PE Associates— how do you think about your money?
As a PE associate, seems like you can basically expect to save ~$100k or so per year.
How do you think about:
1. Roth vs traditional retirement accounts: PE is really hard to stay in so theoretically traditional makes the most sense statistically if you’re likely to leave in a few years to a lower paying job ?
2. How much to put into retirement: presume you’re probably doing the 23k 401k, but is there logic in maxing this to the ~70k through mega back door and back door Roths? Basically, how do you think about the division between “normal “ savings for house, rainy day purchases, etc vs retirement ?
2a. That’s the other thing about (1) thats interesting to me — it seems like it would make sense to throw in as much as you can into a Roth account, since if you need it earlier, you can withdraw the contributions tax free and the way the waterfall works is everything is considered “contributions” until you take em all out
3. Non-retirement savings: How do you think about how much cash to sit on? Do you basically keep ~3 months of expenses liquid (so ~$15k if you assume 3k on rent and 2k for everything else per month), and put the rest into SPY?
Here's how PE associates often think about their money, based on the most helpful WSO content:
Roth vs. Traditional Retirement Accounts:
How Much to Put into Retirement:
2a. Roth Contributions and Early Access: - Roth accounts do offer the unique advantage of allowing you to withdraw contributions (not earnings) tax-free at any time. This makes them a flexible option for those who might need access to funds before retirement. However, it's essential to weigh this against the potential tax savings of Traditional accounts, especially if you're in a high tax bracket now.
Ultimately, the key is to maintain a holistic view of your finances—balancing liquidity, retirement savings, and long-term investments while considering your career trajectory and lifestyle goals.
Sources: How much do you contribute to your 401k?, How much do you spend on rent as an associate making 275-325?, Millionaire by 30, How much have you saved?, When Should You Start Saving for Retirement?
Following
Keep it simple - max out 401K with employer matching contribution, then put all excess savings into S&P500 Index. Happy to think the "alpha" outsized return will stem from idiosyncratic outperformance in the early stages of my career vs. fretting over $ optimization in personal portfolio.
Ah ok so concretely that means ~24k in a traditional 401k and then the rest , call it 80k into a regular brokerage SPY?
Not sure where you're getting $100K of savings unless you live in LCOL areas or have no social life. Average PE Associate comp is probably ~$300K, 40%+ of which goes to taxes, which leaves ~$180K of post-tax income. In NYC/SF, average rent of ~$5K/mo sucks up $60K of that $180K, so you're left with $120K. It's pretty easy to spend $50-75K+ a year on social events, travel, groceries, and other bills if you're not frugal. And none of this accounts for co-invest dollars which can be meaningful. Many PE Associates effectively break even or save ~$20-30K a year in addition to 401K.
Edit: To those that this comment set off, you are describing "living frugally" as I caveated. Having roommates is frugal. Expensing every meal is frugal. Spending $100/day on weekends is frugal. Many people do not live frugally in high finance careers.
I spend ~$3k on rent for a nice studio in Fidi NYC (not $5k unless you’re getting a 1bedroom in prime location) and budget 2k for everything else, which includes a lot of drink / dinner dates and dinners with friends, not sure what you’re spending $75k on for social events unless you’re like throwing it out there at the strip club
Edit: to be clear, if that’s how you’re spending your money, power to ya , I just find it hard to believe that that’s “average” for PE associates
fidi simply sucks
Studio?
not true, in NYC PE associate comp is like 300-450 prior to VP, so thats $200-250K after tax, most ppl who live in 5K bedroom share with a partner so thats only $30k, yeah then spending on michelins bougie bags jewelry shoes watches business class travels thats like at most $100k a year if you are super lavish, so you are still left with $70k minimum or $100k a year like OP said...
This is fairly accurate in my / my friends’ experience
Anyone who makes $300k and “struggles” to save $30k should probably not be in finance.
75k a year on travel, social events and groceries??? Most your meals are expensed so groceries are a tiny cost. I spend less on food now than I did at university. So 73k on travel and social events??? Unless you're going on multiple business class international vacations and consistently eating out at luxury restaurants (of which a 300k comp doesnt warrant) I don't know how that's possible
Comments like these make me a bit less anxious about PE recruiting. It's clear that there's a spot for everyone, even people who suck at managing money.
really struggling to see how one gets to 75k of discretionary spending as a single person in their mid-20s... that's what, 6k a month? Even if you spent 50/day during the week and 100/day during the weekend on food/drink (already pretty excessive, honestly), that gets you to ~2k/month. Maybe another 1k/month on concerts, shows, ubers, dates, and misc services. Maybe a once a year 3-4k vacation somewhere in europe or asia, so that averages out to 300/month. That gets you to 3.3 - maybe round that up to 3.5k to account for random expenses. That's 42k a year of discretionary spending. 120-42 = save 78k - and that's only if you insist on living in a 5k apartment (even cutting that down to 4k adds another 12k of savings/year). So maybe not 100k, but close enough.
