Most people do not understand why they are never satisfied when they make more money. As their incomes grow with more and more experience, they are continuously stuck feeling as if what they make is just not enough.
I know dozens of people who are single, have no real responsibilities outside work, make $500K+ per year and still feel unhappy as if they are not rich. Yes, they may live in NYC where the cost of living is substantially higher, but when you make $500K+ per year and are single, you practically can do anything you want to do wherever you live.
I am not here to argue that money cannot make you happier because it certainly can. However, it really depends on your attitude and how you use that money to create a lifestyle worth living and the freedom to do whatever you want to do.
Your perspective is everything
If you grew up middle or upper-middle class like myself, you most likely thought making $60K per year out of college would be the dream. Your parents were making somewhere between $60K and $150K per year after decades of experience, so making $60K seemed more than enough for someone in their early 20s.
Your parents created a standard of living that was based on those income levels, so as a kid you were never exposed to doing things that those that are wealthy usually do, like…
- Going on $4K+ vacations in Europe
- Eating out every night
- Living in a $1MM+ home
- Going to private school
- “Summering” in the Hamptons
The list can go on and on. My point is that as a kid growing up in a middle-class family, you were generally happy as long as you had a stable family and friends at school. You had nothing to compare your lifestyle to, so you did not view a $60K to $150K per year income as not enough.
Everything changes once you compare your lifestyle to others
Once you get older, you will inevitably start comparing your lifestyle to your friends and other people you interact with. This happens to everyone.
You just have to understand that there will always be someone who is richer, smarter, fitter, more social, etc. and there is nothing you can really do about it. I had a boss back in the day when I worked at a multi-manager hedge fund who made around $1-10 million a year depending on how much P&L he generated in a given year. He was in his late 30s and probably had a ton saved.
Despite making a ton of money, he did not seem happy because:
- He was a slave to the market and his mood was based on if he made money in any given day
- He would compare himself to a friend who ran his own hedge fund and was worth $500 million+
As soon as I realized that that would be my life 10 years down the road, I quit immediately even though I had the potential to make $500K+ per year in my mid-20s and substantially more down the road.
Point being that you will never be satisfied if you constantly compare yourself to others and lack the freedom to do whatever you want to do every day.
Being active on social media will only make it worse. You wonder why millennials or Gen Z’ers are more depressed than those before them. Social media has allowed everyone to be exposed to the lifestyles of others at a very young age. It causes kids to realize that there are others who in their minds are richer and happier than they are. They start comparing themselves to others at too young of an age.
What is the #1 thing that everyone should strive for?
If you truly want to be rich, successful AND happy, there is no doubt that you will have to sacrifice a ton early on. Nobody gets rich by working 40 hours a week and coming home every night watching two hours of TV. That’s what the average American does, so if you are okay with being average, then by all means go ahead and do that. But if you want to strive to have a better life than the average person, then you have to do something different than everyone else.
Freedom is the #1 thing you should focus on creating in your 20s. Freedom to do whatever you want, whenever you want. Freedom to not have to depend on someone else paying you to make a living.
Good example of this is Dan Bilzerian (to some extent of course). Yes, he did not come from nothing and had a rich Dad who was a corporate raider back in the day. But he made substantially more being good at poker and used his influence to generate multiple passive streams of income.
If you remove the girls, sex, money and all the extravagance, what you will see is that he has created a life where he can do whatever he wants whenever he wants. This is exactly what you need to strive for. Not the fame, or the girls, or the extravegent lifestyle, but the ability to do whatever you want whenever.
Finance alone won’t do it for you. The problem with the majority of top finance careers is that you only get one side of the equation, money. You give up freedom for money and because of this you can never be truly happy with just a career in finance.
Lifestyle creep is why a lot of people in finance feel stuck in their jobs
The philosophy I was taught early on in banking was to spend your salary and bank your bonus, which makes sense for most bankers early in their careers because salaries are not that much.
