Why Bankers Don’t Make Bank: Where Your Paycheck Actually Goes and What to Do About It

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Investment Banking PaycheckIf you want to be in finance, you probably like money quite a bit.

And once you break in and become a banker you’ll be making tons of cash – even if bonuses aren’t as good as they were in the old days.

But then you’ll waste it all on $200,000 sports cars, drugs, and alimony – right?

While that scenario applies to many seniors bankers and explains why some finance veterans don’t save much, the problems actually start much earlier – with your first paycheck.

The NYC Analyst

Let’s start with the base case of a newly minted investment banking analyst in NYC – after this, I’ll explain how it’s different in other regions, outside the US, and for associates on up.

If you earn a $70,000 base salary, that’s $5,800 per month (technically it is $5833.33333 but we’re using round numbers here).

Taxes are different for everyone, but with that level of income in NYC you’ll pay around $2,000 per month (34-35% rate) in federal, state, and city taxes – leaving you with $3,800 in after-tax income each month.

Manhattan is also the most expensive place to live in the US, and at the minimum you’ll spend $1,200 on rent (with a roommate) – but more likely you’ll spend $1,500 to $2,000 on rent.

So now you’re left with $1,800 – $2,300 per month of post-tax, post-rent income.

Models and Bottles Other Expenses

You’ll be spending a minimum of $1,000 up to $2,000 when you take into account food, utilities, transportation, dry cleaning, clubbing, student loans, and so on.

Why so much?

You can expense dinner each night, but you will have to pay for other meals, for going out on weekends, and so on – even if you assume a very low $10 per day, that’s still $300 per month.

And realistically you will spend more than twice that on food, so assume at least $600.

If you assume $100 per month for utilities, $100 for subway / taxi fare, and so on, that easily brings you to $1,000 – and we haven’t even taken into account alcohol, clubbing, and significant others.

Many analysts actually save nothing and end the year with credit card debt.

But let’s be optimistic and assume you can save $1,000 per month, or $12,000 per year.

That seems OK – but then there are non-monthly expenses like your end-of-year vacation, furniture, an HDTV, a new laptop, and so on.

Even if you’re extremely frugal and manage to save $2,000 per month – $24,000 per year – you will only be left with $15,000 – $20,000 once you take all those expenses into account.

And if you’re not so frugal, you’ll be saving well under $10,000.

Those Numbers Are Ridiculous – I Don’t Spend Nearly That Much Money!

That’s what you say now – when you’re still in school or working a normal job 50-60 hours per week and you don’t live in Manhattan.

But can you really save more money than what I’ve outlined here?

I’ll Live (With My Parents) in New Jersey / The Bronx / Queens!

You might save money if you do this but you will also want to kill yourself after a month of coming back at 3 AM and leaving at 6 AM every day – plus you’ll be spending more on transportation.

Pretty much all analysts and associates live in Manhattan – you need to be close to work to handle fire drills anyway.

I Will Never Go Out / Never Spend Money on Food!

Again, this one sounds plausible now but once you start working the picture changes.

If you want to get to know other people and build your network, you need to go out occasionally.

Maybe you won’t spend $500 on bottle service every night, but you will spend something.

And while you can use tricks to save money on food, you will find yourself buying lunch and other meals more often than not.

Don’t even think about cooking – that’s the last thing you want to do when working 80-100 hours per week.

I’ll Buy a Place Instead of Renting!

…except that would actually be more expensive on a monthly basis, at least initially.

Also, you will most likely not have enough for a down payment if you’re just graduating.

And if you want to move out of New York, buying a place straps you down and limits your options, which is not a smart idea when you’re just starting out.

I’ll Get a Roommate!

This one’s actually a good idea because you can save quite a bit on rent and other expenses.

Plus, it widens your social circle and if you have a non-finance roommate, you might get to know non-bankers (they exist, even in NYC).

Other Regions of the US

In other regions there are 2 key differences:

  1. Lower rent, food, and going out expenses;
  2. (Possibly) lower taxes.

So you might be able to save $30,000 if you live in Houston, pay a sub-$1,000 rent, and also have no state taxes (isn’t Texas awesome?).

You can get an estimate of taxes in other regions with this net pay calculator.

Houston is one of the cheapest places to be a banker in the US; if you’re in LA or SF, rent will be higher – though still less than Manhattan – and taxes and other expense will be higher, so you would save more than in NY but less than in Texas.

