Have a feeling I won't get many replies on this, but hoping for the best.
I'm still a student, but I'm planning on mapping out a robust financial framework for my personal finances. For context, I have a tentative graduate offer at a privately owned investment bank. Salary of A$90,000 and an interesting bonus structure (in a very low-cost city). Because we are privately owned, we can take equity positions in client mandates and depending on the particular deal (escrow etc) the bonus is typically paid throughout the year on a completion basis, rather than a lump payment at the end of the financial year. In the interest of simplicity, let's assume my compensation (salary, bonus, and growth of both is in-line with what the street would expect for banking).
Here's what I've whipped up. Hoping for some comments, criticism or opposing views.
1. Developing a foundational budget
My personal (forecasted) preference is for 40/40/20 with 40% of after-tax pay being saved (for investing), 40% being spent on necessary expenses and the remaining 20% on personal wants (entertainment, bars, and the sorts). I am frugal in nature and have simple pleasures, based on the cost of living in my city - I am confident I can adhere to this.
2. Establishing an emergency savings fund
Simply 3 months worth of living expenses kept in a liquid checking account, based on the budget created in the previous step.
3. Establishing a liquid fund for short-term investments
This is the more lucrative, shorter-term approach to investing. To those at large banks with big compliance departments, I presume this is not applicable to you. I would keep perhaps A$50,000 in this account for all lucrative, short-term investments. Initial public offerings, seed placements, convertible notes and so on fit this description. To color this with a practical example: assume I took A$10,000 for a seed placement (at $0.10/share) and 6 months later, the company lists (at $0.20/share) and I manage to sell all my units at $0.35 for A$35,000. I would firstly, replenish the balance of this account and then determine what to do with the profits, ideally invested into the long-term investment fund (step 4 beneath) All firm-based co-investment (or principal investing) would fall under this category.
4. Contributing to illiquid, long-term investment fund
By this stage, I'd have a solid budget, an emergency savings account, a liquid sum of money for short-term, lucrative investments - here is the longer-term wealth building. I've evaluated lots of investment classes: real estate (big no in Australia, at least in the prominent cities), peer to peer lending, listed investment companies and so forth. I've arrived at the idea of Vanguard and I'm primarily interested in dividend/income investing and secondarily, capital appreciation. The VAS seems to have a dividend yield of circa 5% and VAF has a lower yield of circa 3% (Australian Shares Index and Australian Fixed Interest Index - there are also concerns around diversification and multi-ETF portfolio construction). What should I be looking at when evaluating long-term index investing when income is the primary concern?
To put this into practice, when I get paid I turn to my ratios. I allocate 40% to my 'need' expenses (rent, bills and so forth) and instantly invest 40% in my long-term vehicle (step 4) assuming my short-term liquid fund in step 3 is up to my desired level. Lifestlye inflation is only natural and as my passive income increases (as well as my salary and bonus through banking), the 20% allotment to 'wants' (and 40% to 'needs') would increase, meaning I can buy a new watch, afford a nicer place to rent and so on..
Is this a scalable strategy? Assume I do this for 10 years (and have earned 10 years of IB compensation, with a rigid budget) - would it be wise to continue pumping the long-term vehicle (for further compounding and passive income)? Just at the drawing board for now... I do know of someone (not personally) who works in finance and has done something similar - he is mid-30s now and earns 6 figures passively through dividend/income payments. This is of course, on top of a decent salary (and bonus).