How an Entry-level Investment Banker Does Money
by Jinna Wang
Evan (not his real name), is a 22-year-old investment banking analyst living and working in New York City.
Tell me about yourself.
Well, I was born and raised in China and moved to America for high school since an American education was highly regarded. I went to college in New York, decided to major in advertising and marketing, but was quickly drawn to the pull of finance. I became interested in investment banking as a sophomore and did a few smaller internships. After full-time recruiting, I went to an “elite” boutique investment bank, where I now have been working for 7 months.
How do you define elite boutique?
I would say … mergers and acquisitions focused, international reach, strong client base. My firm is a top 5 boutique in terms of size, which is around 2,000 employees worldwide.
When you were choosing a career, what was your financial consideration?
Financials were around 70% of my considerations, and the remaining 30% were about exit opportunities, which range from traditional routes of private equity to start ups. My financial consideration revolved around being able to pay back student loans and saving enough to buy a house.
That’s interesting. What are the differences between advertising/marketing and finance?
Marketing pays $40-$50K a year pretax, where as finance pays $120K-$130K pretax. These are both first year out of college numbers by the way, though I’m not completely sure about the marketing side. Maybe you can get up to $60K, but $60K seems high to me.
Let’s talk specifics. What are your income and major expense categories?
On a monthly basis, I make around $4,000 post tax, which is pretty standard across Wall Street for 1st year analysts. Year-end bonuses range from $50,000 to $70,000, which is taxed at 45%.
Expense-wise, my rent is around $1,700, which takes just under 50% of my monthly pay. I have expenses of around $800 from eating out. Typically dining spending would only be on the weekends because during the week days when we work past 9 p.m., we get the option of ordering food and expensing it on the firm. During the weekend, I like to treat myself and my girlfriend out to a nice place, especially since I don’t get a lot of free time during the week. I spend another $200 on entertainment and other misc expenses, i.e., movie tickets, laundry, underwear, socks.
I really only treat myself to nice dinners for two reasons, one is to catch up with my girlfriend and friends, two is to network and participate in the finance social scene, networking, you know. So in a crazy month, I could spend up to $1,000-$2,000 on dining and entertainment. The rest goes into my 401(K).
So you don’t save money in a savings account.
I have a comfortable cushion in checking, but I actually don’t own a savings account. Having a savings account is a very conservative way of thinking about money since you are not making anything on that money. You can earn a higher expected return in an index fund, it’s just smart finances.
What about student loans? Have you paid those back?
I financed my entire education by myself and I have approximately $60K in student loans for 4 years at a private university. I had a decent amount of scholarships, too, but cost of living is pretty high in New York. I pay the monthly minimum of around $500 on my loans, which have an average of 7% interest rate. I forgot to mention that before, but these interest payments are also a large expense.
What was the reason behind that decision?
Actually from a financial perspective, interest on my student loans is pretty low. I’d rather have capital appreciation on my excess cash. Generally my investment portfolio returns anywhere from 9%-12% on average. That’s also why our bonus (as bankers) is so valuable, because it gives you a nice capital base to start investing. I can use that difference in returns to help myself pay back loans faster, actually.
I’ve heard some bankers say that “it pays more per hour to work at McDonald’s.” Do you think that’s true?
I think that’s an exaggeration. Of course per hour pay is highly dependent on the number of hours you work. On a per hour basis, my pay is definitely not as high as people would think. But the year-end bonus is when you really feel the effects of a high salary. All else being equal, I’d still take banking over McDonalds.
How often do you think about money?
[Laughs] I think about it every day, partly because it’s a part of my job. But personally, I think about my own finances every day as well, because I want to be strategic about how I spend my money and how I invest. Every week, I do an examination of my spending and my portfolio, which is a good habit to build. I certainly didn’t know to do that until my parents sat me down one day and talked to me.
Do you make enough money to live comfortably in NYC?
Yes. Definitely more comfortable than most students out of college our age. It’s honestly hard to reconcile the fact that you are making more than a real grown up, like a doorman or an older guy who works at a restaurant. Since it’s really the first time you are making money, and it’s like, holy sh*t, I just got out of school, how am I making this much money?
Another part of living comfortably is that I don’t go clubbing, which is a big component of the young finance lifestyle. Bottle services is around $200-$300 at a not-so-nice place, $400-$500 at a nicer place. For people with slightly higher income, maybe 2–3 years into banking, $400-$500 a night is not so much if they split it with friends. Broadway tickets get pretty pricey, too, and that’s something people do fairly often. The general finance mentality is that you don’t spend a lot of money during the week, so during the weekend — the weekends that they are not working — they like to spend a lot. They want to get a girlfriend or just hook up with girls, and it takes money to go out and meet girls. I am more boring because I am more conservative with my money, and I go out a lot less and I don’t buy a lot of things. Some people I know like to chase material things. A colleague I know spent $15,000 on a watch, just because he could.
What is also interesting is that most bankers think that they don’t get paid enough, so they try to move into private equity. It’s never enough. I think it’s also that bankers feel competitive with their peers in terms of how much they earn.
At what ages do people go to private equity, and what’s that pay scale like?
24–25, generally after 2–3 years in banking. A first year associate in private equity can make between $250-$300K all in. Although the range of compensation is wider than that in investment banking. PE can really feed the lifestyle that bankers are used to, and also pave the way to business school.
And what are the hours in private equity like?
Banking is around 80–100 hours per week, in private equity it’s around 70–90. Three main things make people go to private equity: better hours, better pay, and the “prestige.”
What are your plans for the future?
First, pay off my student loans with the help of my year end bonuses, maybe in 3–4 years I’ll be able to pay it off. Get a Private Equity job. Because I have the herd mentality and that seems like the next logical step. Then the next step is to buy a home, so that will take at least $200K in cash for a down payment and I will take a mortgage for the rest of the 600K. I want to do that as soon as possible to take advantage of low interest rates. Maybe go back to business school which would cost $200-$250K, and that’s a miserable amount of money to give up.
And further down the road, I want to become an entrepreneur. That will probably take at least $200K in seed capital. Hopefully I will have built up enough of a network to help my business get off the ground. At least these are my plans for the time being. I think 70% of what I have planned is representative of the average finance guy; this is what most people in finance want.
Any last take-aways for our readers?
Set a budget for yourself, which most young people don’t do. It doesn’t matter what the amount is, but it matters that you have a number and stick to it. A lot of people in finance feel like they don’t earn a lot of money (which is ridiculous), because their cash outflow is so huge.
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