8 personal finances tips for analysts
Background: my parents never taught me anything about personal finance, so when I got my first job out of college I was quite shocked to learn that some of my peers were already very financially savvy. Over the last couple years, I've absorbed a lot of knowledge from other people and learned independently to get up to speed. Here I'm sharing my most important rules for personal finance, with the goal of paying it forward to any post-grads who are inexperienced at managing their finances.
1. Track your finances in a spreadsheet
It’s so important understand your financial position and see how much money is coming in and going out every month. When you diligently track your monthly income and expenses, it becomes harder to rationalize spending money on stupid things that you don’t need, because you’ll see the impact in your spreadsheet. You can't just push it to the back of your mind.
2. Use a credit card for all your purchases to build credit and earn cash back
Most people use a credit card to buy things they can’t afford, but if you use it wisely and always pay your bill on time, you can start building a good credit score, which will be important later in life if you need to borrow money for a house/additional education. Also, some cards offer up to 2% cash back on every dollar you spend. If you’re still using a debit card linked to your bank account for everyday purchases, you’re leaving money on the table by not getting cash back.
3. Aim to save at least 25% of your post-tax income
Not a hard and fast number since it will vary for everyone depending on how much money you make. But as a first-year analyst in a high-COL city, I was able to save over 25% of my base salary and still bank my bonus.
4. Contribute enough to your 401(k) to maximize the amount that your company will match
This is literally free money, and I can’t fathom any reason not to take advantage of it.
5. Invest your savings in a well-diversified portfolio with a long-term orientation
It’s critical to earn money on your savings; if you work in finance, you should understand the power of compound interest. Additionally, since inflation is roughly 2% annually, you’re losing money by keeping it in your bank account. Every month I deposit a set amount into a brokerage account that holds strictly ETFs, consisting roughly of U.S. equities (50%), foreign equities (25%), and bonds & cash (25%), and I don’t plan to withdraw anything for at least 10 years.
6. But make sure to manage your liquidity
I operate with a somewhat arbitrary rule of thumb: keep ~3 months living expenses in my bank account for day-to-day expenses, and ~6 months living expenses in a high-yield savings account (can also be converted to cash very quickly, but earns slightly more interest). Everything else is in my brokerage account and 401(k) for medium to long-term investments. If you have all your money in investments and an emergency expense comes up, you'll have to withdraw money and potentially incur less favorable tax treatment by foregoing long-term capital gains.
7. Avoid depreciating assets
The primary example here is a car. I’m fortunate to live in a city where I don’t need one and I understand this is unavoidable for some people. But the fact remains that cars are bad investments; they decrease in value the second they leave the lot. Add in the cost of gas and insurance, and this can be a huge drain on your finances when you’re just starting out.
8. Keep an eye on lifestyle inflation
It happens to everyone to varying degrees and isn’t a bad thing in and of itself. I think the important thing is to upgrade in areas that meaningfully improve your quality of life. A good example would be upgrading to an apartment closer to your office for a shorter commute. I also think anything that improves your health and fitness is money well spent.
this is awesome
You can also try budgeting by withdrawing a set amount of cash each week form an ATM and using only the cash.
Question: if you're relatively young in early twenties, why not just go all in on equities and say fuck the bonds... assuming investment horrizon is along lines of decades not years
I think that makes much more sense. I've set my pension scheme to go 100% equities and I invest in single stocks with the money in my savings account. The last time I checked my index fund held c.3000 shares globally. I don't give a shit if that thing goes to zero, cause if it does, I'll be living in a cave anyway.
I didn't know people still had Pensions! lmfao. where do you work?
I see zero reason for someone in their early 20's to have 25% of their assets in cash & bonds.
It's definitely important to keep some cash on hand as an emergency fund, but all in on equities at that age is definitely the play.
