I find this thread pretty amusing because I'm ~40, have two kids, have made good money over the years in a good field (not consulting) and there's just no way I'm retiring now, and I have more money "saved" (in my world a lot is tied up in carry) than some of the examples above. Like @CorpFinHopeful and @Tred1 have said basically, life is expensive and much more expensive than you think when you're either in school still or young and don't have kids and all of the costs that come with them.
A couple hundred grand a year sounds like a lot to a 21 year old still in school, but it's just not that much money after taxes unless you're living in Iowa. Even if you don't go crazy and buy multi-million dollar homes or insane cars, a nicer but basic house near a major city is easily $1MM. A million dollar home sounds like it's going to be a mansion but that's a 4-5 bed in a somewhat closer suburb to a major city, especially in the northeast or California (SF/LA).
If you live near NYC in Jersey or CT, property taxes are going to top $30k p.a. on that house and that's not in Greenwich (and entry level houses in Greenwich are $2MM+) or even Summit, that's more like Montclair. If you live in the San Fran area anwhere you'd be lucky to not spend 2x that on the house price alone. Just go on www.realtor.com and look at home prices and property taxes. $25k p.a. for kid's private school-that's more like kindergarten in a less expensive suburb. If you're in NYC, bump that to $40k for kindergarten, $50k+ for upper school. And that's just school: kids are actually a lot more expensive than that and it's all nickels and dimes but they add up. And forget about saving for college-lord knows what that expense will be in 13-18 years.
$55-60k in living expenses? I don't know what that includes, if you're counting a mortgage or not but let's leave a mortgage and property taxes out of the equation, that's $5k/month. You can easily eat up half of that just on utilities, food, gas and the other basics, not including two cars and insurance. That doesn't include anything "extravagant" like nice dinners out, which you will want to do because you work hard and your wife will want you to take her out because you work and travel a lot and you enjoy spending time together away from screaming children. Hell, a babysitter for 2 kids is $20/hour.
Go out for 4 hours once per week and a babysitter eats up more than 6% of your post tax budgeted living expenses. That doesn't include the $200 you blew on dinner and drinks or some other entertainment (that's in the burbs and not going over the top, not in NYC, Boston, SF, etc where you can easily blow 2x that) . And when you go out with friends you're no longer splitting the bill like you did when you were younger so you'll end up with a $400 tab far more than half the time because you work in a high paying job and people look to you to pay.
Regarding family vacations: a week long trip to Disney World for 4 will cost upwards of $10k with hotels, food and park tickets. That's not going to Bora Bora or Portofino on a private jet, that's Disney using miles for the flight. Before my wife and I had kids we'd travel for less (or more) but with a family it's really difficult to wing it and believe it or not, seeing my two young sons having the time of their lives at Disney was completely worth the money. Your second vacation of the year when you rent a modest house at the Jersey Shore (not meathead Shore), the Cape or the Vineyard for 2 weeks (and I'm leaving the Hamptons out of this) will cost you $10k in the rental alone. And you're going to get a place large enough for the grandparents and maybe other family members to come down and guess what? Because you're a consultant at Bain (or in IB/PE), no one will offer to pay you for anything: the rental cost, the thousands in food and drink you buy for everyone who's staying for free at your place, etc.
When you have a holiday dinner (Christmas, Thanksgiving) for your extended family and you spend >a thousand on food and booze, Aunt Mary will think it's all equal because she brought over the green bean casserole and guess what again? No one will offer to pay because you're the successful consultant, banker etc. I'm in no way bitter about this and I enjoy doing this for my family, but I'm just trying to illustrate how little things add up over the years.
You don't have to be chasing the Jones' or the Gates' to spend more than you think. For what I have made in PE and what I continue to make I live a pretty low key lifestyle but unless you want to be clipping coupons and skimping on everything possible, life in general will cost more than you think. If you can make consulting, IB/PE or big law partner type of money that you make in NYC, Boston, SF, etc and live in Des Moines, then it's a completely different picture but very few people make that type of money in Des Moines because those jobs don't exist in great numbers, if at all.
I only know one guy who retired at around 40. Formerly an MBB consultant who was recruited by a big hedge fund family because his industry specialty and his education were suited to the sub-fund's strategy. After a few years as an analyst he became a PM, and his direct fund ran something like $3B. Start doing your 2/20's on that amount of money and splitting the 20% with the firm (I think the team got to keep about half of the 20, maybe less but still a good % of it), making 20-30% annual returns and he took home a lot of money. Not just a million p.a. more like 10's of millions. And he lives a very moderate lifestyle for the money he's made because a massive house and fancy cars don't do it for him.
That's about the only way people who work in IB, PE, consulting or other high paying fields retire from what I've seen. Not when you have $3, $5 or $7MM, but when you have $30MM+. If you get to the point where you're ~40 and hitting the top of the game it means you've busted you butt since high school so it's very difficult to give it up when you're finally making the money you've worked most of your life to make. Plus, being 40 myself, I don't know what the hell I'd do if I retired in 3-6 years. There's only so much golf you can play and wine you can drink for a 30-40 year retirement.
If you're talking about retiring mid-50's I'd say that's more realistic. I applaud anyone who can save and not live an over the top lifestyle, but life in general will cost more than you think.
Mod Note (Andy): Throwback Thursday - this comment from April 2014 was originally posted in the thread What are exit opps really like for MBB Partners?
Great post, spot-on. Maybe this makes me an asshole but it definitely makes me hesitant to even think about having a family any time soon. Wasn't in the cards at all anyway but still...many of those expenses come from having a family, and you're right, it does add up quite a bit.
Why pay extravagant prices for a SEX DUNGEON in Manhattan or San Francisco when you can get a dungeon just as good for half the price in HOUSTON or ATLANTA?
If you can't save when making 300-400k per year then you have serious lifestyle creep and need to get your shit in order. Send your fucking kids to a good public school. I'd imagine the public schools where houses cost 1MM+ are pretty decent. You need to spend 400+$ on date night. I can easily get a decent dinner in Manhattan with drinks for around $70-100. If I cut the drinks it's even cheaper. No it's not a 5 star steakhouse, but Manhattan has some amazing restaurants for a cheap price. Plus steak is easy as fuck to cook so I'll just cook myself a steak on the grill at my 1MM+ house. Also your vacation costs a insane. And no one takes their kids to Disney every year. That's a special trip that you maybe do 2x during their childhood. And you can do it for less than 10k easily. Yes park tickets will run about $1100-1200 total, but you can stay at a decent 3-4star hotel in Orlando for like $160 per night. Additionally, flights to Orlando are only about 250-300$ per person so not that bad. And if you stay at a Disney hotel you don't need to rent a car. Just take the bus or Uber. You're insane if you think you need to spend 10k on a Disney vacation to have a good time. Maybe it's because I grew up lower middle class. My parents took me to Disney twice when I was a kid. Our yearly vacations were going to the Jersey shore and renting a condo for less than 1k for the week. The condo would have a small kitchen and my mom would cook a few of the meals. We would also eat out a couple times. And for lunch we would pack sandwiches and picnic on the beach and we had a great fucking time. Honestly you don't need to spend a lot of money to enjoy life.
I wholeheartedly agree with you. Preach Brother Preach!
Nothing but facts. You can tell when people have a sense of false entitlement due to their economic advantages. If you can't save money while earning over 300k annually then honestly you shouldn't be working in finance because you obviously have 0 financial literacy.
I'd also add to this that there is a fairly common psychological phenomena where almost everyone, even the extremely wealthy, don't consider themselves wealthy at all. If my memory serves me right its for two main reasons:
(1) as your income rises, as does your social circles and view of what is essential and what is a luxury. I'd venture to say that if you're making over $300-400k in a major metro area, you're probably also spending something like $10-30k per kid on private school. Second, I'd also venture to say that your vacations which you take semi-annually probably cost in the neighborhood of $10k or more each (i.e., your vacations cost a little less than the average american post-tax household income). You also may have a summer house, a nanny, a club membership, a non-earning spouse, high end gym membership, maybe a trainer, premium clothes etc. Obviously you'd need an income substantially above $300-400k to afford ALL of the above, but at the least a few of the above can definitely be afforded. I'm not disagreeing with you that life is expensive, but I feel like its more of a function of your standard of living increasing substantially. If you have the tastes of someone living on a school teacher's salary, what we make on Wall Street is indeed a lot of money. What invariably ends up happening is that even the biggest simpleton ends up developing increasingly expensive habits.
(2) almost everyone aspires to be richer than they actually are, so as long as you're looking at the guy 2 notches above you, you forever feel just slightly above average; as even as you attain that next level of income/wealth, you're sense of what is "adequate" rises along with it, so you now set your eyes at the guy 2 notches above your newly allotted station.
Completely agree with point number 2. It reminds me of this article and the "game mechanics" at play when dealing with pay: http://www.fastcompany.com/3006318/creative-conversations/jonah-berger-…
Enjoyed the OP as well.
Thank you for the great comment. You said what I wanted to say.
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Retarded politicians in New York or SF come up with BULLSHIT communist ideas like RENT-CONTROL and then everyone wonders why the real estate prices there are fucked up...