Outside the US

The major differences:

  1. (Potentially) lower taxes or no taxes at all.
  2. (Potentially) a housing stipend, so minimal or no rental expense.
  3. (Potentially) a much lower cost of living.
  4. …but your base salary may also be less if you’re at a local firm rather than a global bank.

I wrote “Potentially” above because if you’re in London, for example, it’s not much different than the NYC scenario and may be even more expensive.

But if you’re in Dubai, Saudi Arabia, or other emerging markets then you can save a ton of money thanks to no taxes + generous housing allowances.

In other regions like Hong Kong there are still (low) taxes , but you usually get a housing stipend which saves you a lot.

So what’s the downside to working elsewhere in the world?

If you’re working for a small, local firm you will often get paid a fraction of what you earn at global investment banks.

In China and Japan, for example, local banks might pay you almost nothing compared to what US and European-based banks pay; that’s because the cost of living is theoretically lower in China (even though in big cities, it’s not really) and because of corporate tradition in Japan.

Associates On Up

If you’re starting as an Associate, you’ll get a higher base salary – more like $100K – but you will also have higher expenses, like $150K of business school debt and potentially a family to take care of.

If you don’t have those expenses you might be able to save more than analysts, but you will still not be amassing a fortune just from your base salary.

If you’re more senior – VP to MD level – your base salary actually doesn’t increase that much relative to your seniority.

You might make $150K-$200K at the highest levels, but your tastes will also increase and you won’t want to settle for a $1,500/month studio apartment.

So despite the higher base salary, you still won’t save much until bonus season.

Summer Interns

As a summer intern you’ll get a pro-rated salary based on what full-time bankers earn – so let’s just assume that you work for 3 months and earn $17,500 ($70,000 / 4) to get a round number.

You can save quite a bit of this if you get cheap student housing (at NYU in NYC, for example) – and you’ll get a large tax refund the next year because you only worked for 3 months.

Even with all the other expenses, you might save around $5,000 – $10,000 as a summer intern, after the tax refund.

Signing Bonuses, Relocation & 401(k) Contributions

I didn’t take these into account above, because I’m assuming that you use most of the after-tax signing bonus and/or relocation bonus to actually pay for things and relocate.

You can make contributions to retirement savings plans that save you a bit in taxes, but these don’t result in a dramatically different picture – and you still have to pay taxes when you withdraw money.

What All This Means

This was a long article with a lot of numbers – here’s what it all means, and what you should do as a result:

If Your Primary Goal in Banking is to Save Money, Do Not Work in New York or London

Thanks to taxes and the ridiculously high cost-of-living in these places, you will save far more of your salary in regions like Dubai, Saudi Arabia, and Hong Kong.

Just make sure that you’re not working for a local 3-person firm or your salary might also get cut by 75%.

The other downside to these places is that you’ll gain a much wider network somewhere like NYC or London and have more options afterward.

…But If Saving Money Really Is Your Main Goal, You Might Have the Wrong Idea

No matter what you do, you’re not going to save a fortune as an analyst or associate.

You do investment banking because you want to invest in yourself and have access to much better opportunities in the future.

Doing it to save a lot of money in the short-term isn’t a wise idea because you probably won’t save that much – and your hourly rate may not be much better than at McDonald’s.

Your Yearly Savings are Heavily Dependent on Your Bonus – So Don’t Blow It

Even a “modest” bonus of $50-$60K (after taxes, $25-$30K) is more than what you save during the entire rest of the year.

That’s why – despite recent legislation – banks are unlikely to raise base salaries and lower bonuses: psychologically, we are more motivated by a one-time infusion of cash vs. an increased trickle over time.

And we’re also much more likely to spend a sudden infusion of cash foolishly (see: lottery winners).

So whatever you do, do not do anything stupid or risky with your bonus – put it all in the bank or in conservative investments so you have a cushion.

As a VP once told me, “You can piss away your salary on coke and strippers, but save your bonus.”

Keep Your Investing Plain, Simple, and Boring

Even after reading all this, you might still be convinced that you can defy the odds, save $100K+ in 2 years, invest in the next Facebook, and then retire as you cash out for $10 million.

But doing investing at all is very difficult as an investment banker because:

  1. You don’t have time to day trade or research stocks in great depth.
  2. There are many restrictions – you need to get permission for every single trade you make to ensure that you’re not pulling a Gordon Gecko and using insider information to profit.

So go with something simple and set up automatic contributions from your paycheck into your retirement accounts (or into your brokerage account), and then invest in a boring, diversified portfolio.

Save and invest what you can as a banker, but realize that you won’t have that much available until bonus season – unless you’re in a tax-free zone.