I am hoping that his suggested allocation includes the emergency fund. Outside of collecting the full employer match that should be priority #1. in times like these, I'd even suggest aiming high for it. (personally I'm pushing around about 18mo or so of spending) If you merge that in with my quite aggressive investment portfolio, (I'm tilted both down-cap and into EM) I actually am even more conservative than the original poster.
All equities all the way.
I'd probably have 80% in an index fund but the other 20% in a 2x levered S&P index fund. If my market sentiment started shifting I'd move some of the 2x levered ETF position to cash or back to a normal index fund exposure
That amount of rebalancing seems non ideal. Also any form of watching the market isn’t ideal for personal finance, you really just want to set it and forget it IMO. Also I would suggest doing some research on the decay of levered etfs. They’re really not made for holding, they’re designed for trading and reset/rebalanced everyday leading to increased trading costs and reduced gains for you. Definitely worth some more time looking into mate
Really you’re fine going all equities well past 20s. I wouldn’t think of adding bonds in until 50 at the earliest IMO
Any suggestion for high yield savings account? I currently use Marcus by GS.
Whatever is yielding the highest, they’re all generally the same. It may help and be more convenient to have a savings account at the same bank where you have your checking account if there’s a good yield, but this isn’t necessary.
The only one I’m familiar with is Marcus as well. Unfortunately the rate has fallen to 0.50%, but that’s true across the board for HYS accounts
I've got a few accounts with them. I use it to hold short to mid term cash, since it's better than the rate I get with Chase.
I also did a good thing a few years ago and opened a new CD every month for a year. A few are still locked in at around 2%, but I sleep really great at night knowing I have that emergency fund built up.
amex and ally have higher rates. If you walk a lot, fitness bank will offer you the best rates.
CIT bank offers one of the highest mma rates right now, I think about 1%. Not enough to fight inflation most likely bet better than the majority of accounts out there right now. I personally switch my account to the highest every 6 months or so since there’s no penalty or extra taxes for doing so.
Barclays Hands down.
If you're chasing a little more yield in your emergency fund, a well-structured CD ladder or money market fund at your brokerage of choice (SWVXX, VMMXX) are also fine choices. I've put some of my emergency fund in Schwab's money market fund. My checking account is at Schwab too so it keeps things simple. Fund transfers are seamless and it's one less account to remember.
But honestly, the exercise of optimizing an emergency fund will probably net most of us less than $100/year. While I fall into this trap as well, I'd rather channel my energy into things that will drive exponential growth in net worth: lowering expense ratios, tax optimization, building a robust network, learning a new skill, creating additional income streams, etc.
With that said, tell me more about this Fitness Bank. I walk a ridiculous amount, and I'm certainly not one to pass up on a free lunch.
I know your post is aimed at analysts but if you're in hs/college and gunning for ib or any other high income job open a Roth IRA and shove as much money as you can afford into it. It done post tax but your tax rate is going to be pretty low compared to where it will be once you got your ib gig. I plan to have put about 30k in by the time I'm 23 and have reached the income limit. Assuming an expected return rate of 7% and never adding any more money I'll have about 500k, 250k more than I would have in a taxable account if my tax rate was 25%.
I was going to comment about this too. In the 25% OP is recommending, what’s not going into a 401k and a HYSA should go to a Roth IRA, and once that’s maxed out then I’d suggest regular taxable brokerage. As since the other tax-advantaged accounts will have stable ETFs, you might as well yolo with your brokerage a bit. Depends on what your savings goals are (yolo bets, saving for a house/car, etc.).
100% agree, thanks for mentioning this. Forgot to include in my post.
Good call out. HSA is the other piece I'd think about contributing to after the Roth IRA. Triple tax advantaged (contributions tax-free, tax free growth, and tax free withdrawals for medical expenses). My HSA has an investment option that just tracks the S&P 500 which is nice. You might not need it now but there will come time you'll have lots of medical expenses down the road where you'll thank yourself for throwing in a grand or two each year in your 20s and 30s. Plus, withdrawals for non-medical expenses are taxed like an IRA after age 65
Second the HSA. Triple tax advantaged, you can invest from it, and you'll be able to use it the same way as retirement eventually. Max it out
FWIW you can make backdoor contributions to a Roth IRA past the income limit for direct contributions
I'm sorry, I'm in my 30s, but I still snicker at that phrase, and I can't be the only one.