With a ~$95K salary in banking, you can live in a decent $2K-3K per month apartment, spend a few hundred every weekend going out being social, and go on a couple nice vacations every year. You will breakeven, maybe save $10K max on your salary and bank your $60K+ bonus.
You will live a decent lifestyle and start saving a good amount of money.
Then you move to the buyside in private equity or at a hedge fund and start making $250K+. For most single people in their mid-20s, this is substantially more than they need. And what do you think most people do? They spend it on things they just do not need:
- $3-5K per month apartments
- Crazy vacations across Europe
- Tables at clubs
- Michelin star restaurants
- $20K+ watches
- Weekend houses in the Hamptons
Then you make it to VP / Principal in private equity or have a few good money-making years at a hedge fund. The money starts rolling in and you go from making $250K per year to $500K+. Sounds like the dream doesn’t it?
Most always raise their standard of living as they make more money. The problem is people experience so much lifestyle creep in this industry that you just never become satisfied with what you currently make.
More on investment banking, private equity and hedge fund salaries and bonuses.
Don’t be a slave to the “Golden Handcuffs”
You don’t want to be a slave to work and you want to be in a position where you can fully take advantage of the opportunities ahead of you.
When you depend on someone else to pay you to support your lifestyle, you lack the freedom to do anything. It gets worse and worse as you get older because of what they call the “Golden Handcuffs” in finance.
As you make more and more money, your living expenses tend to rise to support your new rich lifestyle and new friends.
Prime example is this MD I know at a private equity firm who makes about $1.5 million per year. He is in his late 30s, has two kids in private school and lives in an insane apartment paying $30K per month in rent. He barely saves anything from his annual paycheck and waits for his carry check to come in to save money.
He has essentially become a slave to work because he cannot sustain the lifestyle that he has today without his current job.
How do you start creating freedom in your 20s?
Working in finance does give you the basic tools needed to create the freedom that you should be striving for down the road. With both money and some extra work on the side, you should easily be able to create a lifestyle where you can do whatever you want whenever you want.
To create freedom, you need to create passive sources of income that will generate enough money to cover your living expenses. That way you know you are truly financial independent and do not you’re your boss’s paycheck to survive.
Imagine making $100K+ per year without putting much work in.
Most believe it just isn’t possible. People in general are used to working for a paycheck and do not know how to create their own sources of income. It really is not that hard, especially if you start early on in your 20s and consistently work on something year after year.
The problem is that people in their 20s would rather chase girls, drink until 4am every weekend and waste away their weekends hungover. If you do what everyone else does, then yes I agree, you will never be able to generate income on your own.
Examples of passive streams of income for people in finance
The one issue that most people have in finance, especially early on in their careers, is that their jobs are actually really demanding. That said, I know for a fact that everyone has free time most nights and weekends and have met a few people in finance who have successfully created different streams of income outside of work.
Here are just a few examples:
- Small craft brewery out in the Bronx
- Rental properties in New Jersey
- Direct-to-consumer ecommerce product
- Online data aggregator in a niche industry
- Investing your savings in relatively safe public investments
These small businesses were not created overnight. Most of these businesses took a few years before ever seeing any real cash flow.
The problem is that people think it is too hard or time consuming to create anything on the side. In reality, it literally takes less than 30 minutes of effort each day or a couple hours a week to build anything.
Consistency is key. People give up after just a couple months. You really need two to four years of consistently working on something before you can really start generating any sort of real cash flow.
To sum it all up
- Your perspective is everything: if you constantly compare your lifestyle to others, you will never be happy
- Lifestyle creep is a real problem in finance
- Golden Handcuffs will prevent you from doing what you really want to do in life
- Freedom is the #1 thing you should strive for
- Ceating a passive income stream early on is the best way to guarantee your freedom down the road
thanks for this. if you don’t mind me asking, what do you do for passive income?