I think this post provides some good perspective; however, I tend to side more with Marcus on this discussion. A lot of what was described was a fairly extravagant lifestyle. It makes it sound as though making 300-500k merely facilitates a decent lifestyle with more limited opportunities. This couldn't be further from the truth. A lot comes down to wants/needs and personal lifestyle choices. Private school is by no means mandatory, especially if you live in a good community. 20-30k a year in vacations again is a major luxury. Thousand dollar holiday dinners, 400 dollar date nights, again, these are all extremely high end lifestyle choices. Etc.
I do agree that life is expensive; however the picture painted is a little more about a the type of lifestyle than what is realistic to have an great life with less spending. Having grown up in what would be considered an upper class community and having very few friends families live the life outlined above is where I establish my frame of reference.
Basically if you are in that income range those spending levels are much more choices than anything else. It's significantly more money than is needed. I'm not saying there is anything wrong with those choices if that is what one chooses; however I just don't think it should be considered the baseline.
I think your mileage may vary on these sorts of things, and I offer an alternative side of these because I feel like you guys might fall on the other side of the spectrum. My dad is an MD at a BB. Sure, life is expensive and especially so when you have kids, but a lot of these things that you're mentioning are not even close to being necessity.
For instance, private school from kindergarten on? That's a bit extravagant don't you think? Perhaps things are different on the east coast, but on the west coast and in California, there are tons of quality public schools in the wealthier neighborhoods that provide comparable (if not superior) educations to private schools. If you live in Orange County or Marin County or any of these places where there is a high concentration of wealthy people, the property taxes that go towards funding the local school district make these sorts of schools really pretty incredible. These public high schools are consistently sending dozens of kids to the Ivy leagues/Stanford/Duke/etc., and you don't have to pay for private school education.
It might be different since it seems like your kids are younger (I think?), but I've been on three family vacations in the past two years with my family + significant others (7-8 people) to islands in the Caribbean. We've rented a house (read: mansion) on the island for 10 days and it's $3k for the entire time. Airfare is free since it's covered by frequent flyer miles. Food/drink/alcohol/car rental is probably around $1.5k if I had to guess, doing shit like SCUBA and snorkeling is probably another $1k, so all in it's closer $5k, and that's for 8 adults in the Caribbean for 10 days. That would be an incredibly nice vacation for anyone, regardless of their income level.
If you flaunt your wealth and consistently pick up the tab, then of course people are going to expect you to always pay and will likely be offended when you don't. But in that case I'd say you're hanging out with the wrong people.
However, your comment on vacation makes me cringe.
Maybe like 5 NYC public schools aren’t a fucking joke. And you have to apply to those anyways…good luck. And even if you’re there, you have to work your dick—or vagina—(woke af 🫃💪) off to get into HYP. I went to a large suburban public HS (one of the best schools in the state and still less than 0.5% get into ivies). I had the best time of my life there and wouldn’t trade it for anything, but I’m 100% sending my kids in Collegiate/Spence/Friends/Trinity because (relatively speaking) it’s way easier and less competitive considering that 20-30% of those kids go to HYP. Maybe going to International or Harker in SF isn’t as justifiable, I don’t know, but thanks to the lovely people that have been running NYC for the past half century, private school is more of a requirement than you’d initially think.
This is very true. Things cost money. I've said this before and attracted a lot of shit, but I don't think you're "rich" or even close if you make a million dollars a year in NYC and have 3 kids. You're clearly way, way better off than the vast majority of people across the entire world and no one should ever feel sorry for you or your family, but you're not rich.
I'm willing to bet that everyone who disagrees with the OP in this thread neither has children nor makes 250k+. Also mostly young posters.
I don't know that I'm disagreeing as much as I'm just making the point that (a) you never feel rich, no matter how much money you make and (b) your life is only as expensive as you make it, and human nature generally causes people to make their spend on essentially 100% variable to their income.
The key takeaway of the OPs post is that (1) the lifestyle of a high earning professional is very expensive; (2) and its not as opulent a lifestyle as us young-ins might think; and (3) the people with fuck-you money are few and far between even among private equity / MBB / IBD partners. Although I'd bifurcate that last point as I think that PE partners at well established firms generally do make enough money to live pretty extravagant lifestyles.
I think the point is that your expenses reflect your lifestyle and your "nest egg" will have to be consistent with that lifestyle. While a sub-urban high school teach may retire with $800k (I'm making that number up)... for an MD at Blackstone, that barely enough to get by on before the next president is elected, and that's if he's living on a shoestring.
Exactly this. Lifestyle creep is a real problem with people. Also if you want to get rich the best way to do it is take chances and start your company or firm.
I’m 18 and it’s refreshing to see this post. All my buddies think IB pays a shitload like it did pre 08 (which in all fairness it kinda does ig). But if you’re not a group head or don’t have global in your title don’t think about the ten million dollar easthampton house (unless you’re involved in some shady shit, which if you are, PM me I’d love to hop on board)
I actually feel like life costs less than what most people think, or at least among high paid professionals, they make a lot but also have so much more money related anxiety than ppl who make way less. Even my MD cuts coupons and I'm pretty sure she takes home more than $300k..
I'm a 1st gen immigrant and my parents raised my sister and I on
Good job. Can always appreciate someone who lives frugally and with great appreciation of simpler life.
"babysitting would be free if you have ppl close to you willing to do it."
I'm calling BS. I've never met anyone who was happy and willing to babysit except for maybe a first time grandmother.
you've never spent a night at your friend's place cuse your parents were out? and idk why grandparents don't count, old ppl love looking after their grandchildren. My parents were Christian and had a lot of church friends they could rely on also. I don't know this doesn't seem that outlandish to me, and after I was about 10-11 I would just baby sit my sister, we didn't really need babysitters.
We trade off with my wife’s sister a couple of times a month. Our daughters are a few months apart. We also recruited both of our parents to move to our state and within a couple of hours, and they jump to come babysit whenever we need it. My sister also lives a couple of hours away and will take our daughter for entire weekends. Randoms might not like babysitting, but family doesn’t mind. We watch our nieces all the time as well so ther is a quid pro quo aspect to it too.
Also, having neighbors with kids is huge. Our next door neighbor has a 13 yo daughter who is more or less available on-demand. She charges like $8/hr because she's not old enough to travel around, but we are good with her babysitting because her dad is like 50 feet away.
Keeping up with the Joneses in this post.
I don't what the cost of living here in the UK is like compared to the US, but I grew up on
First lesson: kids are fucking expensive. Second lesson: Property in/near a large city is expensive. Third lesson: Property/income taxes are expensive.
As for the stuff that's wrong here, you don't have to pay for others' dinner, you're doing that to show off. If you're doing this with "friends" who expect this of you, your "friends" are leeches.
Second, family vacations don't need to cost $10,000. My parents easily took our family of four to all three Disney parks on a week long trip for $2000-3000 all in. And you don't need to rent an entire fucking house for a vacation, wtf is that shit. Like I'd totally do it if I could afford it, but to whine about it as if it's a necessity is silly.
All my holiday dinners are pot luck style. Again, sounds like you're just trying to show off. Seriously who the fuck spends $1000 just for their stupid relatives to come over?
Silly article. I'm sure if you posted a monthly budget we could tear it apart pretty easily. Not ragging on you, but when you write an article talking about how living is "more expensive than you think" then talk about all of the stuff you chose to spend your money on, that aren't in any way essential living items, is just dumb.
I personally think the whole "private education" thing for kids is batshit crazy.
Parents send their kids to private school for the image, not for getting a better education.
Parents that send their kids to $50k a year kindergarten for the image. A basic private education however makes a HUGE difference. The biggest difference is that your kids are surrounded by a much lower proportion of fuck ups. Private schools have a much higher graduation rate, continuation to higher education, lower teen pregnancy, drugs, etc. Does it have more to do with socio-economics than the curriculum? Of course. But bottom line is that you're surrounding your kids with peers that are less likely to get into trouble. Sure, upper-middle class families/schools have their own set of problems and pressures... but its the lesser of two evils.
Not to mention that your average public school teacher is either your typical slacker who just happened to muster enough effort to graduate college or a housewife trying to keep busy / make a few extra bucks. (I'm not talking about the relatively small contingent of US school districts that actually have very good public school system)
Meh, totally depends on the school. In nicer neighborhoods the public schools are usually pretty good. Exposing your kids to fuck ups isn't necessarily a bad thing, either, anyways. Then again, I obviously don't have kids and don't have a ton of money, so...
Totally agree. Luckily, I am able to get the benefits of private school for my kids at a much lower rate (my parish Catholic school), while the parents interested in image pay much more $25k plus, a lot in Chicago) for an adjacent Catholic school that sends its students to the same colleges, avoids the same riff raff, etc.
I love that people are willing to fork over 40-50k, I wish I ran one of these schools.
A lot of small towns have perfectly fine public education. These teachers do not need to teach rocket science.
Anything a kid can’t learn in those sort of schools can be covered by 500-1000 in other educational spending a year....maybe even just a library card and an internet connection.
Plenty of fuck-ups at elite private schools. You would be surprised how many super successful guys have retards for kids. Or no ambition and float thru life. Picking up a coke habit at those institutions is extremely common.
Good post OP and I think there have been some helpful comments as well. On one hand, it's good for young people to have realistic expectations of the lifestyle they might achieve if they enter these industries. College kids thinking they'll work for 20 years then retire at 40 and live like Saudi princes should disabuse themselves of that view. On the other hand, from a material standpoint, the lifestyle you descibe is amazing. It's far better than the vast majority of people could ever hope to live. Being abitious is great, but it's also important to step back occasionally and appreciate just how much you actually have. I'm not even talking relative to someone living in a third world country. I mean compared to your middleclass household in America (a wealthy country).
