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. 

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Comments (104)

Dec 1, 2020 - 12:37am

You can also try budgeting by withdrawing a set amount of cash each week form an ATM and using only the cash.

Go, Go, Excel

  • 1
Dec 1, 2020 - 8:43am

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 don't know... Yeah. Almost definitely yes.

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Dec 1, 2020 - 10:49am

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. 

Commercial Real Estate Developer

  • 3
Dec 1, 2020 - 11:36am

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.

I generally see somebody I know on TV on Bloomberg/CNBC etc. once or twice a week. This sounds cool, until I remind myself that I see somebody I know on ESPN five days a week.
  • 1
  • Intern in HF - RelVal
Dec 4, 2020 - 11:46am

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   

Dec 7, 2020 - 3:55pm

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

Dec 1, 2020 - 8:45am

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.

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

  • Incoming Analyst in IB-M&A
Dec 3, 2020 - 12:34am

amex and ally have higher rates. If you walk a lot, fitness bank will offer you the best rates.

Dec 7, 2020 - 3:57pm

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.

Dec 23, 2020 - 10:22am

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.

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  • Intern in IB - Gen
Dec 1, 2020 - 1:05am

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%.

Dec 1, 2020 - 8:48am

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.).

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

Dec 1, 2020 - 11:49am

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

Dec 2, 2020 - 9:25am

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.

I generally see somebody I know on TV on Bloomberg/CNBC etc. once or twice a week. This sounds cool, until I remind myself that I see somebody I know on ESPN five days a week.
  • Prospect in AM - FI
Dec 1, 2020 - 9:37am

Can someone make a personal finance thread for college students?

Dec 1, 2020 - 2:52pm

I'd recommend r/personalfinance, there's a ton of good information on there.

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

  • 1
  • Analyst 1 in IB - Gen
Dec 1, 2020 - 10:37am

Add buy bitcoin to this and you got yourself a good list

Dec 1, 2020 - 7:04pm

Interest is taxed at your marginal income tax rate in the US instead of at the capital gains rate.

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

  • Analyst 1 in IB - Ind
Dec 1, 2020 - 7:51pm

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?

Dec 1, 2020 - 11:42pm

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

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

Dec 1, 2020 - 10:28pm

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.

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  • Works at Other
Dec 1, 2020 - 11:46pm

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.

  • Works at Citadel Investment Group
Dec 1, 2020 - 10:54pm

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?

Dec 1, 2020 - 11:47pm

Idk about 401ks but I'm pretty sure you can do that with IRAs.

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

  • VP in S&T - FI
Dec 2, 2020 - 2:12am

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-…

Dec 2, 2020 - 9:36am

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.

I generally see somebody I know on TV on Bloomberg/CNBC etc. once or twice a week. This sounds cool, until I remind myself that I see somebody I know on ESPN five days a week.
Dec 1, 2020 - 11:19pm

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? 

Dec 1, 2020 - 11:51pm

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.

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

  • Intern in IB - Gen
Dec 2, 2020 - 1:29am

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)

Dec 2, 2020 - 10:26am

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. 

Dec 2, 2020 - 12:28pm

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.

Dec 2, 2020 - 12:38pm

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.

Dec 15, 2020 - 11:52pm

If your firm isn't matching 401(k) contributions, I would highly advise leaving! Pretty much the market standard these days.

Array
Dec 2, 2020 - 10:54am

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?

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  • Intern in IB-M&A
Dec 2, 2020 - 11:34am

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.

  • Analyst 1 in IB - Ind
Dec 2, 2020 - 2:06pm

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. 

Dec 2, 2020 - 2:24pm

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?)

Dec 2, 2020 - 1:02pm

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.

Dec 2, 2020 - 4:54pm

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. 

Dec 7, 2020 - 7:12pm

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

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

Dec 5, 2020 - 7:24pm

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.

Dec 10, 2020 - 3:42pm

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

Dec 10, 2020 - 5:29pm

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)?

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