I expect typical new college grads are looking at apartments or rentals, rather than purchasing a home. This is especially true for new grads in a high cost of living area who expect to be switching jobs in 2 years. Desirable areas of NYC, such as near the financial district, have some of the highest housing costs in the United States for equivalent properties. The exact cost is highly variable depending on things like size and quality. One could spend $3k/month on rent or one could spend more than $10k/month. Most other things will also be more expensive in Manhattan than elsewhere. Cost of living can tremendously impact how far a salary goes, but the exact conversion varies from one person to the next, particularly in regards to what type of housing they choose.
In general people who have high salaries tend to also have high spending, including on housing, although there are many exceptions. Iâve known many people with high salaries who have large debt, high interest debt (credit cards), and live paycheck to paycheck; such that they would be in serious financial trouble, if they were out of work for a few months. Iâve also known persons with high salaries who spend little and save/invest the vast majority of their earnings.
I love this discussion. Itâs as if nobody remembers 2008 (I have friends- she worked for Bear Stearns, he worked for Lehman and their entire net worth went to hell over a weekend), 2001, or any of the recessions prior to that!
Keep on fantasizing. Lots of âIâm about to retireâ Enron deca-millionaires out there, who got to commiserate with their BFFâs at Arthur Andersen!!!
Folks donât like to think about how fortunes go up AND down, and that you could unwittingly become toxic as a new employee just by association with an imploded financial firmâŠ
I entered the financial industry at that time, so I am pretty well aware of what can happen during financial meltdowns. This is why I am saying roughly 10% chance for a newly hired associate at a megafund PE to be able to retire in 15 years or less (the company has to continue to do well and the employee has to do well). A naive person would likely give a much higher percentage.
This is also why I have taught my kids to live well below their means and emphasized they need to build up savings to get through the inevitable downturns. My D still allows me to see her budget, and she is spending considerably less than her base salary, so her bonus is really just a pure bonus.
Also a lot of people from places like Lehman managed to land on their feet. I know one person from Lehman who become Chief Investment Officer at a major fund and is now also a lecturer at MIT.
If their consumption doesnât change, Iâd rather they live in hope than in fear. We can either teach them to hunker down, or be aware of the risks inherent in life and deal with them. I would consider to have failed as a parent if my kids become very risk averse. At the same time when they propose some activity, such as rock climbing for example, I ask them what the reported fatality rates are, and what we discuss what is an acceptable fatality rate
Whatâs the goal here? Making enough money to retire or being happy? Or are the two the same for some people? Why would these people retire if making money make them happy?
This is a false choice. You want them to make enough to retire early, because they are likely to encounter Lehman like risks along the way. At the same time, you want them to enjoy life/be happy.
Itâs much more about financial security than retirement.
I have had three distinctly different careers in my life so far, and am about to âretireâ from my third. I donât yet know what Career 4.0 is going to be, but I have the time and freedom to explore.
Some people know what they want to do all their lives, and thatâs great. People like me like to explore, but that requires making career decisions that some people think are a bit crazy because it involves giving up known good compensation for an initial low or even zero compensation as part of the career change. Having a financial cushion enables that.
This is a false dichotomy- hope vs. fear. I come from a family of refugees- who lost many family members who were âhopefulâ that the situation would improve, that Hitler was using hyperbole and wasnât concocting a Final Solution as he was blustering, etc. The allegedly âfearfulâ members of the family (my grandfather, for example) who escaped while he could- was the hopeful one-- that he could rebuild in a country where he didnât speak the language, that he could figure out the legality of being a refugee in a country which didnât want him, etc.
I donât care if my kids make enough money to retire early- and I canât imagine having that as a goal. I care that they are giving back-- either through their professional contributions, or through philanthropic/volunteerism. If that means working until their last day on earth â so be it. They will have thanked the country that took the family in via their contributions to society and thatâs what weâve taught them to do.
Except that in many cases, especially the partnerships you mentioned earlier, it is often not possible to financially disentangle yourself completely from the firm in a short period of time. You make the most money by participation. Look at the hedge funds which have turned themselves into âfamily officesâ for investing the foundersâ money.
If you think the firm you are joining is taking Lehman-like existential risks to generate higher returns, it seems like a very bad idea to plan on spending 10-15 years there.
Lehman was an exceptional situation. A colossal failure of imagination. For the most part partnerships are far more risk averse than public companies, because there is a full skin in the game. Nowhere to hide.
They tend to have exceptional risk management. I worked at just ipoâd Goldman at one point in my career. The partner on the floor could get a full picture of risk of all positions within 10 minutes
You should not live a miserable life today for a future dream. Itâs just too short! A bad week or tough month is endurable but pure misery - donât do it!
Also, it can be very tough to live cheaply in that circumstance. Because of the hours, you will need to live near work. You may be able to pile in with a bunch of roommates but if you regularly have to work/do calls from home, you may need to pay up for privacy. There may be expectations about how you dress (although this is less of a concern today.) Your friends who have similar jobs (and many will be this because your other friends have different availability) may do more expensive things â because they have money and because planning ahead is hard. And you may fall into some âi deserve itâ thinking based on your work intensity. This is all to say that while you may think you can lead a very thrifty lifestyle, it may be less so than you think.
Itâs a great goal to sell your soul for 10 years for a lifetime of paradise but you may sell your soul for 10 years and find that paradise isnât possible. At that point, youâll need to pivot --without regrets.
Which is great until it comes to risks you donât understand or didnât know you had (the âunknown unknownsâ). LTCM made similar claims about its risk controls.
There are plenty of investment firms that everything thinks are amazing, right up until the point that everything goes wrong, Ark just being the latest example.
Do you think we are in any position to tell the kids what they should do ?
They do what they want to do. They decide what they can/ want to endure. As an example, one of my kids wants 9 hours of sleep a day. That is non negotiable for him.
Other decisions have to adjust to that requirement.
For the longest time he wanted to go into academia. We had long conversations on that. I told him he is ignoring financial well being. I canât tell him not to go into academia. I can only tell him what that entails. And connect him to people who are in academia so that he can make an informed decision .
Some kids are better suited to be academician. Some are more entrepreneurial. A few may be both. But I donât think anyone else can make them academicians or entrepreneurs.
Some firms are better than others in risk management, but any risk management system is only as good as the assumptions that have to be made in that system. In particular, how much is at risk depends on correlation assumptions among the positions and assets the firm owns and whether the assumptions will still be valid when it has to unwind the positions or sell the assets. In a major crisis, these assumptions are unlikely to be valid.
My sonâs advisor told him that he should consider academics as a career only if he thinks he will be miserable if he does anything else vs academics. If he can be happy doing anything else, he should do that anything else rather than come into academics. Going into academics is a tough life.
Yes, agree in concept. Trouble is, raking in the money creates a certain lifestyle category. Big houses, private schools ( if kids are in the picture), nannies, expensive travel and restaurants etc. Itâs very hard to go from that to a more austere lifestyle. On occasion, Iâve read about someone retiring early and moving to a low cost place and creating a simple life. But I havenât really known that many people whoâve done it. Actuallly, I never met anyone whose done that at an early age. The long term retirement plans can change.
I know that some folks can stop saving for retirement very early as they will reach their goals due to early savings. And I think that that taxes are pretty high for high income earners and likely to increase. Again, yes work might not be required for living expenses but one thing that happens is, itâs very hard to take money out of retirement funds at a young age and if you sell your stocks/bonds etc you are generating more money at a high income level ( so paying a huge % to the IRS). Before anyone bemoans someone wealthy paying more taxes, the point is, people with high incomes do plan for long term growth and keeping as much as they can. Just like anyone else.
