If you landed a job in finance right out of college, you will likely be incredibly happy by the amount of money you make as a 21/22-year-old. Unless you grew up rich with high expectations, making $100-200K right out of school is a great start to a career and sets you up well with building an above average net worth later on in life.

There are a lot of jobs out there that pay at least six figures at the entry level and scale significantly higher 5-10 years in. Just look at the compensation at various levels of finance, whether in investment banking, private equity or hedge funds. But net worth varies widely later on in life due to many reasons.

Why is net worth so different amongst people who work in finance?

It comes down to four main reasons:

1. Luck
2. Grit/Perseverance
3. Lifestyle Creep
4. Patience
5. Taxes

1. Luck

Luck plays the most important role in building a large net worth. I’m not going to downplay people’s achievements and say that everyone who has saved a large chunk of money only did so because they were lucky, but it would be unfair to say that luck didn’t at least play a decent role.

Just think about every one of your successes in the past. For me and for many others who I went to college with, even just landing that first investment banking internship offer was due to some level of luck. I went through a dozen or so final round/superday interviews and didn’t receive any offers until my very last one. I know others prepared really hard and aspired to go the investment banking route as well out of college and didn’t manage to receive any offers – most moved onto consulting/corporate strategy typed roles.

If I didn’t land that initial investment banking internship offer, I likely wouldn’t have been able to break into investment banking full-time, which would have likely prevented me from landing a job at a hedge fund, which is where the bulk amount of my own personal net worth came from.

Even landing that job at a hedge fund with an investment banking background was no easy feat. Another countless round of interviews and rejections until somehow a guy at a large multi-manager hedge fund liked me and extended an offer.

This is just one personal example. If you look at the background of anyone else who has managed to save a lot of money, you will see similar stories at stages in their life where they got lucky along the way.

So just accept that luck plays a very large role when it comes to building a large nest egg. Just be positive, don’t quit and see where life takes you. Even having an attitude where you really believe you are a lucky person will make you a lucky person.

2. Grit / Perseverance

It is undoubtedly true that those who work hard and persevere after countless failures/rejections tend to be luckier than others. Just think about it. If you keep trying and failing over and over again then at some point you will figure out a solution.

Whether it is applying to job after job in a specific industry you want to be in or figuring out different ways to make passive income streams, those that quit after just a few attempts will never make it to the finish line.

If you want to land a job in investment banking or break into the buyside at a private equity firm or hedge fund, then create a plan and focus all of your energy to achieve that goal. I know this sounds easier than it is in practice as most people can’t handle rejection, but it’s what it takes to get to where you want to be.

When it comes to net worth, work backwards. I know this may sound absurdly high to most people, but say you want to hit a goal of $10 million net worth by 40 or 50. Then work backwards on how to get there and make a plan. With most of the best paying finance jobs out there today, this level of net worth is actually reasonably achievable after a couple of decades of working full time.

I promise you though that sticking to that job that pays low six figures with no upside will not get you there. Must figure out a way to get your income higher.

3. Lifestyle Creep

The problem with most in finance is that after a few years of working your income goes up significantly and then you start spending more money on unnecessary things. Whether it’s that $7K per month West Village/Soho/Tribeca loft in NYC, a nice Range Rover/Tesla, a second home in the Hamptons or $5K+ vacations, people feel the need to spend most the money that they earn.

And this is how you get stuck in the rat race. You start making $500K per year and then only save $50K or so because your annual expenses are so high. And then when you have a family, that little savings goes to zero as your expenses jump materially. Then you are forever stuck to that job as those golden handcuffs keep you locked in forever.

Yes sure, you can have that mentality of spending your cash salary/bonus and just save those fat carried interest payments (if they even materialize), but at the end of the day if you have a spending mentality, you will never have a top 1% net worth or the freedom later on in life to do what you want to do.

4. Patience

Many people who go into finance do so with the goal of breaking into a buyside job at a private equity firm or hedge fund. Two years of banking and then move to the buyside and set for life they say. Then they start working in a buyside role and figure out it’s not all its cracked up to be and completely change industries.

Those who quit after just a few years will never stay long enough to build a high net worth. The big payments in finance come in the form of carried interest (unless you work at a hedge fund that pays out bonuses end of year and have a killer year). Read more on how much do people in finance really make. The money is in the equity, not the annual salary.