I would argue this is a realistic budget for an associate that balances frugality and having fun. you could absolutely ball harder, spend another 10-20k (add another international vacation, luxury shopping, etc.), and still save a very respectable 60-70k a year. But claiming that many associates are "breaking even"... that's wild
Agreed with the comments here. If you aren't budgeting at all then sure you end up breaking even or only saving 20k-30k, but even in banking with $150-200k all in comp I save more than this
I think above post only considers marginal tax rate, not effective tax rate. So it overestimates taxes.
I track my spending meticulously using a Mint-like tool and can offer a datapoint for non NYC tier 1. I spent on average $5.7k a month over the past 16 months as a PE Aso, so this is a good sample size. Rent and Utilities is about $3k for a nice one bed (you can probably guess the city now) so this is where my savings can quickly outpace NYC by about $24k already. This spending per month includes ~2 vacations a year and ~1 weekend trip a month. I'm smart about how I use and collect points which helps the travel spending.
My blended tax rate here with max 401k contribution is ~30% so you can do the rough math. Not using my exact numbers here, but gross 250k nets ~180k. I spend about $70k a year. So I'm saving ~$110k per year including 401k contributions.
Above comment surprises me that many PE associates break even or only save $30k into brokerage. I'm probably more on the frugal end but I'm not even trying to be. I feel like my social life is very full. I spend $300-400 a month for a really nice gym / fitness club. $700-900 per month on food. I like to cook. On vacations and trips, many of my friends are not in PE so I budget similar to them - no crazy nice hotels, but nice enough Airbnbs for ski trips and the like. I also help pay for much more than my share for vacations with family or my SO given my financial comfort. I guess I don't buy stuff like watches or go out to eat / drink a ton and that could add up in NYC.
your food expenses are extremely low
How are you spending that much on food when breakfast and evening meal + coffees/drinks/snacks during the week are free
This is far more reasonable, and take or leave as you want, but far more representative of my PE circle, even in New York. I come from a humbler background so I am a little biased, but spending like $6k a month on rent when you can get a spot on your own in the $3k range is something I’d never do , especially in a $150k base salary.
Question still remains how you think about allocating your savings ?
Poster #1 -- yes, food is lower for two reasons, I have a habit of meal prep that goes with the higher gym spend / lifestyle and I also don't eat much in general. I might pick up lunch 2x a week and go out to eat one weekend night.
Poster #2 -- on allocation, it's pretty much just 401k and then remaining into brokerage at whatever 75/25ish equity/fixed income split I'm feeling at that time depending on the market. These days I'm holding cash
Breh you don’t need to food prep shit if it fits your macros. I eat out literally every single meal and am shredded. Not cope shredded like oh I see an ab in aggressive downward lighting but am pudgy with mild hypertrophy but shredded meaning striations when I move
lol at meal prep
Is non-NYC tier 1 a thing?
It’s called Chicago
Are you able to share what tool you use? Pretty sure mint has gone to shit lol
$300K pre tax, ~35% effective tax rate in NYC gets you $195K.
Rent and utilities assume $50K/yr (range from 2.5-5k/mo depending on if you’re single, roommate situation, etc but I think $4K is a better estimate than $5K).
My average credit card bill was something to the tune of $3K / month, but that’s because I worked all the time, and any spending money I made went directly to take out, booze, travel, and nice dinner. I could very well see this scaling to 4-5k / month if you’re a degenerate.
Of the remaining, I put $30K/yr into coinvest, $20K into 401(k), 20K into brokerage, 10K into crypto, save the rest for rainy day.
I think that feels about right?
Super helpful — so if I’m running the back of envelope calculations right here, think you sit on ~$30k in cash? ~200-50-36-80 ?
Just a datapoint from last year as a MM ASO1. My average monthly expenses (including one-off purchases like clothing, vacations, etc. amortized over the entire year) came out to $4.6k (rent + utilities are only around $2.4k as I share a 1 bed with my gf). Monthly post-tax income from $150k base came out to roughly $8.5k so I was able to put away ~45k in a year from my base alone. I essentially banked all of my bonus save a few grand which I spent on treating my parents to a really nice dinner. Total savings came out to a bit more than $135k.
