Today’s guest post is from Prosperly Way – a young investment banker who saves over 50% of their take home pay and shares financial wisdom on their blog, ProsperlyWay.com.
Working as an analyst on Wall Street is a tough job. It takes a certain type of person to suck up the 80+ hour weeks, deal with the impossibly unpredictable late nights, and eat at your desk with a plastic fork 3 meals a day.
I started my career in Investment Banking thinking I had finally made it. I knew it would be a long road ahead, but I also knew that the potential for big paychecks could enable me to shave years from my working life. Slave away in the near term, for total freedom in the long term. Makes sense, right?
The funny thing is that many folks on Wall Street have never created a financial plan for themselves. They spend all day thinking about money…but often it’s focused on all the ways they’d like to spend it.
The sad reality is that many of these high-income earners are actually quite poor. Without a clear plan to live below their means they end up depending on their high-paying job. It’s all too common to see these people continue to work a job they no longer enjoy in order to fund a lifestyle that doesn’t even bring them fulfillment.
Within a month of starting my career, I bought the 4-Hour Workweek by Tim Ferriss (a huge inspiration of mine too, Millennial Boss!). I was determined to not fall into the trap of living beyond my means and locking myself into a high-income job. Ironically, I didn’t have time to read the book until several years later.
I have learned a lot during my time on Wall Street. But I think the most valuable lessons I’ve learned have been about life and psychology (yeah, I didn’t expect that). In this article I’ll outline a few types of folks that I have encountered quite a lot and some of the unexpected lessons I learned from them.
The Poor Rich People I’ve Met on Wall Street
Chad
What has two thumbs and loves to party? This guy. He spends all of his waking hours doing only two things: working and going out. Bottle service and unnecessary gadgets are Chad’s mainstays. Budget? Ha, good one. Saving goals? Don’t be a buzzkill. Credit card debt? You betcha. Believe it or not, I actually knew several people who had credit card debt to the tune of $25k while making over $120k annually as a 24 year old! Facepalm.
What can we learn?
Don’t spend above your means, plain and simple. Get a grip on reality and create a financial plan for yourself. Chad-type employees tend not to last long, and they have no money to show for the long hours they put in. Don’t be that guy.
In the end, this behavior amounts to a bribe to yourself and is a fast-track to unfulfillment.
Matt
This guy is full of regrets and wishes he could do something more meaningful with his career.
One of the perks of Wall Street jobs is built-in promotion levels. If you are dedicated to the work, you can get promoted every 3 years (sometimes sooner), which comes with significant pay bumps and fancy stock options. Sounds great right?
The mistake Matt made is that he elevated his lifestyle along with each promotion, and thus never took advantage of his supercharged saving power. When he was promoted to Associate, he moved into a fancy new apartment. When he was promoted to VP, he joined a country club.
What can we learn?
Matt fell into the lifestyle inflation trap. These people are income-rich and liquidity-poor. By spending everything he earns, Matt has gotten his family accustomed to a certain lifestyle.
He wants to leave and do something more meaningful and less time-intensive so he can spend more time at home, but he needs the big paycheck to maintain his expensive life.
Steve
Work is life for Steve. Things you might hear him say:
– I haven’t stepped foot in my kitchen in 3 years
– I slept here (the office) last night
– Let’s get this 6-hour project done for the morning! (at 10pm)
Steve is thought of as a top performer, but he has never dedicated time to nurturing his financial (or life) situation. His wad of cash is bigger than most…but if he had committed to a plan earlier on, he could be lightyears ahead of where he is.
What can we learn?
Even if you work hard and avoid lifestyle inflation, if you don’t take the time to invest your assets and earn a solid return, you are leaving money on the table.
If Steve had created a better plan, he could be semi-retired at age 30.
And apart from the financial mistakes, what’s the point of living a life dedicated solely to work? It really is sad to see someone who has no interests outside of pleasing their boss.
These are real-life examples of high income earners who have BAD financial habits.
This is one of the things that truly amazed me when I entered the financial industry. How could highly educated, well-paid people who work with money be so bad at managing their own money?
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And me?
I realized very early that 80+ hour workweeks are not sustainable for normal human beings. From the beginning, I put together a plan to get everything I could out of the experience (both financial and educational) and then move on.
My plan was simple. I knew that it would be very difficult to get creative with passive income streams while I was working 80+ hours per week. So I focused on the expense side. I built a detailed budget for myself, which you can download for free on my site. I made sure that I was hitting my savings target every month and investing my savings in income generating assets.
Investments I’ve made so far:
- ETFs
- Dividend stocks
- CDs for savings
- A select few speculative stocks
- Angel investment in startup company related to my industry
- Pursuing alternative investments in structured products
When I started working, I was expecting to put my head down and earn my way to freedom. I certainly didn’t expect to learn so much about myself, my true motivations, and life in general.
Or maybe I’m just going through a quarter life crisis.
Thanks to Prosperly Way for the guest post!
What about you? What financial/work/life lessons have you learned by seeing others make mistakes?
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MB –
Great article and it boils down to – sometimes it doesn’t matter how much you make – if you don’t have a financial plan and know how to save as much as possible : ) Being a CPA – my busy seasons are brutal, but I know how to force a high savings rate, without reducing quality of life and guess what – it doesn’t take that much to have a high quality of life, either. Love the article.
-Lanny
Hey Lanny, I’m glad you like the article!
You’re absolutely right that without a plan, income is just a random number. Look at all the pro athletes that go bankrupt after pulling in millions!
This is so true. I know a guy who makes way more than me and is still always in debt. Even though this guy is a lot older than me he still doesn’t know how to deal with money.
It’s all about being smart with money and most people don’t get this.