Don't read this article out of context.. It was written as someone who made MBB partner and wanted to retire within 4-5 years. The whole discussion was on the continual cost of living for someone making that much money and maintaining the lifestyle. Obviously, your lifestyle will scale with your income. If you're only making 100-200k then it probably doesn't make sense to send kids to 50k kindergarden or take $20k vacations.
Even if I was making over 300k, I still wouldn't send my kids to private grade school. Plenty of people go to public schools and succeed. The truth is, your performance is mostly a factor of your determination, IQ, and ability to score high on standardized tests like the SAT. A private school isn't going to magically raise a kid's IQ. And it's also not going to guarantee the kid is dedicated to work hard and succeed. I've met plenty of people who attended private school and came from rich families who were either: 1. Lazy, 2. not very intelligent. Sure the private school education probably got them slightly further in life than going to no name suburb school, but these kids still won't achieve shit in their lives. And once you're in the real world, it's all about your performance and abilities. I know a guy who dropped out of college Freshman year. Lived at home for a year and taught himself IOS development, now he has a top at a top tech company making over 150k per year at the age of 22. This guy went to a public school. I know because I went to school with him. Also look at the rise in programming bootcamps. Truth is, tech isn't as elitist as fucking bankers and consultants are. They care more about ability and skill than having a dick measuring contest about weather Wharton or Harvard is the better Ivy.
There is one near universal truth about money: The more you make, the more you spend. It always starts out small and those expenses become the new normal and you build from there. The incremental expenses usually don't seem that much at the time, but together they all add up. When you get a bigger house, you fill it up with more stuff. Of course more stuff = more money. You get a little help around the house and you like the convenience...eventually you get live-in nannies. You get the idea...more begets more; what once seemed extravagant becomes normal and the cycle repeats.
You're not going to have a college kid budget when you make $200K per year. You're not going to have the budget of a $200K per year family when you make $5 million per year. Yes, you should be able to save proportionately more money, but if you think your spending habits will stay the same throughout your life, you are clinically insane.
Also, many of you have wealth targets you will never hit. Do you know the proportion of people that start with nothing and end up with a $5 million net worth by the time they're 30? I don't either, but it is a microscopic amount, especially for those that aren't in sports or entertainment.
Stopped reading at "people expect you to pay at the restaurant" part.
Glad I don't have garbage friends who expect that. Maybe time to re-assess who you should be hanging out with blowing $400. Save that time and money for your family.
lolz
Totally agree. Are they even real friends when they pull shit like this?
On the griping comments about paying for other people's dinners - I have full empathy and understanding for @Dingdong08 's position.
I do this not infrequently, largely because a lot of my friends aren't working in finance or other high paying professions and I like to take them out for great food sometimes. When I take them out for expensive food, I feel morally obliged to cover the bill because I've made them eat at a place that charges a lot without regard to their ability to pay.
It's not like I whip out the credit card in front of everyone or run a whole big man on campus show and this is not about making me look magnanimous etc. To the extent people want to contribute, I usually tell them to give me an amount which is some fraction of the actual bill. There is no basking in gratitude afterwards, no resentment from friends, no negativity.
It's not like this happens every single time I'm eating with them (I don't have exclusively expensive food tastes), but it happens not irregularly.
As for eating with family, I always pay. With my parents, they already put a lot into raising me and invested heavily in my education which got me into my job, so I'll never be able to buy them enough dinners to cover for that. I never see my extended family, so that issue doesn't come up. However, I don't see Dingdong08's scenario as outlandish.
For posters who are at university still or in their earlier years of their career, this may seem staged, showy and a completely foreign way of thinking. But when you're in your 30s, this sort of stuff is par for the course.
Damn, 10 k on a vacation though? get a all inclusive package to DR for
You peasant.
lol doggy, whats wrong with a
one word: geoarbitrage
plan on living abroad while earning dollars for a long long time
Doesn't sound very riskless to me. But does sounds awesome.
oh there's definitely risk involved, that's all part of the fun ;-)
Great post. A key takeaway from the OP's post is that purchasing power parity matters a great deal. $1m in NY/SF metro area entails very different sets of lifestyle and consumption possibilities than $1m in Houston or Las Vegas. Not only is the price of everything in general and RE in particular much higher in the former, but also the state income taxes make a big difference--if you are earning $1m+ a year then the amount of money you save a year in state income tax alone is more than enough for the down payment of a nice big house in a master planned community.
Also re the OP's point of having much of his net worth tied up in carry, the fact that so much money is locked up long term means that even if you want to retire, you still have to stay put at least until profit distribution (assuming that something didn't happen beforehand to make the paper gains disappear). This is also one reason why the more senior PE people usually stick around the same shop for longer periods of time, compared to the HF PMs and analysts who tend to hop around from one shop to another every few years.
Re private/boarding schools for kids, I think this is more of a regional cultural thing. In the Northeast/New England social customs pretty much dictates that upper/upper middle class people have to send their kids to prestigious private schools, regardless of the fact that the public schools in their districts are top notch with great facilities (funded by the exorbitant property taxes they paid for in the first place), else their spouses would be looked down like second class citizens in front of the Hamptons/Greenwich Country Club socialites. In NYC in particular admission to elite preparatory schools and even pre-schools are so fierce that well to do parents (i.e. MBB/PE/Law firm partners and the like) are shell out tens of thousands of dollars on admission coaches and $100/hour private tutors to help their kids secure a spot. All these expenses add up quickly.
Out west people tend to be less class conscious and many Silicon Valley executives don't have qualm about sending their kids to the (excellent) public schools in Palo Alto, Los Altos, Los Gatos etc. In fact the socio-economic profiles of the student body of some of these public high schools don't look all that different than the East Coast boarding schools. But then, the same tech executives also go to work dressed in t-shirts and jeans. It is an old money vs new money mentality thing I guess.
On to your housing point...with the fundamental shifts going on (demographics, student debt burden, etc.)...residential is going to have to correct eventually. Even then, we are heading to Germany style housing where the home ownership percentage is in the low 20's compared to the high 60's in the US of A. Ahhh...mortgage interest deduction.
Soon, you'll be able to go to the BX web site to find your new shitty studio to rent.
Key takeaways from this thread:
None of these points surprise me, really.
I am constantly reminded of #s 3 and 4 with all the 20-somethings are ridiculously and unnecessarily frugal. Even as rising PE Associates with $250k+ income locked up for two years, 2nd year Analysts are bewildered by a peer spending a totally-affordable $2,500/month on rent. These are the same individuals who will someday be in categories #1 and 2.
Talk to the senior guys at any bank, and they would have you believe that people making $60-80k/year are living in abject squalor.
People's expectations change. The best you can do is try to fall into the cracks between #s 1 and 2 & #s 3 and 4.
I make 85k/year and will go up pretty fast working in Big 4 accounting. I can tell you that I live in a luxury building in Brooklyn only 20 min train commute from NYC. I think I have a great life. I save some money. Max my 401k. Company has pension. And I'm really happy with my life. I know if I made 200+ I would increase spending a little bit, but I don't think I'd go crazy. I came from lower middle class upbringing.
The takeaway from this is to not have children. You could easily cut your expenses by at least a half without children.
Tell that to the girls who are constantly comparing themselves to their friends and associates on Facebook or Instagram. Type A girls will want to 1-up their girlfriends.
Agreed. If the goal is to help provide your child a better life you might as well take annual tuition and create a trust that is available at some age such as 35 or 45. K-12 tuition at a 5% average return would be around 1.5-3mm dollars depending on when it became available. I'd rather have 2mm at age 35 than have gone to private school my whole life.
I'd argue that you're doing your child more good (i.e. providing him with a better life) by sending him/her to private school to give them a leg up when they don't have the experience / capacity to make the best decisions for themselves, as opposed to handing an adult millions of dollars he didn't earn.
A fairly wealthy friend once told me that he tells his kids that the only two things they will inherit are (1) a fully paid for and world class education through college; and (2) the work ethic and integrity necessary to have anything and everything they could ever want without needing anything from anybody. I think I'll steal that for when my alkaline solution makes its way up some lucky girls felopes.
True. However, my point was more so looking at the magnitude of what a private education is really worth. If you think of that as potential investible income you are talking millions - wether or not you give it to your kid. That was more my point. Now in the hypothetical trust example, I'm assuming you have access to a decent public education system as well as the kid doesn't know about the money - hence the higher age. Plus you the parent could always not give it to your kid if you didn't deem that they "earned it".
Nonetheless, I too am not a huge fan of inheritance (especially life changing money), but having gone through public school and done just fine, in hindsight if I had the private school option, I'd rather have help on a downpayment for a house then have received a private education.
The “world class” education doesn’t even exists anymore.
As a trader the one thing I know is information is cheap in today’s world. A public school education plus the information on this $600 iPhone i am typing on contains vastly more educational information than a 50k private education even 15 years ago. And those schools really don’t have a way to up their quality compared to the available free education today.
20 years ago you may have needed to study at Harvard to learn from the best. Now that Harvard prof runs a blog. Private education primarily provides you with rich friends.