Combination of dividends/unrealized gains from public investments, real estate and online income. However, for most people there is no point to spending much time investing until you have $500K+ saved in the bank. Say you can make 5% relatively risk free annually. 5% on $100K is only $5k while 5% on $1MM is $50K.
not really relevant to this article, but really appreciate your posts. Is there a specific sector or industry that is relatively easier to perform in with a MM platform? I would assume not, or just a space that you have deep sector knowledge?
Not really, depends on what your interests/background is. Best to go in a sector you had prior experience in so you don’t feel completely lost once you make it to the buyside.
I started out with a real estate and consumer background early on in my career. Preferred the generalist approach so have been at a fund where I can look in any industries.
Hi BH,
I had emailed earlier and wanted to follow up with a question. If I’ve been in IB for 4 years (and recently had to exit the industry); does it make sense to try and vy for PE positions or do IB/Corp Dev for another year before trying Buyside. My fear is that 5 years of sellside/Corp dev will make me look too old. PE is the end goal.
Would love to hear your thoughts.
Thanks
Will be very hard for you to transition to PE at this point unless you have some connections. Would go for an associate role at a different bank and then try to get into a small PE shop after a year of doing that. Even then that is pretty tough given PE usually hires analysts after 1-2 years.
Would also just really evaluate why you want to do private equity in the first place. PE is not the end all be all of jobs. A lot of my friends that went the PE route left after two years to go to corp dev. or business school. Would just try to figure out what you are good at doing, what your skills are and then find a job that suits you best. I may be completely wrong, but to be perfectly honest if you did not get an associate promote after your analysts years in ibanking or was not able to transition to PE then, then maybe these finance jobs aren’t best for you.
I think you might be right about the fact that IB/PE may not be for me. As far as what I enjoy, it’s speaking with people and financial modeling; I hate repetitive tasks like turning comments (changing font sizes/text), I also have relatively poor attention to detail. Any advice on what careers to pursue? I still want to get comped well without having to deal with redundant tasks and lack of stimulation in IB.
The problem with most entry level jobs like analyst positions in banking is that you are going to get a lot of the grunt work (i.e. formatting / creating slides). Over time you end up doing more real / interesing work. For any type of analytical job you need to have a high attention to detail. Maybe something more on the sales side would be a better fit if you like talking to people. Don’t worry about the money at first, it will come if you like and are good at what you are doing.
Understood. Seems like even sales related roles start with analytical positions. Will try for roles outside of finance.
Hey BH,
Just had a follow up:
I’ve been interviewing for both IB and CD roles; I haven’t landed anything yet, but am fairly close. The thing I’ve run into is the discount in CD comp (something like 50%) and the much lower comp ceiling in CD. Does it make sense to cap my financial upside by going into CD after ~4 years in IB (and potentially trying to build secondary streams of income) or take another bite at the apple with another IB role (and hope it works out)? By all indications, I should not be pursuing IB any further, but there’s always the allure of the almighty dollar (and the safety/material comfort it provides).
As for your sales recommendation, I’m currently looking into CRE brokerage (seems like it would be a really good fit for me). I’m not sure what other avenues to pursue if trying to achieve financial success at a relatively young age.
Thanks again,
KEG
You are looking at it backwards. Focus on what you are good at/your skills then figure out what job is best for you. Don’t focus on the money at this point because making more money won’t make you happy if you hate what you are doing. You have already done 4 years of banking and it seems like it didnt work out. Maybe I am wrong and banking could be good for you if you actually enjoy doing it.
Good article. I was pretty happy when my income was in that range. However, I lost happiness after corporate politics started rearing its ugly head and I was no longer paid by performance.
If one has the opportunity to make that kinda money in their 20s and 30s, I say GO FOR IT! Save as much of it as you can and live free or freer for the rest of your life.
Sam
Appreciate it! Yes, defintiely people should work hard and try to make as much money as possible early on in their 20s so they have the freedom when they settle down later in life.
Problem is a lot of people constantly compare their paycheck to others and raise their standard of living when they make more. Easy to become trapped in a job and lose flexibility to do whatever you want.