And yes, I go in through the back door every year. It's a far superior option to a non-deductible traditional contribution.
What are backdoor contributions?
You can continue to contribute to a Roth IRA after you break the limit through a back door roth conversion. Not too complicated to grasp with some research on how to do your taxes, but might want to get professional advice if your unsure.
Thank you. Useful information 👍
thank you;
could you elaborate on pt 2 - 2% cash back? Is that a thing also in Europe?
Europe limits the interchange fee to 0.3% versus ~2% in the US. So much less wiggle room for rewards and miles.
Can someone make a personal finance thread for college students?
this
I’d recommend r/personalfinance, there’s a ton of good information on there.
Add buy bitcoin to this and you got yourself a good list
Up 160% this year but keep throwing monkey shit
Idk bruh kinda risky. March was a good time to buy, hopefully dips back down to 10-12k, so I can buy.
This aged really well
Anyone else not have a savings account and just keep a few grand in checking and invest everything else?
Edited for inaccuracy
Interest is taxed at your marginal income tax rate in the US instead of at the capital gains rate.
So you're saying keep your money in cash earning nothing on it vs. putting it in investments and earn some but potentially get a higher tax rate? Your logic is off
Yeah pretty much how I operate, plus a rainy day fund for situations where you’d want to have a few months rent and some spending money (ex. time off from job and want to travel)
Thanks Dave Ramsey.
I mean say what you want, but he really has put financial advice in an easy to follow plan. Granted it may not be the best advice, but it does give people a way to financial freedom
One more thing:
ive heard people talking about converting their 401k into an IRA, paging for business school) and being able to skip the normal fees associated with early withdrawals from your 401k. Could anyone smarter than I confirm this and maybe add some more color?
That’s just the rollover process when you leave your job. You have the option to either: 1) roll it over to an IRA (and convert it to a Roth also but lay the income tax on that) 2) cash it out (pay income tax + 10% penalty I think) 3) leave it in the current 401k if it’s a good enough plan
This is well written and solid advice. Also, take into consideration your employers vesting schedule. For example, some AM firms will talk about great contributions to profit sharing/401k match but the vesting schedule leaves more than to be desired.
I understand how it’s used as a retention strategy, but it would be amazing if vesting wasn’t a thing for 401ks. I understand it for pensions, but with 401ks where you’re already at risk due to market fluctuations, it’s almost like adding insult to injury imo. I only vest 20% a year and a lot of people have left the job for greener pastures, it’s gonna suck leaving money on the table.
Question for any experienced monkeys here... someone once told me that there is a loophole where you can borrow from a 401k early (i.e., without the associated 10% penalty that comes from withdrawing before 60) if you are using that money for the downpayment on a first house, where the interest paid on the loan essentially goes back into your 401k rather than to a bank. Has anyone done/heard of something like that?
Idk about 401ks but I’m pretty sure you can do that with IRAs.
With Roth IRAs you can withdraw your contributions penalty free (since you already paid the taxes on it), I don't think you can do it with traditional IRAs.
Its very common, but the max you can borrow is 50% of the balance up to 50K. So if you have greater than 100K you can only borrow 50K against it. You can use the money for whatever you want but that is the most common reason for borrowing against your 401K. The below link does a nice job explaining things.
https://www.fidelity.com/viewpoints/financial-basics/taking-money-from-…
So there are both 401k loans and withdrawals, both are different. Most companies allow loans of 50% of the balance up to $50k. That's got to be paid back with interest, and don't quit or get fired with one outstanding or it all needs to be paid back right away. There are also exemptions to the normal 10% tax penalty to withdrawals before age 59.5. These are called 72(t) exemptions. There are about a dozen of them, and it gets complicated. You still need to count withdrawals as income here most of the time.