5. Taxes

Just accept it. You can’t escape them. They are your biggest expense in life. If you live in NYC or California, expect to pay 50% of your annual income in taxes once you hit a certain income level. Say you make $500K in a year – boom $250K is gone in taxes.

Before 2020 you had to live in high tax states as most of the finance jobs were located in either NYC of San Francisco. However nowadays there has been a huge shift in focus of companies to relocate to more business-friendly cities. More and more finance jobs are moving to Texas and Florida. If you can make the same income and relocate to a state that has no state taxes, you automatically save 15% a year of your income.

That’s $75K per year of free money if you make $500K per year. Or close to $2 million over a couple decades just because you chose to live in a different state. So, if you want a top 1% net worth, move to a low tax state.

How to calculate your net worth?

Net worth is the amount of money you have to your name after deducting all debt and other liabilities owed to others. It’s a way to measure how much money you have to your name.

Let’s say you have $25K in savings, $50K in 401K, $200K in various investments, own a $750K home with a $500K mortgage, $10K of credit card bills, and $50K of student loans.

Your net worth is calculated as follows:

How much should you be saving by age?

Depending on which of the 8 best finance jobs you have out of college, net worth can differ dramatically after over time. Below is how much an average person in finance saves in the first 10 years of their career:

Net Worth at 20

• -$25K to -75K: You are finishing up your last year of college with no savings and a negative net worth due to student loans
• If you are starting young, be sure to read how to save $1 million in 10 years.

Net Worth at 25

• $100K to $200K: You paid off those student loans and are now starting to build a net worth after landing a job on the buyside making $250K+ as an Associate

Net Worth at 30

• $700K to $1 million: After working on the buyside for 5-6 years, you are now a Vice President in private equity or a Senior Analyst at a hedge fund making ~$500K per year on average before any large carried interest payments. You also didn’t choose to go to business school and drop $200K+ and lose out on 2 years of income.

Net Worth at 35

• $2 million to $3 million: Your hedge fund has had a few killer years where you made low seven figures. You get excited but realize 50% goes straight to taxes because you still live in NYC or California. Or you work in private equity and some of those large carried interest payments finally start to flow in.

Net Worth at 40

• $5 million+: More carried interest payments flow in and your net worth fluctuates massively each year (plus or minus $1 million) depending on your personal investments and performance of your fund

Now by the time you are 40, net worth amongst people in finance can vary massively as some people either got lucky concentrating and making amazing personal investments or their fund significantly outperforms the industry. Remember luck plays a large role when it comes to building your net worth, so don’t be upset if you are behind some of the figures shown above.

What is The Top 1% Net Worth By Age in Finance?

We already discussed the average net worth for someone who works in finance for a long time. But what is the top 1% net worth for those who somehow played their cards right and get lucky in finance?

Net Worth at 20

• $0K to 25K: You had parents who paid for all your expenses throughout college and managed to save some money on the side.

Net Worth at 25

• $300K to $400K: You landed a job at a large private equity firm or large hedge fund already making close to $400K per year as an Associate.

Net Worth at 30

• $2 million to $3 million: Now as a vice president in private equity or a senior analyst at a hedge fund, your fund outperformed significantly and you had a large $3 million pay day ($1.5 million after tax).

Net Worth at 35

• $5 million: Your fund keeps doing well and you receive another couple large bonuses of ~$2 million each.

Net Worth at 40

• $10 million+: You’ve stuck to the same career and grow with the fund. You’ve been lucky that your fund hasn’t blown up or has been able to successfully raise more funds because of a good track record. You’ve kept your expenses check and don’t own multiple houses or fancy cars, but instead let your money grow over time where you now stand to make $1 million+ from your own personal investments grow with just a 10% or more annual return.

At this point you’ve made it and can comfortably retire and live off interest dividends on your $10 million pile of money that cash flows $200-400K per year.

Other Important Net Worth Concepts to Highlight

Compound interest is really the “eighth wonder of the world”

There is a reason why most of the richest people in this world are people who manage money. If you can compound money successfully at a high rate over decades, you are guaranteed to be rich. Just do the math I excel. Below are the multiples on your invested capital over the course of 30 years at various compound annual growth rates:

• 5%: 4x
• 10%: 17x
• 15%: 66x
• 20%: 237x

Say you had $1MM at 30 years old and are able to compound that every year on average by 20% for 30 years. Then when you are 60 years old. You will have $237 million (before taking into account the effect of taxes).

