by contributing to a 401(k) and Health Savings Account (HSA).  More and more startups are offering 401(k) plans, and in 2018 you can contribute up to $18,500 ($19,000 in 2019) towards retirement in one. Not only will you be building your nest egg, but you’ll lower your taxes since contributions reduce your taxable income dollar for dollar.

As well, one of the smartest way to save money tax-free is with a Health Savings Account (HSA). A Health Savings Account gives you a triple-tax advantage: contributions are a tax deduction, your investment grows tax-free rolling over year-to-year, and distributions for qualified health expenses are not taxed. If your startup doesn’t offer an HSA, you can get it through an independent provider and walk away with a useful asset if your company goes down.

If you decide not to use the HSA funds on health care expenses, you can to roll the HSA into an IRA after age 65. Learn more about the benefits of a Health Savings Account.

8. Work with a CPA and employment attorney that knows your situation well and can advocate for you.  As you think about when you’ll exercise your stock options, how many of them you should exercise, and/or if you should take the 83B election, you’re going to need a good CPA to help you understand and minimize the tax implications. Likewise, it rarely makes sense to negotiate the details of an employment agreement without an employment attorney at your side.  Many mistakenly go it alone when they negotiate the document that will potentially dictate their financial future over the course of several years.

9. Invest your money wisely. Overall, you want to make sure that the money you are saving is growing over time. To successfully achieve this, your investments should be diversified, you should be taking an appropriate amount of risk, and as mentioned earlier, you should keep expenses low.

If you don’t need one-to-one, personalized financial planning advice, consider platforms like Betterment or Wealthfront, which create low-cost portfolios based on your risk profile. If you do work with a financial advisor, the advisor would ideally be a fee-based fiduciary that can provide you objective advice and guidance at a reasonable cost. Here’s some information on evaluating a financial advisor.

David Flores Wilson, CFP®, CFA, CDFA®, CCFC is a New York City-based CERTIFIED FINANCIAL PLANNER™ Practitioner & Managing Partner at Sincerus Advisory. Click here to schedule a time to speak with us.