The tl;dr is that if you're thinking ahead of time, you probably should put that money somewhere else if you don't plan on using it for retirement.
Yes did this. You can withdraw as much as you want to your borrowing limit for the first home down payment but you only avoid the 10% penalty on the first $10,000 of withdrawal.
I just started my career so don’t attack me. My firm does match 401K contributions. However, the overall terms of a 401K, Roth IRA, and traditional IRA don’t bode well for me long term. I understand that you are getting “free money” from your employer, your contribution is tax deductible, and the tax benefits. However the major turn off is the restrictions on withdrawals until you are about 60. To me, it makes much more sense to take my money and invest in index funds and equities, especially considering I’m pretty knowledgeable in that area. Also, I’m free to do whatever with that money - if I want to exit my trades then use that money for another purpose, I’m free to do so without restrictions. I mean yeah you may have to pay capital gains but that’s a trade off of having immediate access to your money. In an IRA/401K, you pay tax if you withdraw before 60 so it’s practically the same. Once again, I’m not fond of a 401K or IRA due to my personal investment preference. Am I missing anything or does anyone want to comment on my thought?
I don’t think you’re missing anything, other than that the average American does a lousy job of saving for retirement. However, that’s for W-2 people, and if you find better consistent ways to make money (starting/investing in a business, yolo market bets, etc.), obviously you’ll come out ahead, so it’s really up to you.
A caveat is that with a Roth IRA (unsure about traditional), you can withdraw what you contributed in your lifetime without any penalties. Ideally you wouldn’t have lost money so that wouldn’t be an issue.
Understood. Only problem I have with that is I gotta wait til I’m about 60. I’m 22 lol. Definitely see myself buying property and getting into other investments.
With a Roth IRA you can take out what you put in, tax free/no penalty, whenever you want. Say you put in 25k and it grows to 35k in 5 years when you’re 25. You could withdraw up to 25k for a trip to Mexico, a down payment on a house, a new car etc. this could especially be helpful if you were in a much lower tax bracket in your early years. (For me, tax rate was 5.35% when I earned the money I put in it. IB analyst years will put me in the 9.85% bracket)
For the ROTH, don’t you have to wait until you are 59.5 to withdraw any money without penalties?
The idea is "usually" you get some kind of match for contributing with your company. That's basically free money.
At 22, depending on what you do, you have more time than money, so better to get invested early.
I see your point about having access to the money. It's called personal finance, so whatever you think is best for you is the way to do it. The ideal situation would be you get the company match, and also are able to save more in your own PA, and that can be used for your needs.
I'm assuming you are planning to retire at some point, in which case you'll be living off your investments. If you invest in a 401k or IRA you don't have to pay capital gains and your money is still invested in index funds and equities/bonds. If you are managing your own retirement investments you still have the same money invested in those same financial instruments, but now you have to pay capital gains taxes.
It almost certainly makes sense to use some of the tax advantage accounts the government has set up, and I'm sure you can save a few bucks on the side to manage a discretionary brokerage account. I know we all think we're geniuses on this forum, but averaging 7% annual for 40+ years is a hard hurdle to beat.
I’d also add here that if you’re in any well-paying finance role you’ll be able to max out every tax-advantaged account and still have plenty to invest in a taxable account that wouldn’t have any of the restrictions you’re worried about. My overall accounts are something like 60/40 taxable/tax-advantaged and I contribute a lot to the retirement accounts.
If your firm isn't matching 401(k) contributions, I would highly advise leaving! Pretty much the market standard these days.
Another tip: Learn to manage your hookers budget
Hey guys how is this funny. It's actually helpful.
Less than 2% of annual gross on hookers is what works for me.
What about paying off student loans (at 5%) vs. investing in a Roth vs. investing in a normal brokerage account (vanguard ETF for example).