I’d prefer to give my kid money than a brand.
First off, my post was in response to a thread where someone was talking about retiring in their 40's from a consulting gig and people were talking about living on $60k per year so this wasn't my my magnum opus on how to live. I don't think any of the above things are necessary to lead a good life by any means, but why the fuck would you work the hours, put up with the stress and make all sorts of personal sacrifices that are required in IB, PE, consulting or other high paying and stressful jobs and live like a school teacher? And I'd like to say that with the caveat that two of our best friends from college are both teachers and they're probably the happiest people I know and I don't consider teaching non-stressful. I sometimes wish I lived their life to be honest.
I truly live a conservative lifestyle in relation to my income (colleagues are not all the same and blow money like drunken sailors on shore leave) but $200 for dinner as extravagant? $5k per week for a rental house in one of the areas I mentioned isn't the crazy ocean front mansion, it's a pretty middle of the road place. My colleagues who actually do charter a jet and go to Portofino? I'd consider that over the top. And treating friends and family to things because I can more easily afford them? Like @"SSits" said, it's not some flashy thing where I rip out a Centurion Card and flash it around while spraying bottles of Cristal in the VIP section, it's simply that as you get older you don't split the bill often and I'm not going to have someone who makes far less than I do pay for my meal. Family holidays for $1000? I have 20+ first cousins on one side alone who almost all have a few kids. Throw in that they're a bunch of Irish Catholics and the booze alone can hit $1000. I don't have a problem with it, I was simply listing things that end up as costs when you're not in college.
@"DickFuld" is spot on. You end up living to your income, at least to some degree. I don't advocate buying Ferrari's in every color of the rainbow (I drive a Jeep Wrangler and my kids go to public school, although I live in one of the top public districts that a poster above mentioned, but if you're in NYC you'd send your kids to private school if you can afford it) but if you're at a higher level in finance or another field, you're simply not going to live like you make $200k. One day you'll wake up and notice that you have more house than you really need filled with so much crap that you don't need and for some reason you've got a nanny even though your wife doesn't work. But back to my original point, why the fuck would you work in these fields that typically offer poor work/life balances, are stressful as hell, not get to see your family, and travel all over god's creation (and even first class travel gets really old after a very short amount of time and it hardly matters if you're in Peoria or Paris) and live like someone who makes far less? Are my descriptions of costs that I don't consider extravagant something that someone who makes $75k can do? Not at all. But I'd think that everyone on this site is interested in Wall Street types of jobs and none of us is saving the world, helping sick children or solving hunger in Africa. You're primarily doing it for the money and when you get it you're going to have some fun with it.
hopefully i can grab a drink with you one day - sounds like you have a ton of life stories / advice etc. (no worries i can handle the tab, have to thank banking for that)
I am only in my young 20's and joining a BB as an analyst, but come from a wealthy family, and have already seen countless examples of subsidizing friends' nights out in my own life. For example, in college, if I pay for a 50 dollar taxi for myself and one other person, they will buy me a drink to get "even." Yeah, they know that it isn't remotely even, but justify it by either assuming your parents are paying (which they aren't) or by overestimating the amount of money you will be making in the near future.
Splitting bills is the other thing that drives me nuts. So many people, whether deliberately taking advantage of you or due to outright cluelessness, will order a $8 dollar drink, share an appetizer, and get a $30 dollar entree. What do they pay when the bill comes? $38. You'll see this with trivial expenses like a dinner out, but also on $10k+ vacations, where this type of stuff adds up to hundreds of dollars.
Rant ending soon....but the other part of it is the lack of appreciation some people show. There are times where myself or my family plan on paying for someone and have absolutely no problem doing it. But the problem arises when that person/people feel no need to be thankful or express appreciation because they perceive it as just a "drop in the bucket" to you. Almost as if you owe it to them to pay because it will have less of an economic effect on you.
I’ve seen people do that without class. But there are also times to share.
Went to a birthday and someone brought a date. Huge amount of shared appetizers so could see him being cheap on that if didn’t want to spend a ton but still get to celebrate. But they ordered two high priced steaks, lobster, and a few round of drinks. Kicked in $200 and spent $400. Engineer so shouldn’t be an idiot at math. Then complained about someone else not kicking in enough.
Wouldn’t of bugged me if they kept to one drink and kept entree price down and then underpaid.
Not sure how much your example matters. I can see paying more for the things that make a night happen, but runnig up tabs is far worse in group settings.
@"Dingdong08" you really need to do a blog, this is gold. since you're ~40 (don't know if you've ever said older or younger), it'd be nice to hear about your career/mindset progression as you moved from a grunt to a family man & partner in PE.
in my mid 20's, the biggest surprise expense came for me when my friends started getting married & want to take couples' vacations as well. hotels, flights, bar nights, shopping, the whole 9 yards, for all of you analysts, make sure you allow for some wiggle room when you're building your budget spreadsheets after you sign your FT offer.
Moral of the story: Get the $200k per year job in a nice, low cost of living area like Charlotte and you'll get the same 5 bedroom house for $300k instead of $1M. That gives you about $4k more per month in disposable income. There are plenty of places to live with affordable housing outside of Iowa.
I think there's a fair number of people working on the street who grew up in more modest environments, and thus can happily live more modestly while socking away a decent amount.
Reading this makes me feel like the best gift I can pass on to my kids is an ability to make do with less... easier said than done I suppose.
@gutshot, I grew up as poor as a church mouse, started working as a dishwasher illegally when I was 12 and put myself through college working nearly full time. And I don't spoil my kids nor do we live an outrageous lifestyle. I'm just curious as to why so many people who are posting here want to work in finance but want to live very modestly. I don't even spend 30-40% of my average post tax income so I don't advocate going over the top but I'm truly curious as to why people want to work in the above mentioned fields if it's not to have money? If money isn't a big deal to you then there are far easier occupations and careers that will probably be much more satisfying to the soul if money's not a big goal.
@"TNA", I live a great life. It's not miserable at all. I have a great wife and marriage and two awesome kids. I'm ~40, make good money at something that I enjoy doing and have control of my time to a very large degree. Not too many people my age can say that. Most of the bigger sacrifices you make in these fields are more in the beginning. You start reaping the benefits of those sacrifices when you get a little older, which was part of my OP: no one (or very few) retires when they're in their early 40's because that's when the 25+ years of hard work starting in high school starts really monetarily paying off. And while I enjoy what I do and I'm sure there's some argument to be made about the social and economic benefit of PE (or IB, consulting, etc), I don't try to trick myself into thinking I'm saving the world. I do what I do, and nearly everyone who's a lifer in PE, IB, HF's, consulting, law, etc does the same, because I like the lifestyle that it affords me and my family and there's nothing wrong with that. To be good at it and probably to be able to do it for the long haul, you have to like doing deals and your job in general, but the paycheck and the subsequent lifestyle is what really keeps you doing it. If I could make 7 figures bartending, I'd be there in a f'in second.
As I said before this is all great an insightful. I can't speak for everyone; however, the point I was trying to make, especially for some of the younger posters, is that what you outlined is nice but not required. Different strokes for different folks. I have friends that live nice but not as nice as what you outlined lifestyles and focus on investing a lot, especially in real estate. It's all about what you want and providing different perspectives. The fact that you are saving 30-40% on top of what you outlined is pretty legit and the way the first post was written to me it didn't make it sound like that was the case. To answer your question about why work so hard not to enjoy it: my response would be that in such a highly volatile field I'd prefer to have as large a nest egg as possible so that if I wanted to/needed to exit I would have a ton of financial freedom. So I'd rather invest a lot more now and spend more later. So while working hard I'm enjoying it in the sense of buying that future freedom.
Had to quote it.
My only take away from this post is that when you have a wife and kids you can be a PE big shot and still live a miserable life.
@dingdong08 - my original comments weren't directed at you, but you have to admit that if everything you say is true about the costs of family and home, there are plenty of guys grinding it out just to cover carry costs.
Finance is a grind whether you love it or not. A very unstable career. If people want a wife and kids and that is number one why they would stay in any city that has the overhead costs you describe is beyond me. End of the day you HAVE to keep kicking ass in whatever high paying career you are in just to pay for the "basics".
IMO, and this is just me, the day I need to wake up and hit home runs consistently to just take care of basics is the day I say night night. Fuck that noise.
The other posters who say move down south our outside of NYC are right. You don't need a private high school or a $30k kindergarten. You can have a nice house for under $300-400k. $5k per month is a lot for living expenses. The shit you describe is NYC and keeping up with the jones.
You're 100% correct, kids and family are expensive but it was a decision I made and it's what I wanted. Not everyone's bag and before I was probably 32 or 34 I didn't want them either but I wouldn't trade it for anything (and I don't mean that in some sappy ass way). I don't live in NYC but if you're anywhere near reasonable commuting distance from NYC, Boston, SF, or even Philly to a lesser extent and you're living in a nicer town with good public schools it'll cost you. I had a drink a couple of months ago with a guy who's co-head at one of the best groups at a top BB and he was telling me before he gets out of bed on Jan 1 he's already in the whole over $750k between the cost of his condo, 3 private school educations and a few other basics. That's NYC. But he's a top dog and in better years he's probably making $5MM.