That is an absurd amount of money for just starting with $1 million dollars. There are only a handful of investment managers that have compounded that high ever for an extended period of time, but even at just a 10% annual return you could have $17 million after 30 years. Time and discipline to not touch your pile of money is all you need when it comes to building a large nest egg.

Business school is a complete waste of time and money

I know I am going to get heat for this as many readers on this site have gone, are planning to go or are currently in business school. Yes, there are a ton of benefits to going to business school. Biggest one is expanding your network with people who are smart and come from different backgrounds.

But if your sole goal is to increase your net worth, business school is a complete waste of time and money, just look at the reasons and the math here. Basically, you lose two years of real work experience and savings while shelling out $200K+ to go to school. Unless you use those two years to start a business or gain valuable skillsets that will increase your income exponentially, it’s not worth it.

Net worth rises exponentially in stages

There will be years especially early on where you are saving small amounts of money of ~$0-$50K per year. When your job is your sole source of income early on in life, you can’t expect to increase your net worth by that much. It’s really when you have multiple streams of income (salary, capital appreciation from your net worth, carried interest payments, online income, etc.) when you will start seeing that pile of money increase substantially.

Net worth comes in stages in finance and in other entrepreneurial careers as there will be years where you are working hard making little money then all of the sudden you receive a fat bonus/carried interest payment or an exit from a venture. These are events where your liquid net worth increases overnight by 5-10x and happen every 10 years or so if you work hard for it.

What should I invest my money in?

First off, stop worrying about investing early on in your career. It’s funny how people always ask “what should I invest in” when they have less than $100K to their name. If this is you, stop worrying about investing and focus on how to make more income each year. All that time spent trading and looking at your portfolio when you have an insignificant amount of money is a waste.

Focus on how to make more income first, whether that is getting into a higher paying career or starting multiple streams of income on the side. Trust me, once you start make the big bucks you’ll realize that the $100K you had saved/invested is insignificant relative to how much you bring in the future. The hard part is getting to the point where you make a lot of money.

Example #1 – Investment banking analysts when they receive their first bonuses

When I was an investment banking analyst in my early 20s, I remember when we received our first annual bonus. It was $55,000. At the time, I was shocked and thought I was so lucky to have received this massive bonus just one year out of college.

Then people in the class started comparing to what other analysts were getting at their investment banks and that bonus excitement started to quickly fade when they realized others were receiving $10K more.

Then a group of analysts stormed HR and told the head of investment banking that this is unacceptable. The audacity right. And I vividly remember when the head of investment banking told the analysts to calm down it is just $10,000 it is not even that much money. The analysts’ faces dropped; they were so furious to have even heard such a statement.

At the time yes telling broke kids one year out of college that $10,000 is not that much money was probably not a smart thing to do. But looking back over a decade later, I realize that the head of investment banking is completely right.

If you stick to this finance track and are successful at it, your earnings power grows exponentially and $10,000 becomes a drop in the bucket.

Example #2 – Resident doctors before they become a real full-time doctor

I know this is not a finance example, but it shows just how different your life becomes once you are able to increase your income exponentially.

Let’s start of by saying that doctors make a lot of money compared to the average person. But it is not the best way to get to a 1% net worth because you have to go through 7-10 years of schooling and residency programs and be saddled with $200-$400K in debt before you even start to make any real money. Overtime you can start your own practice and own a business (which is one of the only ways to make real money), but the initial years of saving money/paying down debt are slow/grueling.

Doctors go for eight years of making no money (four years undergrad then four years medical school). During these years, you take on more and more debt and have to live as frugally as possible. Because of this you can easily see how soon to be doctors will develop a mentality that a few thousand dollars is a lot of money.

Then after residency, doctors go from making ~$60K per year to $300K to $700K. It is only at that point when they realize that the few thousand dollars here or there that they lost investing on crypto or spending on traveling/vacations is such a small amount of money.

Point is, in your early years focus on increasing your income and stop wasting time thinking about investing. If you have $50K saved and you get lucky and double that over 5 years, that is just $50K or 2 just months of after-tax income for someone who focused on increasing their income to $500K per year.