And in case that doesn’t work out and you end up with $30K of credit card debt, you can always hope that bonuses return to 150% of base salaries one day.

About the Author

is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys learning obscure Excel functions, editing resumes, obsessing over TV shows, and traveling so much that he's forced to add additional pages to his passport on a regular basis.

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190 Comments to “Why Bankers Don’t Make Bank: Where Your Paycheck Actually Goes and What to Do About It”

Comments

  1. Richard says

    So am I right in assuming you only have a real chance at making a lot of savings when you’re more senior; when/if you use of the exit opps; if you’re in Sales and Trading?

    • M&I - Nicole says

      Savings – depends on your spending habits and your ability to invest. However, most analysts don’t save up much in NY given high taxes and rent, unless you have parents nearby and live w them.

      when/if you use of the exit opps; if you’re in Sales and Trading? – Can you clarify your question?

  2. Zaid says

    why u make 70K ?
    i have chemical engineering BS degree then i took MBA from Ivy league school ” Pen U”
    working in NYC and third year associate
    around 250K a year ( bonuses included )
    i live in NJ… i go with train thou

  3. Carvega says

    This is a great article as I’ve just started looking at housing in NY in preparation for my graduation in Dec. I actually found this site while searching for reasonable salary expectations for a first year investment banker…

    But I will also be applying for sales & trading positions at each bank I apply to as well. I could not find any salary or hours worked info for those positions on the site. Any good references?

  4. Andersson says

    Is it true that an investment banker with 3-5 years of experience can make 70-75 000 USD a month?

    What position will a very good investment banker who started as an analyst at a big IB and worked for 5 years have?

    I want this information since I´m trying to see were I might end up if I choose to go the banking route. I Have 2 years left at the university and I really like what investment banks work with, I´m alredy in touch with some bankers and I attend at anything finance related in the university (its a target uni.

    Thank you for your amazing site!

    • M&I - Nicole says

      Yes, or more.

      A banker who has worked for 5 years should be an Associate or VP (if he/she is promoted early)

      I would focus your energies on getting in. If you’re passionate about finance and are good at what you do, you’ll get paid, especially if you’re a top performer. Otherwise, you might not survive in this industry, especially given the crisis.

  5. Roger says

    “That seems OK – but then there are non-monthly expenses like your end-of-year vacation, furniture, an HDTV, a new laptop, and so on.
    Even if you’re extremely frugal and manage to save $2,000 per month – $24,000 per year – you will only be left with $15,000 – $20,000 once you take all those expenses into account.”
    “Maybe you won’t spend $500 on bottle service every night, but you will spend something.”
    “You might make $150K-$200K at the highest levels, but your tastes will also increase and you won’t want to settle for a $1,500/month studio apartment.”
    I really hate clubbing, and wouldn’t mid living simply. How much would I save as an analyst if I saved on vacations, laptops, etc.? How much would I save as an associate? How much would I save as a senior partner/VP?

    • says

      You can save some, but the point is that your base salary is relatively low and taxes and cost of living are very high in NYC and London. So yes, maybe you can save $10-12K extra per year as an analyst vs. someone who goes out a lot, but in the grand scheme of things it is not a big amount of 30 years. As someone senior you can save a lot more because you make a lot more… but trust me, you will not want to live in a 100 sq ft apartment when you make $500K+ per year.

      • Pete says

        Will I be able to save a lot of money? Also, I meant to type PE; is it possible to save a good amount of money in PE, be it Boston or Manhatten?

        • M&I - Nicole says

          As a junior, I think it can be tough to save in Manhattan given high rent and taxes. Perhaps the cost of living is slightly lower in Boston given lower taxes and rent. You’ll have to factor in partying, going out, shopping, etc. If you say somewhere with lower rent (further away from office)/or have multiple roommates, eat cheap breakfast and lunch (and work overtime so they pay for your dinner), and not spend on booze and expensive suits and girls, I think you can save a decent amount.

  6. Kev says

    Good one! am a dutch transfer student doing my BBA at northwood university, thinking about to do my MBA.. I visited last week UF in gainsville, was impressed I got 2 choices or Uf in florida or Bradford university in England?? realy interested to become an I-banker. what do you think?

    • M&I - Nicole says

      I have not heard of those universities before, so I don’t think they are target schools. I am not familiar with their programs. I’d advise you to look at their curriculum and choose the one with a stronger Finance and Accounting focus. I would also talk to the respective schools’ career placement offices choose the school that offers better career placement services and a larger alumni network in finance. I’d probably choose UFlorida given its location.