But if you want to stay doing Wall St finance work it's tough to move south outside of a few possibilities in Charlotte and Atlanta. I'll probably do this another 7-10 years and find a small fishing village in Georgia or the Carolina's and buy a bar and never wear foot coverings other than flip flops again.
fishing in NC is much better, definitely the best out of NC/SC/GA in my opinion. and I'll be your first customer for said bar.
solid read
Great read.
Its funny to me, wife and I combined make around 300k/yr, but we have a house in Provence and live very well here in the states. We rent out the house in Provence, during the peak season we get 2600/euros/week and are able to rent it out for most of the year. Though for many people that route can be a significant hassle if you don't have the proper network abroad.
I've always viewed NYC and the northern Cali as a cruel joke. You bust your ass to get to the height of your career, only to afford a home smaller than you grew up in with the privilege to 'only' commute 45min-1hr to and from work each day.
@archervice, the "cruel joke" comment is 100% correct. Unfortunately Chicago's about the only other place with a concentration of finance jobs, maybe add in Boston and LA, but they're no cheaper than NYC or SF.
@Dingdong08 Yes indeed, and it is very tough to put down roots in other cities with smaller concentrations of finance jobs, job security is huge. Look at the people who worked at Wachovia, though the overhead in NYC can be just as stifling as a smaller job market.
What you can get for 500k in Streeterville or the Loop would cost millions in NYC. Chicago is a great city, so long as you are able to escape the cold a few times a year. Depends where you live in LA, but if LA was as cheap as Chicago and had more finance jobs, I don't think anyone would live in Chicago or NYC.
I have always believed that the whole reason you move to SF bay area is to tap into the region's unparalleled entrepreneur spirit and resources, build something useful, then cash in on the fruits of your labor/sweat equity selling the company or going public, and then do it all over again and again and again because the whole experience is fun and immensely satisfying. Those who slave away in finance in the bay area are doing it wrong. If they wanted an over-worked, over-stressed rat race of a life they are better off staying on the East Coast.
That would certainly be the 'dream' of SF. I would encourage you to peruse the salaries in those areas and the cost of living. Specifically, look at what a senior software engineer at Google makes and realize that even then, your wife would need to be a technical project manager at Apple to have the combined income necessary to live in a house smaller than you grew up in.
Also take into consideration that over 90% of start-ups fail and they generally pay well below market rate. Furthermore they tend to only hire experts in their fields because that is the kind of talent they need to have a shot in hell at bringing their product to the market. Which means to land at a start-up you are in your peak earning years, taking a pay-cut for a 10% probability of success (the definition of success varies greatly).
This whole start-up craze is vastly overrated.
1: Skip kids 2: Play with college girls (they are usually intimidated by guys who have a fetish for whipping out their amex black cards). 3: Spend less than 5k for a weekend in Sin City instead if spending 10k for a week at Disney. 4: Move to a city like Hotlanta (TX & NC are hot too!) to pay less in taxes and cost of living + get to play nice southern girls! 5 (optional): Save the 5k spent in Vegas by playing in Hotlanta!
my strategy
this is why you are iron man lol
I think that what might be lost on some of the younger guys on this thread is just this: it's far, far easier than you might imagine to spend money. It all adds up, and it adds up rather quickly. For whatever reason, this thread keeps referring to the spending habits of the $5MM per annum earner versus the $200K p.a. man.
Let's say your basic compensation is $200K. That's more than almost anyone I grew up with ever made in a single year. Granted, I didn't grow up in New York City, San Francisco, London or any other world-class city. I grew up in very middle class towns, and I'm certain I have lived in more cities in the US and Western Europe than just about everyone on this forum.
Most people perceive $200K per annum in compensation as 'rich.' No one on Wall Street or in The City thinks so, but it shouldn't be a surprise to anyone that your view gets skewed the more money you make. I think that's dingdong's primary point. When you can afford it, you don't think the same way about expenditures that might seem extravagant to others, but within the sphere in which you live, you don't even think about it. It's the exact same reason most people don't notice the impacts of moderate inflation over short time frames. Over time, though, those small changes compound to completely warp your sense of 'the right price' for a thing that used to cost half as much.
People generally don't feel rich at almost any level of wealth, precisely because they feel like they're not living a fundamentally better life. It's creeps up on you slowly. I remember when I was a kid seeing gas prices consistently below $1 per gallon in the US. People complain about gas prices now, but they still pay it. But when they talk about how cheap things were back in the day, it's largely because most people have a very difficult time visualizing mathematics. Statistics throw people off. That's why Mark Twain felt they were the very worst forms of lies. They have a hint of truth and the weight of what feels like science to most people. Let's say gas was $1 a gallon 20 years ago (year 0). In year 1, gas prices go up to $1.07. No one really notices the 7 cent increase in pricing. The next year, the same thing happens, and so on until 20 years later when gas is $4 per gallon. That's just how compounded growth works.
This is a basic concept of finance, and everyone on this board should be able to understand it. The exact same thing happens with your budget. Stripping out the (not inconsequential) effects of inflation on your expenditures, you are still quite unlikely to notice a 7% increase in your standard of living. Hell--in NYC, your rent could increase could increase 5% from year-to-year, and it has never (in my experience) decreased. And that's to stay in the same shitty apartment. We're not talking about upgrading to something bigger and better. But you can afford it. You salary went up. You got a bonus. Even if you're working in the corporate world, you can expect an increase in your wages in line with inflation. If you don't, then after a year of working at a company, you will be simultaneously more productive (as a result of better understanding your role and how to get things done within your organization than you did when you joined) and worse off financially as your real income would have dropped through the erosion of the dollars you earn. Any year where you don't get a raise that exceeds inflation, the purchasing power of your dollars is eroded, and your standard of living necessarily decreases (though, perhaps, not by a perceivable amount at first).
If you follow that logic in the opposite direction, small, incremental increases in your compensation don't meaningfully alter your standard of living. That's why promotions matter so much. The incremental jump in a promotion year helps put you on a higher trajectory than you would otherwise find yourself. But even that doesn't make you feel 'rich.' As an analyst at an investment bank, let's say you make $75k base in your first year. In your second year, you get bumped up to $85k base. And in your third year, you hit $100k base. On a percentage basis, those are substantial jumps in your salary. All the while, your bonus is increasing as well. By the end of your analyst stint, you should be making ~$200K per annum. You might even feel like you're doing well right after you get that bonus check.
You're single, you don't have kids, you don't own anything. You don't have a car payment because, let's face it, what analyst in NYC or London has a car? You don't have insurance payments. And yet, if you were to take home a $200K salary, I bet you'd find a way to spend most of it. You can't eat CiCi's and all-you-can-eat Chinese food your whole life. Even if you could (against the advice of what I assume would be every doctor on the planet), what the fuck is the point?
I suppose that if you grew up with no money, it might feel more comfortable for you to surround yourself with the same trappings to which you are already accustomed. But that's the mentality of a hoarder. And I don't see how that can translate to success on Wall Street. If you're not in a sales role (basically just traders within the front office, as even quants and structurers have to sell at some point), maybe you can save most of your money. If you're a trader, you don't really need to network, but for everyone else in this business (and even for traders when they want to make a jump to the buy-side), networking is immensely important. It's also quite expensive.
Sure--you can stay in and not spend any money. And when you go out, you can go to shitty bars and eat at Applebee's in whatever shitty town you find yourself. You can stay at the Crowne Plaza instead of the J.W. (way to not even pick a 5-star chain--you chose a Marriott, and not even their best-in-class property). That's fine, but I don't get it. Why work so hard in an industry despised by most people to go on vacation and stay in a Crowne Plaza? I wouldn't view that as vacation. That experience is torturous for someone like me. But I never wanted to go to the all-you-can-eat buffets (and I've been to my fair share--the food almost universally sucks). I don't want a lot of low quality shit. I don't even want a little bit of low quality shit.
Making more money certainly has a negative side--you grow accustomed to better quality shit. The better quality costs more, even if only imperceptibly at first. You spend just a bit more on a bottle of wine at a restaurant. Instead of drinking $30 or $40 bottles like you might have in college on a date, you get a $70 or $80 bottle which isn't going to feel like an extravagant purchase. In college, $40 might feel like a lot of money because you don't have any. But when you have it, and choose not to spend it, you look cheap. People expect you to spend the money you earn--not all of it, but certainly more than when you had none.
That's a major reason why there are specials for college kids and the elderly. En masse, they tend to lack money. When was the last time a restaurant had a special for investment bankers? It doesn't exist for good reason. Society doesn't just expect you to be ABLE to pay more, it expects you to ACTUALLY pay more. If you haven't noticed, NYC and London survive on the largess of financiers.
Now, most of my friends can pay for their own meals and drinks, but I still buy sometimes. And they buy sometimes. It roughly evens out in the end. But we have some friends who can't pay. Anyone that went to NYU is bound to have a friend from the Tisch School who is straight broke. Are you planning to never hang out with them again? They might legitimately not be able to afford going anywhere in New York City. Even a cup of coffee for a guy making $30k or $40k a year in New York is a bit of an extravagance. You should pay. Otherwise, you're not going to get to see them much.
