Is this the right track to build net worth?

Hello, I am a first year analyst at a BB in NYC. I grew up in the Bronx which is where I still live (not at home, just close to it because I really don't care about living in Manhattan would rather save the money and commute). 

Prior to starting FT, I had around 7k in savings + checkings (most of my intern money went to paying rent/bills at college (went to an ivy). I had an emergency family health issue with my grandfather, he is in (Europe) and contributed about 2.5k alongside larger contributions from my parents, older siblings, other family to pay for his surgery. Have absolutely no problem in contributing for this, family is family and I was close with him. The resulting financial situation I face is that after about 2.5 months on the job, I have around 6k in savings and 5k (1k of which is Roth IRA) invested in various ETFs and around 800 in a 401(k) (plus equivalent company match). 

I am a bit worried about my financial future as this event shook if something like this were to happen to my parents, siblings or myself. We put up around 45k for my grandfathers surgery in a country where healthcare is much lower cost than the US (this was a very specific, expensive, and specialty surgery). Because of this, I feel like the best move would be for me to prioritize getting 20k asap in my savings. I was thinking of just putting all the salary I get that I do not spend in my savings (e.g 2k a month because I only pay around 800 for 1 room in a 2 bedroom with my friend and also contribute 800 to my parents (reality have around 2.8k excess out of 4.6k post tax)). At the same time, I am worried I will not be contributing enough to investments. However, if I do I save diligently, I will have my desired savings in 7 months after which I would feel more comfortable investing again. Is this appropriate? 

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Comments (32)

Oct 14, 2021 - 12:00am

So this might seem retarded, but what's the point of an emergency fund?  Why not dump it all in an IRA and only withdraw if an emergency happens?  That way if no emergency happens, you still grow your wealth.

Oct 14, 2021 - 12:01am

So this might seem retarded, but what's the point of an emergency fund?  Why not dump it all in an IRA and only withdraw if an emergency happens?  That way if no emergency happens, you still grow your wealth.
 

This question isn't for you but for anyone who may give advice on this thread

  • Associate 1 in ER
Oct 14, 2021 - 12:14am

Drumpfy

So this might seem retarded, but what's the point of an emergency fund?  Why not dump it all in an IRA and only withdraw if an emergency happens?  That way if no emergency happens, you still grow your wealth.
 

This question isn't for you but for anyone who may give advice on this thread

Dealing with IRA is a pain in the ass and not as liquid. What happens if he needs the money RIGHT NOW? He'd be screwed 

Oct 16, 2021 - 12:11am

This may be illegale or frowned upon, but lets say you make very good money in a typical wall street job and aggressive investments all equities. You get laid off, most places give you at minimum 2-4 months of severance, then you can collect unemployment. Of let's say there's an emergency but you're still employed.

Here the question: if you get laid off, the day you hear the news, why not instantly go to an online lender like lending tree or Sofi, or a credit union or bank, lie your ass off about still having a job, they run the credit check and you do well, they ask for a pay stub and you had one from last week, and voila! you're approved for a $30k personal loan at 9% interest... And this is worst case scenario too. If this were to happen you can wait out the equity market and slowly start selling out without a loss if you need to. 

Me personally, I'm all in equities with no savings account, and just enough cash to meet monthly bills, a potential bond payment if I get arrested, etc. lol

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Oct 16, 2021 - 11:16pm

This might work in a bull market, but I think you should plan for 2 - 3 very bad things happening at once.

If it is just lose job OR have unexpected medical expense OR recession, this approach would be fine.

What if it is recession + lose job. I think it would be much more difficult to get a personal loan in the timeframe you need it and now you'll be saddled with interest payments reducing optionality. If the lender finds you lost your job, there may be debt covenants where they increase the interest rate or ask for more principle, perhaps you are on a floating rate and your personal loan rate spikes because it is based off a reference rate and market illiquidity causes this reference rate to spike.

If it were medical expense + recession / lose job, same sort of thing. 

Now if you were to face a medical expense + lose job + recession, this is really where 6 months living expenses becomes ridiculously valuable. You may need the personal loan to just cover essential medical expenses, then 6 month living expenses means you may not have to liquidate as much of your equity portfolio if needed at losses.

Every person has different risk tolerance but it seems sensible to plan for at least 2 bad things happening in your life at once. Without this safety net some take years to recover, especially when these events can have severe mental health effects. Probably can do with less living expenses saved if you have multiple diversified income streams, or you happen to have a network of family/friends that would help you out in a situation like this. OP seems like they have a really supportive family.