I don't think of myself as frugal, but I probably am as I'm not very materialistic. I do spend quite a bit on vacations / experiences, but save a lot on daily expenses (e.g. I meal prep and take advantage of the work food stipend as much as possible, try to take public transportation vs. Ubering around, book flights and hotels for personal travel on points as much as I can). I also spend very little on clothes and material goods as those things just don't appeal to me. Don't get me wrong, there's absolutely nothing wrong with being into luxury materialistic goods and deriving enjoyment from that, but don't let anyone tell you that you need to make those purchases to fit into "high finance" culture. My most expensive pair of work shoes is a $160 pair of dress shoes I bought 4 years ago that I've worn to client events in IB and closing dinners and conferences in PE, they're still going strong and look great. Get those AEs or Ferragamo loafers if you want, but there has never been a moment in my career where I've felt the need to spend to "fit in".
Thanks for the datapoint, it definitely seems like your on the relatively frugal side of the PE associate lifestyle. Just curious, but how do you balance / do you ever regret saving so much in your early-mid 20s compared to your peers vs. “splurging” more?
To be honest, I don't really view myself as that frugal in the first place, and likely because of that, I don't really feel like I'm necessarily "missing out" on that much. There's still many places where if I really wanted to, I could cut back on spending easily. It's simply that what I derive enjoyment and satisfaction from isn't that materialistic, and because of that, I don't feel like I'm missing out by not partaking in any of that.
Of course, my lifestyle habits and what brings me satisfaction is likely a product of upbringing by un-materialistic parents who taught me the importance of delayed gratification towards success, so innately I don't have that urge to splurge and saving money is a form of satisfaction in and of itself to me.
This is me and similar savings rate. I'm not frugal in the sense I actively think about ways to save money, I book ubers, buy food etc without thinking. But I just don't care that much about buying new/expensive things so I end up rarely spending that much
In secondaries/co invest in NYC as an associate.
Cash comp of (150 salary + 50% bonus)$225k + 5% of that 225 gets paid into 401k as employer contribution. So $236k total
They let us put our bonus into the 401k as employer contribution so I’m saving $70k there and likely another $10-30k post tax. Creates a bit of a funny situation where 70% of my net worth is in retirement accounts.
Rent is $2500 and credit card is on average probably $2500. Don’t do a great job of tracking this though and I do travel quite a bit so expenses are volatile
Dude how are you paying $2.5k on rent? Are you splitting a 1B or outside Manhattan?
I just got very lucky and found a great place at a great price in midtown. Have roommates but I love having roommates
Credit card at $2500 on average in NYC is also insane… must literally not be going out at all
That’s a good setup what are your hours like in that role?
Do you want to stay in NYC longer term? If so, are you planning to stop contributing to retirement accounts in such a significant way soon? It seems like for high earners in HCOL cities like NYC that it may make sense to max out these accounts in early years, but once they've hit a certain threshold it's better to save in a liquid way for the more near term expenses (e.g., buying an apt, having a family, etc.) since with that trajectory of earnings you'll more likely than not be fine for retirement
If you’re a PE associate, you’re making enough money to easily max out your 401k and your Roth IRA and not even feel it. Zero excuse to not max them out.
I thought mega backdoor was only available if your company allows it and not every plan does.
If you have winners for parents who will leave you something, I would max out mega. If you have losers for parents and will have to be financially responsible for them in the future, I would not max it out.
I would keep 50k cash in a HY CD and invest every other penny into the vanguard total market index fund.
FYI, you can invest in a Roth IRA really early. My dad open mine at age 16, and at age 38 my Roth is up to 400k. So start early if you can.
Now this is quality content.
yeah you’re 110% right — mega back door you can only do depending on the record keeper your firm uses (and have heard it’s easier to fuck up).
Can you elaborate on why $50k in cash? Seems a little cash heavy to me but I have basically only experienced market appreciation (other than the whole tariff thing which was kind of evident that it wasn’t going to last super long).
I track my expenses pretty closely and have roughly 6 months of “cost of living” expenses in a money market fund. As I’ve earned more money and decided to level up on things like a nicer apartment that budget has increased so naturally so has the emergency fund… it’s different for everyone but my number these days shakes out to ~$40k for that bucket. Probably conservative cuz if I lost my job I’d def cut back on many areas…
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