Even if you pay, you will likely drift apart over time. If they're not a total shit-bag, they're not going to feel comfortable with you paying all of the time. They are going to live in cheaper areas. The New York & London property markets are pretty efficient, so 'cheaper' almost always means 'worse' in those cities. You're unlikely to want to live in squalor just so your friends who make less than you don't feel poor, so you find yourself in a nicer area. Those areas don't have discount food stores or cheap restaurants. They have to be able to pay rent, and are trying to cater to a populace with more disposable income and more expensive tastes. Now, it costs you double what it once did to go to the grocery store because Zabar's doesn't fucking sell Ragu for $2 a jar. They sell Rao's, and it costs $12 for a jar. So, you stop cooking for yourself. After all, it's a pain in the ass to cook, and despite paying $3000 per month in rent, your apartment in the Upper West Side doesn't have a dishwasher, and hand-washing dishes is (at best) irksome. You eat out instead. You get A LOT of take out. You've gotten used to the quality of food that a restaurant serves. If you travel a lot for your job, or you work late enough in the evening, you have been eating on the company dime for years, so the standard of cuisine you expect increases. Then--one day--you start having sales responsibilities. You have to take people to lunches and dinners. You have to go to cocktail receptions and charity events. It's your fucking job.
A lot of these things are corporate expenditures, but you work a lot, so the lines between your work and personal lives get blurred. People talk about a work/life balance. I barely even know what the fuck that's supposed to mean. You want a shot at the main event? Great--you'll have to sacrifice some things along the way. One of those things will certainly be your time. If it isn't, you are unlikely to ever be the $5MM p.a. man. The more your work and personal lives blur, the harder it will be to live one life at work and another at home. The company is in the business of selling things. As trite as it is, the firm knows that it has to spend money to make money. You should know that too. At some level, all businesses are hand-shaking businesses. Finance is fundamentally about selling. If you ever want to make $5MM a year, you're probably going to have to sell something. Trading is the only position I know in finance where it's possible (though still VERY unlikely) to make $5MM p.a. just through manipulating numbers alone. Everyone else anywhere near that level has to sell something.
And no one buys financial products from a guy in a $200 suit. The people you're selling to are more likely to want the trappings of wealth than not. Even if in no other aspect of their lives do they enjoy extravagance, when it comes to their money, they want all the bells and whistles. People aspire to wealth, so when you work in an industry that revolves almost solely around money, if you don't fit with the projections of their imaginations, you're unlikely to be especially successful.
Now, there are obvious exceptions. Warren Buffett comes to mind. But I'm going to go ahead and assume Warren Buffett isn't reading this. We're talking about the differences between the $200k and $5MM p.a. earner, and how your perceptions of wealth change over time. Some of those perceptional changes are the result of inflationary tendencies over time and our lack of ability to compound small, incremental increases over a multi-year span. Some derive from societal norms in our field as you move up the ladder. You have a nicer house. You wear nicer suits. You drive a nicer car. You take better vacations. You send your kids to private schools. You get a club membership or two. You fly business, first or private instead of economy. You go to better restaurants and bars.
I don't want my investment bankers eating at Dairy Queen (though I do love their chicken tenders and the fact that they've combined in some locations with Orange Julius). I sure as shit don't want them bringing me there. I don't want to hire the banker that stays in the Crowne Plaza. I think we should eliminate private schools, but so long as they exist, I would want my kids to attend one on the assumption that it will be better than the public school. I've gone to public schools all over this country. THEY FUCKING SUCK. I'm not talking about the nice, rich suburbs of New York and San Francisco. There are LOADS of places where public education is seriously lacking, and where giving your kids a fighting chance at getting into a good college is the best investment you could ever hope to make for their futures. But I digress.
The point is this: DingDong's argument has a lot of merit. To the younger kids on this board: you don't have any idea what you're talking about. You have no concept of what it takes to make it to the deep end of the swimming pool when you've only just got your feet wet in the shallow end. It's so much easier to spend the money than you can possibly imagine right now. And if you can't understand where I'm coming from, I hope you never do. You'd be happier that way because you wouldn't know any better.
@"brotherbear" You are far more articulate than I, but exactly. I really enjoyed the JW Marriott comment.
I grew up in a place (and time) where making $60k made you a big time earner. I grew up poor where TGI Fridays was an event, private schools weren't even a consideration and the newest car my mother owned was a dozen years old until it died and she bought a 13 year old car. Unless someone wins the lottery or starts a company that gets bought by Facebook for an absurd valuation, money just doesn't hit you all at once when you're 24. You slowly grow into being used to having more to spend and you spend some of it, and it adds up. Work really spoils you because expensing things- and that means all things, meals, hotels, flights, entertainment, etc. and you're doing it ALL the time- messes with your sense of reality when you're younger and then one day it hits you when you're booking a vacation that you can actually afford not just the JW, but the Mandarin. Does anyone actually need to stay in a place better than a Crowne Plaza to keep their body protected from the elements? Not at all, but until you've stayed at places like the Mandarin in Hong Kong or the Oberoi in Gurgaon, you will never know what service is and once you do, you will never go back to a Crowne Plaza. And to your point that you don't want your banker staying at the Crowne Plaza: could you imagine if your banker (insert lawyer, consultant, whatever) said let's meet for a drink in their hotel at the Crowne Plaza? It just doesn't happen.
I mentioned earlier that a Disney trip cost me upwards of $10k. It was a silly example of how you end up spending money, but it's something that nearly every family will do at least once when you have kids (I find the adults pretty strange who go there annually without kids-yes, there are people who do that). You can definitely do it for cheaper, stay out of the park, eat at shit restaurants and probably skimp on everything, but why the fuck would you if you can afford to do it better? I grew up poor, we didn't even make it to Disney World and when we went on vacation it tended to involve camping because it was cheap. But now that I can afford Disney, I'm not going to camp while I'm there. When I go out with my wife I don't eat at Applebee's because it sucks, I've been spoiled by having better food and I can afford better. It's not conspicuous consumption, I don't give a fuck about prestige or being seen in an Applebees, I'm not trying to keep up with the Jones' and I'm not holding my pinky out while I sip my wine and stuff myself with foie gras every night, but good food tastes really, well, good (and I will readily admit that one of my favorite meals is hot dogs and mac and cheese and maybe I'm a snob because I upgrade to the Deluxe Kraft rather than the powder shit). I don't spend money to show off because I really don't care what anyone thinks of me, but going on nicer vacations, having a nice house, driving nice cars (and I don't mean Ferrari's or Bentley's but trust me, you're not driving a Civic once you've owned even a mid-priced Lexus) and all of the other things that comes with a higher income are quite simply nice. I think one would be an idiot to try to live like you make a million a year if you actually make $200k, or even to spend a million a year if you make a million but you're absolutely insane to think that you're going to live like you make $200k if you make millions annually. Can you live well off of $200k p.a.? Absolutely, but you're simply not going to do it if you make significantly more.
And like you said regarding a work/life balance, I have none and I don't know anyone who is a high income earner or who has built a large net worth who does regardless of industry. It doesn't mean I actually work 24/7 but I'm never off the clock. I'm higher on the totem pole so I can set my schedules most of the time and I actually do get to go to most of my son's soccer and t-ball games but after I put them to bed I end up on calls, replying to emails or reading documents. Hell, just today I set a meeting up for tomorrow morning (Saturday) at a beach town for a potential deal so that I could meet with a guy to talk about it. And we figured out that we have kids the same age, so our wives are going to hang out with the kids while we meet. It doesn't really suck that we're staying at a really nice resort and I don't, and my wife doesn't either, think anything about the fact that I set up a meeting on a Saturday morning for our entire family, including two kids under the age of six. It's just how it works. And I don't complain one bit about what I do because I love it.
Your last statement, "You'd be happier that way because you wouldn't know any better." is probably the ultimate truth. Growing up I never knew I was poor. I had one of the happiest childhoods imaginable and wouldn't change a thing about it, but once you swallow the red pill there's no going back, and I wouldn't have it any other way.
I just read this from a few years back because it popped up in my notifications. You are lucky, Dingdong08 that your wife is so understanding. It really takes a marital partnership where both people fully understand the family's goals to pull this off. I had a boss (an upper C-suite executive at a BB) once ask me some extremely probing questions about my love life. I was initially taken aback, since the answers to his questions were frankly none of his business. He was angling towards a point, though, and that point was this: find someone to be with as much like you as you can. He meant that if you're ambitious and driven to really become a rainmaker one day, you'll have to give up everything in pursuit of that goal. And the sacrifices can't just be yours. If your wife/partner isn't fully on-board with that, find someone else, or adjust your own career aspirations.
Out of curiosity, is your wife still okay with this sort of thing, or has she become less helpful over time?
Great post
Money is easily pissed away, that's for sure. IMO, if you want the wife and kids and a city, gotta move out of NYC. If you are at a senior level I would say Philly, Chicago, ATL, Texas, stuff like that is reasonable. Also, you can find a mid-priced Catholic school that is way below $30K per year. If you feel education is lacking just hire a tutor to juice the results.
And I have seen plenty of kids who go to great private schools get into mid range schools. Dropping $30K a year, start to finish, isn't a guarantee they will get into the top universities. Just saying if you want to give your kids the best leg up make sure you get the best return on investment. You'd probably be able to donate the compounded cost of 10-15 years of K-12 to a university and get your name recognized and your kid enrolled.
No interest in money for discretionary spending's sake.
Money is a means to giving back in a larger scale, building a business potentially etc.
Money is a means to an end.
Thank you for those detailed responses. Really insightful to see how you view things a bit further along the path of life!