That's my situation at least. Like a few other people said I'd like to be able to withdraw my gains without getting severely penalized like I would from a Roth. How do the taxes & penalties compare in regard to a Roth and a non-tax advantage account?
Once money is in a roth it is gone till 65.
If you withdraw the money in both cases, you'll get hit with capital gains tax, and in the Roth case an additional 10% penalty.
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For those on typical street IB analyst comp, what would be a reasonable goal to save/invest(including 401k, etc) each year? I've heard spend the base, bank the bonus, but it seems like being able to save some from your base should be possible as well.
Also should I expect a few thousand back from my internship with my tax return? Made about 17k gross but netted only about 12k which is obviously way more than my tax bracket.
I never really understood how any analyst spent their entire base; even when things are normal, unless you have an extravagant apartment and go out every night (not sure how people have the time quite frankly), you should be able to save between 10-20% after 401K contributions to set aside for savings or investing. And yeah, you'll probably receive 1-2k back from your tax refund.
what % are you putting towards your 401k
I did get a few thousand back in tax returns from my summer, and I also saved 25% of my base in year 1. The only way I can see someone spending their entire base salary is if they A) live in an apartment beyond what they can afford or B) live an expensive lifestyle with lots of entertainment and travel (but who has time for this as an analyst?)
I highly recommend using YNAB (https://www.youneedabudget.com/). It follows the "envelope" approach with budgeting: you allocate your cash inflows to future cash outflows. It is much more involved than something like Mint, but it gives you a lot of power over your funds after a couple months. Also, it is just difficult for me to track my spending manually and I really like that YNAB does all of the calculations for me, handles rolling over monthly cash flow savings, and can set up goals quickly.
YNAB is great but you can do the same thing in Excel for free.
Oh yea - i'm lazy af though
What's your recommendation for saving for a downpayment? I'd rather save as much as possible in a high yield interest or taxable account first to get to my downpayment number, and then start investing into tax advantaged accounts.
This is what I'm thinking too, especially if you're considering buying in the next couple years and so shouldn't really risk losing principal imo
I'd even argue it's not worth buying a house unless you know real estate. That down payment could be invested into the stock market. Just rent within your means.
Great advice. A couple of others I would add, especially as people settle down, is to consider adding income protection and life insurance. We are often the breadwinners in the finance industry so these products can help give some peace of mind to our families.
How a UBS IBD A2 manages her personal finance.
That video could be condensed into one single PPT slide but it’s 8 minutes long
edit: just so everyone knows this chick is on here promoting her videos 🤢
When everyone says "save 25% of base" does that mean 25% post or pre tax? Is it realistic to save around 40% of post tax base (assuming standard 85k base)? I'm expecting to spend around 30-35k for basic living expenses (rent, food, utilities, cell plan, healthcare) but I'm not sure if that's over or under what most spend. Any anecdotes would be appreciated
I saved ~25% of my post-tax base.
To all the people saying go 100 equity if you are in your early 20's, do you guys mean all single name stocks or equity ETF's.
Also, do you guys suggest just doing it all the saving and investing in a personal brokerage account or opening like an advisor account that invests in portfolios (Blackrock funds etc)?
Don't invest in single-name stocks; buy diversified ETFs
Why not just throw it in blue chips which basically carry these indexes?
Pretty generic advices but I'll pitch in mine.
I tend to front load all my 401K contributions so I have more time to compound. Also, if I ever end up leaving the company mid year, I've already maxed out the contributions from them.
Instead of investing in standard index funds, I go for technology focused funds. My 2020 rate of return is about 30%.
How do you front load contributions? I was under the impression you could only have it spread out throughout the year.
Just increase your contributions. Most providers / firms allow you to do up to 50% of your base and 50% of your bonus, and will automatically stop once you hit the annual limit.
Out of 8, I think I've been doing 4 already. not bad
how do I bookmark on mobile
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