  7. Percy says

    You provided very specific number referring to analysts. Could you please provide these numbers with associates thorough MDs?
    I am also interested if any of this is different with those in PE? Again, I’d like numbers.
    Thank you

    • M&I - Nicole says

      We don’t have the numbers from associates through MDs yet. I don’t think these numbers are easily available because as you progress in banking, different groups/banks’ pay structures are different and the information is pretty sensitive.

  8. Bob says

    “You’ll be spending a minimum of $1,000 up to $2,000 when you take into account food, utilities, transportation, dry cleaning, clubbing, student loans, and so on.”
    We will be spending that per month or per year?

  9. Lloyd says

    Do you guys know the rough numbers for bankers who work for big Chinese investment banks? (Aka. CITIC Securities & CICC) Is their base salary a lot lower than the BBs in general?

    • M&I - Nicole says

      I don’t know the rough numbers but yes their base and bonuses are likely to be lower than most BBs

      • Lloyd says

        What about the BBs in mainland China – do they execute the global pay scheme or they do their “local scheme”?

  10. Ignacio Lopez says

    I just got out of the Marines and they give a GI Bill to pay for schooling. what school would you recommend to get me started down the long road to becoming a succesful investment banker

  11. Beth says

    I taught in public schools for over 30 years. Loved every min. of it. Got to do what I loved, and enjoyed the terrific kids and community I worked in. Had excellent benefits, and lived a modest lifestyle/in a modest home. Was able to spend holidays and a little time in the summer with my own kids…was at home to go to concerts and ball games. Retired with a pension, which at 5% or 6% is equivalent to a little less than 1 million. It’s not 10 milliony or, modest home needs some work. No traveling around the world either. But I’m retired at 55. Money isnt everything.

  12. Dinky says

    Hi, great article! This is the second time I’m reading this after a long time. I just have a question and a suggestion. I always wondered this about professions such as investment banking and many finance positions. Isn’t it illegal for companies to make their employees work more than a certain number of hours per week? I know you sign a contract with the bank once you are hired but don’t they need to take into account state labour laws? Which brings me onto my suggestion, do you mind writing an article about common legislation (labour laws) in investment banking and various other finance posiitons? I’m sorry if you already did and I’m not finding it. Thanks. Great article once again! :)

    • M&I - Nicole says

      Thanks for your input – we will keep your suggestion in mind though unlikely for now unless we have strong interest from readers on this front

      No it isn’t illegal for companies to make you work longer than XX hours. I believe there’s a clause on the contract that states that but I’m not sure of the exact wordings

      • Thomas says

        In most countries, there are limitations to how many hours you can legally work, irrespective of how much you’re being paid. Standard clauses in contracts say stuff like “due to the specific nature of your position, your working hours cannot be known in advance”. The truth is that everyone accepts the crazy hours because this is the price to pay to get your bonus. It is a game that everybody plays but it is not uncommon that bankers not happy with their bonus would quit their bank and sue it in front of the competent court for making them work wy more than what the law tolerates. When they do not specify how much you can work, laws may specify that you should get a minimum of X consecutive hours of rest between two working days. SInce IB is less hot than it used to be, banks have promoted codes of conduct in order to protect juniors and keep them on the job for more than a year or 18 months.

  13. Eton '74, Trinity, Cambridge '79 says

    This article was made a while ago: Do most banks still offer housing stipends in Hong Kong? Is that just American Companies, or British ones as well?
    Also, is the cost of living in Hong Kong really much lower than New York or London? I’ve heard it’s higher?

  14. zhao says

    Honestly, i thought the pay as a first year IB analyst would be much higher. With the half or at least 30% of the bonus go to tax, the total after tax income is not high at all when you work 80-100 hours per week. So why still work for IB? is working for corporate finance at F500 companies better? since there is better work/life balance with the similar hourly pay? Thanks for the explanation.

  15. Clara says

    So for energy investment banking,will I be saving more if I go to places such as Houston? What is the approximate tax rate there?

  16. Syrym says

    M&I, great and very useful article !!!
    I have a question. What if one goes to work to save up as much as possible in some emerging market, such as Dubai or Qatar. Later, how hard will it be to transfer to NYC or London. Personally, I want to start off in Dubai then be relocated to Houston, I love oil and gas industry.

    • M&I - Nicole says

      I think it can be challenging unless you have the work visa and relevant work experience. It’s easier to transfer internally

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