It brings a whole new perspective when people are paying millions for a nice residence and write a check for a brand new Tesla. I think my "AHA" moment was after being out bid on a place by a 'restauranteur', great guy, apart from booze his highest profit margin dish was boiling the shit out of a can of condensed milk and after hours it was ready to be a dessert. Clearly his money was due to being surrounded by an affluent community, who wanted some good food.
Which all goes to say, the amount of money coming out of the most mundane shit will amaze you. It will shock you.
I really don't understand how the economics of the Bay Area actually function. It's so outrageously expensive everywhere. At least in the NYC area you can find a few places that aren't too expensive but still nice (I'm thinking a place like Montclair and that's not cheap) but the entire peninsula and most of the east bay is outrageous unless you're willing to commute 3 hours round trip daily. And like you're saying, for every person who's made mint off of a startup there have to be 10 who haven't. And while tech jobs pay well overall, if you're a mid level programmer what do you make? A couple hundred grand a year? You'd be lucky to find a 1200 SF 1970's era townhouse for $1MM. I have a good friend who's a very senior tech exec at one of the giants out there now but he moved out about a dozen years ago and was kind of a serial CEO for startups and to turn around and package companies for sale. At 50 years old he just bought his first house there because a 2400 SF house in Los Gatos cost him $2.4MM. It's just outrageously expensive.
Knowing how bizarre it is, imagine paying well into a million for a 1400 sf 70s era home with a long ass commute to get anywhere and try to be able to sleep soundly at night hoping that the property valuation won't burst and your net worth along with it.
What is more bizarre is that the Austin area has a big startup culture too, but for the same price as the 70s era home in the bay area you'll walk away with a 5000 (or more) sf house with a pool, decked out head to toe, located in an awesome school district, might even get some decent acreage if you are into that sort of thing.
You get used to people saying "Y'all".
There are a few things to consider when looking at CA RE. First off your utility bills are going to be way lower than on the East Coast. Limited if any AC and limited heating. For a large house that savings can be a few thousand dollars a year. Also, and this is probably the bigger driver is property taxes. For all the hate on CA income taxes, especially from those in TX, CA has really low property taxes over the long term. Prop 13 limited property taxes to 1% and a 2% annual increase regardless of home appreciation. Basically there are people living in 2mm homes that bought them 20 years ago for 200k, essentially the tax basis. Or even at the high end a 15mm home today was probably 5mm 5-10 years ago, and thus that tax savings is massive. Even if you are buying in high you will eventually get those savings. Also, unlike a lot of similarly priced areas on the East Coast the public schools are second to none and thus kids predominately go to public schools - another massive savings. I'd also say that property values have exploded in the past decade or so and most people living on those homes bought them for a fraction of the price and thus pay a fraction in property taxes as well. If you start adding up all these things and take a present value of them the delta in home values starts to diminish. Overall I agree home prices are really high but the cost of living is a lower, at least in my experience.
Another side note is most homeowners in those communities probably didn't buy into these extremely high prices. Homeownership was much more affordable 10-20-30 years ago. To be young its a lot harder to buy in to these markets. However, those more in the 40+ age range likely bought in at lower prices and are using home equity to trade up in home value. I know that not everyone in these high end CA communities are BSD at pe/vc/ib/vc type places rather just have pretty decent jobs and have lived there a long time.
Honestly, all I learned from this post is that the immaturity and delusion present amongst the younger population trying to "make it" does not dissipate at any age. You are 40 years old and yet, you cant see how insane and embarrassing you sound? Nothing you wrote had any semblance of reality. 10k WEEK LONG VACATIONS? 40k/year for your 5 year old's education? lol. I went to university and have friends who went to the most prestigious schools in Canada, Upper canada college/St. Andrews etc and the only correlation I've seen is the the rampant drug/alcohol abuse by the product of "elite" education, along with that most of the time these kids of our average intelligence but their status allows them to get prestigious occupations-even if they dont deserve. Stop kidding yourself, no school will replace a solid family unit and parenting. I can already tell your kids are going to grow up being the insecure, entitled type everybody secretly despises; the apple definitely doesn't fall to far from the tree. Ps- if this was a troll post, damn you for getting me so stirred up lol
You need to calm down and buy me something, it'll make you feel better. If not, it'll make me feel better.
Thank god a foaming at the mouth 22 year old with friends who went to the most prestigious schools in Canada opened my eyes as to how my children are going to turn out due to some odd leap of logic that you've made. You've opened me eyes as to how to raise children.
Now, I'd like you to resume taking your thorazine and get back to your retail marketing assistant job.
Awesome post, thanks. You remind me of many people in my industry. Always enjoy 22 year olds calling out 40 year old successful people, as if they know so much.
As for the paying for dinners/family/etc stuff, forget 40s in my opinon that starts in your mid-late 20s if you are in a successful career, you always pickup the tab for family, even at times for friends if you suggest the night out. It has zero to do with anyone being a leech, it has to do with you can afford it and sometimes prefer an experience with the right company vs no company.
I have always enjoyed the show entourage and its evolution from season 1 to 5. Vinny paid for everything and spent his money not on random hoes or leeches, but instead to support and have experiences with 3 of his closest friends in life. That support system is the basis for his rise and re-rise of success. Tt sort of is the same for anyone in a high-earning career, you need a support system. Certain members of my family live very modest lives and love streetfood, but if I can take them out once in a long time and enjoy a new experience and not have them worry about what it will cost, that feeling is priceless to me.
+1 for Entourage analogy
I am a ~40 year old partner at MBB, and can fully confirm everything Dingdong08 wrote. In fact, it's even worse. I am located in Western Europe, so a few numbers may be a bit different, but just to give you my perspective:
1) Real estate: MBB partners generally do not live in $1mm houses. What do you get in New York, London, or any major city for $1mm? A nice studio. A decent Brooklyn townhouse is $3mm upwards, and if you prefer Manhattan you are looking at $8-10mm. London is roughly the same. Luckily, I am located in a somewhat cheaper city, but I can tell you my New York partner colleagues do not feel rich at all. It's a question how you define your peer group of course. You might be rich compared to your college friends who work normal jobs, but as your career progresses you tend to define your peer group differently. Very few of my partner colleagues have repaid their mortgage at 40. Do you need a Manhattan townhouse to be happy? Well ouf course no, but after having busted your butt for 15 years, you kind of just don't want to have a long commute, live in a cramped space, or in a second rate area.
2) Vacation: I would not go to Disney as this is not my style, but $10,000 for a week of family vacation is not extravagant at all. What is the room rate for a Four Seasons? Depends on location and season, but mostly upwards of $1,000-$1,200/night in places like Paris or nice resorts. Oh, and you might have a family with young kids, so one standard room is not enough (unless it's fine for you to go to sleep at 8 when it's lights off for your kids), you are rather looking at 2 connecting rooms or suites. Again, do you need to stay in Four Seasons hotels to be happy? Of course no, but they exist, you are constantly exposed to them because you attend company events there, your clients stay there etc.
3) Staff: Most partners' spouses don't work, at least not seriously, as long as there are young(ish) kids. Why? Because it's just super stressful on family life if both people in a marriage pursue their own ambitious career. But even if she doesn't work, try asking your wife to do the cleaning and ironing and stuff while you bring home ~$1mm a year. It's just not going to happen. (sorry, don't want to be chauvinist but >80% of MBB partners are male and married to a female). You will have a housekeeper, a cleaning person, a nanny. Of course, not full-time living staff, on an hourly basis only, but it adds up if you pay them properly.
4) Kids' education: I don't want to reheat the private school debate from above. Of course it's not strictly necessary, and mostly it's not about the quality of the education anyway, but it's rather about exposing kids to a certain environment (i.e., kids from other upper middle class families). Let me just tell you, your kids are the last place where you will save.
Without doing a detailed calculation, you easily end up at ~$150k-$200k net annual cost of living. Could you live for less? Yes, but if if you are not motivated at all by money, then you are unlikely to make it to MBB partner.
And here's what: at age ~45 (or slightly earlier) you are typically targeting election to senior partner. Some colleagues keep their lifestyle the same then, but mostly you will see 1) second homes, 2) more extravagant vacations (e.g., renting of private villas, traveling together with nanny/other staff etc.), 3) Full-time staff (nanny, housekeeper etc.), 4) some nice hobbies (exotic cars, yachts etc.).
GREAT POST - thank you for vindicating everything I've said in the other thread that this post came from. Everything is relative, and until you start making that kind of $ and living that lifestyle, its very hard to comprehend how that kind of $ can be spent.
It doesn't just stop when the kids are younger either, if you want to see your kids and they're working long distance, you'll end up subsidizing their hotel room, flights and meals all of the time.
The great advantage in Europe is that school fees are much lower, disregarding the other parameters introduced in the OP. Great reflections all along on estimating expenses while progressing in career by the way
It's really key to have highlighted that the threshold of "wealth" is just about totally dependent of the peer group, and generally N+1 step in the comp scale
very insightful! spot on!
This whole thread is WS at its finest. I know I'm part of it but shi*tttttttt guys, just try and remember for a second that we live in the most advantaged society in the world. You can try all you want to make the 0.1% sound hard, but come on; you have water, a toilet, AC, heat. Yes, pvt schools and trips to St. Bart are expensive. But whose putting a gun to your head saying those expenses are necessary. Earth to WS... Come in???