Oct 14, 2021 - 12:09am

Fwiw - there's an old saying that goes you should insure "ifs" and budget for "when's". If you're worried about a health scare - if you don't have the cash/resources to pay out of pocket, or IF something like that happened to you, it would financially impact you, you should probably look into some health insurance. (I'm not from the US so I dont have any solutions to provide unfortunately)

For "when's", i.e, retirement, home purchase, car, etc. Budget that into your plan. You make $X. Save an amount that doesn't cripple you but an amount that's enough to feel it. Make sure you save it every month. Savings first, spend next.

  • Analyst 1 in AM - Equities
Oct 14, 2021 - 12:13am

I have health insurance, it was moreso just the idea that there might be a situation where cash might be needed urgently. 

  • Investment Manager in HF - Other
Oct 14, 2021 - 12:18am

What situation can you think of where cash might be needed urgently? I'm relatively conservative with personal finances, so I have a fair bit of cash on hand, but I've never needed a large amount in a 1-2 day turnaround. In this day you can basically have a credit card cover anything. 

I view an "emergency fund" as money you can easily get that isn't in an extremely risky investment (so if you needed it tomorrow it can't be down 50%). 

In my ~15yrs of work experience I can't think of any emergency situations (and I've had medical emergencies, family emergencies, etc) where money was needed that quickly  

I would probably be a bit more balanced in how much you have in cash vs investments. You can always split your investments into lower risk vs higher risk and make sure you have a decent amount liquid in your lower risk category. 

  • Associate 1 in ER
Oct 14, 2021 - 12:13am

Emergency fund / liquid cash is always #1 priority - can keep it in your checking/savings (they're the same thing), or in your personal trading account in a boring SPY etf or whatever 

After that, you can focus on maxing the 401k or various retirement accounts 

dont look at it as "oh by month 3/5/7" etc.. start thinking years. By end of year 1 you want x, end of year 3 you want y. Your bonuses will add up quickly 

Oct 14, 2021 - 12:13am

Also - see if you can get an unsecured line of credit, just to have as an option in case you need access to larger amounts cash. If you get into a pinch, it's likely cheaper than a credit card and can provide you some quick liquidity in case of an emergency.

  • Analyst 1 in IB - Cov
Oct 14, 2021 - 12:47am

IB for ~9 months now.

Have 56k in savings (Robo)

Keep like 300-400$ in cash (bank)

Rest is credit card

Been working out so far

Most Helpful
  • PM in HF - Other
Oct 15, 2021 - 7:41am

Everyone on here has graduated into a bull market for most part but that one older analyst. Think of it this way your career is 30 years long or so. You are putting family first and understanding you are/will be family bank I was same basically when I was 2 years into my career. I had to bailout 2-3 family members with school debt planning or closing costs on home purchases. Sometimes there is more important things than building net worth asap in life. Even a boring SPY can still go down, should still be actively managed if this is emergency money for  ppl you care about.

So while no its not the best way to build wealth out a young age, that would be buying crypto/qqq taking risk early. You should aim to Atleast get to 50% of your desired target in year1. The other 50% could be more risky or so, but unlike someone with no family obligations you should limit risk early on.

As mentioned you should always have an agreed LOC you can pull from the bank even if you never pull any money out. Cause you make a high salary and can handle some debt if needed.

Once you have more "more money" like the guy with 15 years in, then holding all your liquid assets in an SPY or so is easier cause you have lets say 300k, we fall 10% thats 30k. But you have 5k, we fall 10% and your dad needs 5k. You get the math. 

Oct 15, 2021 - 12:13pm

Anyone else have a Vanguard account and are unable to by TQQQ?

I've lost so much money over the last year by being too lazy to open a new account with a different brokerage

  • Analyst 1 in IB - Gen
Oct 17, 2021 - 1:15pm

That's why I made my Roth IRA 100% in TQQQ. It's not much in there because of the 6k limit, but you might as well go as as high risk and reward as you can get because my time horizon is so long (literally like 40 years before I can withdraw) and you're limited on the amount of money you can put in anyway so the "risk" factor really isn't that high. 

Oct 17, 2021 - 6:18pm

That fucking hurts me, even though I was a child in 2010.  What's the easiest site where I can buy TQQQ?  Vanguard dickwads don't allow leverage

Oct 17, 2021 - 6:32pm

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  • Analyst 1 in IB - Cov
Oct 18, 2021 - 11:23am

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