Hi Andy, thanks for reading the article.
It’s incredible how people can get into jobs that pay so well and still have no idea how to manage their money. I never understood wealthy people who get into huge debt—they fly too close to the sun.
Hi MB. Great blog – this is my first visit. I am one of the folks you discuss in this article. Until I got divorced at age 47, I didn’t really save any money despite working in a very high earning job. We lived very well and had some great experiences, but with foresight and a sensible investment plan I could easily have retired by age 40. I am 53 now and on the road to FI. Articles like this inspire me to stay on the FI path.
-Dividend FIREman
Hey Dividend FIREman, thanks for the comment. Better late than never! Sounds like you’ll be all set on your path to FI soon enough.
I’m so glad you found the article inspirational. Comments like that keep me going as well!
Good stuff. I feel for people that are trapped in lives with high salary and low liquidity. I’ve never been a high earner, but I’ve been able to stretch a dollar better than anyone I know. Slowly but surely my income has improved but my savings has with it avoiding the lifestyle inflation trap.
Hey Mike, it’s great to hear your experience. It seems like stretching a dollar is a unique skill these days.
I feel bad for people who are trapped as well. Once you let your lifestyle go a little too far, dialing it back must be a painful process.
I know VP’s making just under seven figures living paycheck to paycheck. It sounds ridiculous, but I can understand how you can get caught up “living the lifestyle”.
Hi Margin of Saving, thanks for reading the article.
I know many of those people as well. The culture can make it tough to stay disciplined when everyone around you is making a lot of money and everyone knows how much everyone else makes. For many of these folks, they live and die by their bonus.
Great rundown of some of the personalities in your industry. New York is an expensive town, it’s easy to inflate your lifestyle when you get a pay raise. Nice job using your income to give future you options. I know some people that have done well in banking and have always wondered why one would continue to work 80 hour weeks without a financial need to do so.
Hey Jason, thanks for the comments.
You hit the nail on the head—a lot of these folks truly have a financial need to keep working those awful hours. To make it worse, a lot of people “self-medicate” (so to speak), by treating themselves to fancy stuff when they have the rare night off. In reality, they would be happier with lower income and more time.
Excellent article here! I enjoyed reading it so much.
I’m not in IB, but I know some who were and I’m not surprised at all with their habits. These are stories I hear and personally see all the time. Even the people I work with have this exact same behaviour. Some make over $150k BEFORE bonus but can still manage to spend all or more than their income plus bonus with no financial plan.
Anyway, you are very smart and ahead of the game! I have to admit myself that sometimes it’s hard to fit into this type of crowd when you’re different from the majority (I feel that way and I’m an outcast).
You’re doing an amazing job here by saving and investing. You’re definitely heading towards the right direction! Keep it up!! 🙂
Thanks Fin$avvy panda! It can be tough to fit into a group that doesn’t think the same way about money. I try to balance my approach by doing expensive things on occasion, but definitely not as much as many of my friends and co-workers.
I recognize these personas from my days working in “the cage” of a major bank.
One of my colleagues from NY and I spoke a lot about investing. He was younger than me and already had two rental properties. The guy was a whiz and eventually took his side passion to launch a business in New York. He used those high earnings to get him off the ground and left the company.
That’s awesome. Similar to my plan, if all goes well. I’m hoping to put my earnings to good use and pursue my own ideas very soon.
I recognize those guys. I’ve been practicing law for 25 years and have seen my share of Chads, Matts and Steves. And very few seem to learn. Some may earn their way out of the basement (working so much that they just can’t spend all the money, so it just piles up). It is sad, and unnecessary. I’m glad to hear that you saw the light early. Also, I completely agree on Tim Ferriss.
Thanks for the comments, Oldster. Ah, I could have guessed that law has similar personalities. It’s amazing how few people think ahead and end up digging themselves into a hole unknowingly.
You’re right—some of them end up with tons of money. But from what I’ve seen, they usually lost their true self along the way.
I wouldnt say im rich or anything but I have been doing pretty good with my finances. But I look super poor! LOL. I drive a minivan, have raggedy old clothes that I love, barely shave sometimes and just dont care about my appearance most of the time.
Haha, in a way its good because people dont ask me for money!!
The poor rich people on Wall Street…are those the ones that dress like bums and walk around with like 100k in their pockets?
Haha this post is spot on. As someone who was also in finance, and who might also be having a quarter life crisis too, this rings so true. I have one more person though.
Mr. MD: In their 30s or 40s and make $1M+ a year. Has a few kids who all go to private school, flies first class on multiple vacations and doesn’t understand travel hacking, has a multimillion dollar primary house with a house in the Hamptons, etc. Wife doesn’t work, they buy expensive luxury things every year. Basically spends all his money.
All the while, his non-vested stock options have slid in value and he’s saved not that much money.
Seriously, I have asked multiple MDs why they didn’t retire. I soon realized finance wasn’t fun and there were other ways to make more money on a hourly basis so I didn’t really care what was thought if I asked. Their responses were mostly lifestyle inflation and now that they were in the motions, they couldn’t actually stop. I mean, if they lived normal lives prior to maybe 35, they could’ve easily fatFIRED with 5-10M. Live frugally for a decade and live large for the rest of your life? Worth it, but pretty hard to do when everyone around you is doing the opposite.
Maybe it’s slightly better for the HFs because their comp is all cash, but really the lifestyle inflation might be worse over there… Because if your kid is not going to a school that costs more than a private college, are you really a success? Lol.
I also have met many of the people in the article….I’ve worked with many 50+ people who have made >£100k for over 20 years, yet still can’t retire. Don’t get me wrong, the holidays homes, swimming pool and exotic holidays sound nice, but to work so much longer for them?