Plenty of finance gurus say you need to pay off consumer debt and have some money set aside for a rainy day, and I have to admit that’s the foundation. If that isn’t sorted, there’s little sense, mathematically or practically, in getting into investing. It’s fine to open a tax-advantaged account or a regular brokerage account just to see how the mechanics work, but at that stage your savings should flow in two directions.
First, pay debt down to zero, because it usually carries a higher interest rate than basic savings instruments like deposits or government bonds. For me, that’s the main criterion. There’s a popular and fairly sound view that you clear all your liabilities first and only then invest. I, in a somewhat simplified way, look only at the cost of the debt: if it’s higher than inflation-indexed government bonds (in my case Polish ones), I get rid of it; if it’s lower, like some fixed-rate mortgages in certain periods, I keep it. Time is the main factor in investing and it works both ways. Everyone knows compound interest turns into big numbers over time when you’re growing capital, but not everyone realizes that debt with an interest rate below inflation loses real value every year you hold it. Meanwhile, salaries usually rise, so the remaining debt hurts less and is easier to pay off relative to income. Then there’s the psychology of carrying debt, but I’ll leave that to personal preference.
Second, before we enter the world of day traders and the Wolf of Wall Street: a rainy-day fund. Given how uncertain a profession aviation is, I keep about 12 months of my family’s expenses. And I mean the bare minimum: fixed bills, the mortgage, food, basic healthcare and so on. Until last year I kept twelve times what I normally spend in a month, but that felt like a bit too much “cash”, so I moved part of it into the stock market. Many people keep 3 to 6 months of expenses, but especially for a pilot on a B2B contract I think that’s far too little. Illness or losing your job can mean the next income arrives only after several months or more, spent on recurrent checks or training at a new company.
I put “cash” in quotes because I don’t hold much actual cash, around PLN 15–20k spread across several personal accounts. The rest sits mainly in money market instruments, which offer high liquidity and track the European Central Bank’s short-term rate. Personally I hold Xtrackers II EUR Overnight Rate Swap (XEON), which technically isn’t a money market fund but serves the same purpose. Actual money market funds include, for example, Vanguard EUR money market ETF, iShares € Cash UCITS ETF (YCSH) and Amundi Euro Government Bond 0-6M.
In short: start by putting your personal finances in order. The post is short, but it describes a long and tedious process that took me the first few years. That may be a depressing prospect, but without solid foundations there’s no point in starting to invest, because at the first industry crisis you’ll be left with the same feeling as a late passenger standing in the terminal ten minutes after the gate closed, watching their aircraft start to taxi. In part two we’ll get into a practical step-by-step guide to actually start investing through a brokerage account.
This text is educational and describes my personal experience. It is not investment or tax advice. You make your own decisions at your own risk; consult a qualified advisor if needed.