Software engineers can start generating income pretty early on. You don’t need permission from anyone, no certificates, no paperwork, no examination. If you have your debts paid off, this is the moment when you should think of yourself as a single-person company. Why? It’s not because I want you to go and become a freelancer and be on your own, but becuase it’s easier to understand how to make decent financial decisions that way. Let’s talk about this. For the purposes of our discussion let’s assume that if your name is David Roberts, the name of your company is “David Roberts LLC”. Write it down, if it helps you: “David Roberts, CEO of David Roberts LLC”. You’re in a company mindset now. We can understand what it really means now.

Your budget

Typical company has money coming in (revenue), money coming out (expenses) and money that stays (profit). This matches the flow of money from your salary: you receive your salary every two or four weeks, you pay taxes, insurance, bills and rent. Whatever is left is up to you to spend.

Companies allocate this excess budget in buckets. Every bucket will go to a department, and they will decide how to spend it. Facilities department needs money to keep the place looking good and habitable, so that people are willing to enter the building and work there. Security department needs money to protect you from crooks and hackers. And so on, for each department.

The amount of money allocated to each department much be justified. For example, if you have an office in a decent part of town, the security department only needs one guard in front desk to check your badge, and another to monitor the parking at night. But they don’t need an excessive weaponry. If you give them three times the usual sum of money, they won’t know how to spend it. They will buy unnecessary equipment which will oxidate with time and the money will be wasted.

It’s up to you to manage that. You’re the chief in command and you divide the the budget to your departments. The other quirk of companies is that you’ll be punished by a budget which you didn’t spent. Someone will be unhappy with you (“I could have used this money if you didn’t fortfeit it”) and you’ll automatically get less next time.

Where money goes

Some departments require fixed amount of cash. Your kitchen money stay the same. Cost of your entertainment and vacation stay at the similar level too, and are required to keep you healthy. One thing to know is that these departments don’t bring much levarage, as it’s unlikely you’ll get ahead of your competition thanks to the fun you’re having. All departments are required and necessary to conduct business, but departments which move you ahead are: product, sales and research and development.

To move ahead and grow, the company needs constant flow of new developments. New inventions. This is what R&D is doing. Your R&D is learning, your books, magazines, software you’ve purchased and your side projects. You must start thinking with the same pattern if you want to be successful.

“So how much?”

I looked at the R&D expenditures of big companies. For simplicity I put the data into a table:

No	Company	Spending ($B)	Percent of revenue
1.	Volkswagen	$13.5	5.2
2.	Samsung	$13.4	6.4
3.	Intel	$10.6	20.1
4.	Microsoft	$10.4	13.4
5.	Roche	$10.0	19.0
6.	Novartis	$9.9	16.8
7.	Toyota	$9.1	3.5
8.	Johnson	$8.2	11.5
9.	Google	$8.0	13.2
10.	Merck	$7.5	17.0

Without doing much of data science I can see a pattern: big, established companies in a specific business sector spend smaller portion of their income. More diverse companies spend more.

There’s an interesting corellation here, because old and well established companies earn more and spend more, a pattern which you’re likely going to see in your career too. So even though Volkswagen spends only 5.2% (as compared to Intel’s 20.1%) they top the list of R&D spenders ($13.5B vs $10.6B). As you become more senior, your salary will likely grow to the point where you will be able to have a significant R&D budget. So what’s the right number for you?

5%

For the math simplicity assume that you earn $100k a year and you live in California. It’s $67500 after taxes, and you’re going to spend five percent (conservative number) of it to your personal R&D. It’s $3375 a year, or $281/month. I have picked five and not ten because remember: too much money will be wasted. For 10% which would be $562 you would have to waste some money, in my opinion: buy too many online classes, too many books and not finish any of it.

The whole “Person as a company” concept breaks when you realize that to really move ahead you’ll have to study in your own time. Companies can keep growing in their paid time. So remember that even for five percent you can subscribe to Treehouse and Code School and Udacity, but if you have a full-time job, I think you won’t have enough time to complete all the assignments of these courses.

Note that my earlier calculation is that you come to the table with some experience; that you’re an established company. If you aren’t, this number will be much bigger: you’ll go to school, attend a bootcamp or ask someone to mentor you. If you are somehow experienced already, in my opinion a range 5%–15% on your own development is fine.

Why

Because you get what you pay for. Great free resources for software engineers do exist. I talked about how you can learn from giants for example. There is Coursera and edX, but some topics aren’t covered there. And I haven’t met a person who finished the whole Coursera class. I think it’s because it’s free content. Dropping out doesn’t cost anything. It’s less rare for people to drop the paid university class. I’m highly confident you’ll be more focused and more motivated if you treat yourself with a high quality content, either in form of books, video training or audiobooks. Money spent is a great motivator, believe me. So while I did watch Stanford 193P class and delivered most of the assignments, for study of iOS design I purchased Design+Code and Fundamentals of Design from Code School. With a bit of experience you’ll know what is worth buying.

Balance sheet

Whatever I showed you here works for me. $280/month is pretty easy to reach if you include software. Last year I purchased Affinity Photo and Sketch which help me with publishing on this website and with UI prototyping. As software engineer you will also need services, such us a backup storage and several VMs running in the cloud. Count the value of my phone, computer and equipment (I’ve purchased a camera to make videos for my YouTube channel) and you’ll need to start planning your expenses like a company would. Be frugal, but don’t underspend. I would be interested in hearing how you spend on your career growth.