Absolutely
Having baby #1 in ~2 weeks. Looks like I'm in for a wild ride.
Well, baby #1 is now 3 years old and baby #2 on the way. The ride has been wild and life is expensive!
Ooh boy baby #1 is now 5 and baby #2 is 1 years old. So exhausting, yet so much fun and love. But I hardly see them, time for a change!
I suppose since I've gotten into 'life', I'll add my 2 cents in here. I have no kids, so I cannot comment on that. Best thing to do is continue doing what made you successful in college in terms of finance.
I still have all my subscriptions linked to an .edu account (NYT, Amazon Prime, etc) still will tell Time Warner Cable "I'm not paying that" and haggle down the price. Live below your means.
cars, watches, designer shit, etc:
You don't need a new watch - buy used, if you buy at all. 99.95% of people do not care what a Jaeger LeCoultre is.
Don't lease, buy first-model years (german) cars and make sure you don't get too outlandish with the tech (tech breaks a lot on German cars), stay away from turbos (not porsche turbos, turbos on engines) because they're mostly unproven for the long-haul, find a great independent mechanic, wait 3-4 years for the current models to depreciate.
I craiglisted everything but my bed and couch when I decorated. Most people cannot tell the difference. Go to auctions, pick up cheap, but nice, artwork. craiglist: nice stuff from nice areas, and offer 35% of asking price. Most people value getting rid of the crap than keeping it, especially if they're well-off, you wont get haggled.
And kill me on this one: stay away from women. I found dating to be the largest expense I incur, both from a time standpoint and fiscally.
Having nice things adds new responsibilities. When I had a very nice German car, I was worried about people keying it or abusing it. Having a nice watch getting stolen. What one will find is, what they own ends up owning them.
I guess you got rid of your nice girlfriend because you were worried about someone else nailing her huh?
Staying away from women isn't something this forum is going to have much difficulty with...
Lol.
I don't necessarily disagree with what's been posted, but I have a hard time accepting that this is an inevitable lifestyle. I am not an MBB partner with a family, but I did work as a consultant for 4 years in a large North American city and saved enough to take 8 months off of work without making much of a dent in my savings.
If anyone is looking for an alternate view of lifestyle expenses and what it 'costs' to be happy then I recommend checking out Mr. Money Mustache (http://www.mrmoneymustache.com/). Cheesy name but his writing has really changed my perspective on life & money.
Thanks so much for sharing your experiences! As already mentioned, I think at some points it really depends on your social environment. Sums of money become relative so fast... But I guess the post is a great wake-up for those who think life will be all beach and martinis once they're 40 only because they work in IB.
Yes, I too agree, it is more than we think usually. Great post!!
This reminds me of something I saw the other day, "Life is so expensive, and I'm not even having a good time."
Live below your means - don't be a moron and spend all your money on rent and random shit. Live in the shitty neighbourhood your banker friends look down on in a flat that you bought (incidentally the neighbourhood I bought my first flat in is the one everyone is coming to 7 years later...). Buy a second flat in another not so great neighbourhood but with a strong yield. Lever the fuck up on strong yielding assets in which even in a down turn will have a strong CoC. Don't be an idiot and spend on an expensive holiday when you can get a cheap one if you did a bit of research (chain of resorts, go to the newest one - cheaper as they are trying to fill it up, and better quality, simple shit like this).
Yea school is one thing I won't skimp on for my daughter and future kids, but that's only one big ticket item and comes in later in your life. In the meantime you have time to prep the ground work to not have to worry about a house by then. DOn't buy a car if you live in a big city (heard of Uber?)
ETc... I am sorry but you can retire at 40 it's just a combination of taking the right decisions. My brother was telling me not to worry about saving money when I was on my $7.50 an hour lifeguarding job, as when I get out of college I'll be making what I made in a week as a lifeguard in an hour. Didn't listen to him, bought stocks with my savings - compound interest and shit from 16 to 32 including a crisis in between was still good to me. Always invest invest and invest.
It's funny because the guys I work with in PE now have "no time" to look at stocks and investment opportunities. It's a fucking joke, their carry is gonna blow, get taxed, get laid off, market turns when they are exiting the investment, not hit the IRR target etc... Life is full of surprises - always invest and never take your future earnings for granted.
I am a child of 2008 and I've seen 40% of my floor laid off in a year, it was a good life lesson
Being from Fairfield County it is actually incredible to see the amount of people I know personally who make well over $500k yr (minimum) and aren't even upper-middle class.
Couple that with all the fake rich losers is Westport who stunt in C-classes drinking their bullshit $30 cucumber probiotic smoothies after a quick soulcycle sesh who will work well into their late 60's and you get a pretty interesting dynamic.
Met the economics head at the university I'll be transferring to next fall. We had a nice long conversation about this very point and the insanity of the COL in these northeastern economies.
It's entirely possible to get a work from home career in the 150K+ range. Live in a medium cost of living city or an hour+ outside of a major city and actually afford to live no problem. It's all relative, but I know people who do this and live like kings. They also bank significantly more money than people making 500K+ in major cities, primarily due to the significantly cheaper COL. Were talking 7K Sqft homes with pools, full outdoor kitchen & bar + hot-tub. Sadly my role is not capable of that, but maybe one day. Best part is I am not talking about living in the middle of nowhere, I am talking about top 50 metropolitan area's. The COL inside of NY/SF is just out of this world compared to many places.
It's actually quite easy it just won't happen in finance.
I'll let you losers suffer on nyc on 200k while i'm living in Sao Paulo in a penthouse on 150k
Praesto differentialequations12
Out of curiosity, where do these 150K WFH careers exist? I have never heard of them.
Simple: Don't have kids.
I've pretty much accepted i'm going to live in a 1br single my whole life unless I get lucky with a role or jet down and work from South America on 200k a year working remotely.
welp, this thread made me depressed.
It gets a lot funnier if you consider that most millennials now in their 30s have zero savings and still have to pay the student debt.
Also, they often haven't started a family.
This isn’t true at all. Lots of ways to cut costs and make it worth especially once you have a few million saved.
Move to Texas or Florida with no income tax. Buy a house worth 400-500k which is gigantic. Send your kids to public school.
For education you have plenty of cheap options. Despite the price tag I don’t think elite private high schools provide a ton of opportunity besides networking. Information is incredibly cheap nowadays between a couple hundred bucks on amazon, plus all the information in the internet, and coursera type outfits there really isn’t an edge to any education except personal connections.
Basically if you are willing to live outside of nyc Chicago la sanfrancisco you can make it easily on modest incomes.
FWIW this is the great big myth on income inequality. The inequality of life is significantly smaller. A 250k house in Oklahoma City blows out of the water a 2.5 million condo in nyc in terms of quality. You just lose the status and prestige. FWIW Scott sumner did a post doing this comparison. And it’s mindbogglig when you actually see the comparisons. You just lose the type of peoole you see in a major city but I don’t consider that too important.
I keep seeing this comment (not singling you out) that you can get a gigantic house in low cost of living cities in the south for $450k. This is only true if you go to the outer suburbs of the city. We’re talking 45-60 min commute to your office in downtown / midtown cause you work in banking / pe / consulting.
Look at houses in buckhead versus Johns Creek in Atlanta and you’ll see what I’m talking about. If you’re a big dick finance guy, you’ll live in buckhead like every one else you know and pay a million plus for a medium sized house. You could technically get a jumbo house for half the price in Alpharetta, Johns creek etc but you won’t because you want to be close to work / friends / kids private school etc.
You missed the point about “you just lose your status”
And you’re not a big dick if high school social pressure forces you to live or do anything.
1) don’t need private schools for your kids.
2) those friends sound fucking lame. I’d rather be alone than fake laughing with the same twats you work with.
3) get a nice apt in Buckhead and just stay there fri and sat. Have way more fun than having the whole family with you.
Keep in mind sales tax in Texas is around 12.5% compared to CT's 6.5%.
However, I'm currently moving from CT to DFW and am more than willing to take a 12.5% sales tax hit over these insane taxes.
Great overall post, but your friends are assholes. We always split dinner with other couples, and we have a wide range of friends with different abilities to pay. If we go out with people who don't earn a lot, we just choose a cheaper place. No one has ever looked at us to pay, and it works the same for our good friends who are already locked in to retire at 45 (fund life issue he's already got the savings), no one expects them to pay.
You are spot on about hosting holidays though. We host nearly every Thanksgiving and Christmas, and you just need to suck it up if you plan to drink decent wine.
I mean if you are going to live like a rockstar then don't expect to retire indeed. However you can have cheaper holidays/lifestyle. Retiring early is all about choosing the lifestyle. If you are used to the excessive lifestyle then you can probably not retire.
http://www.themoneyillusion.com/utility-its-increasingly-all-in-your-mi…
This is a great post in this subject. I continue to believe that income inequality is vastly overrated because consumption inequality is minimal. I won’t hate on the spending choices made here because they are part of the lifestyle. Even 50k k-12 education can be justified as networking.....how are you landing clients if you are not in their social lives.
That being said the go south idea put out in this thread is realistic. Any of us could make a 150+ a year as a public school administrator with less stress and the same quality of life. You just lose the status symbols....a Honda suv over a gwagon. Cheaper hotels. A cottage rental at the local beach/lake etc.
Honestly it would be ok. Removing stress and getting to live has its benefits.
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