Let’s start today’s post with a little thought experiment.
To do that, I want you to meet Ryan.
Ryan is about to turn 40 years old and has a solid finance job that pays him $200k a year.
He lined up that gig about ten years ago, after completing a master’s degree and poking around a few lower-paid jobs for a while.
It took a bit of time, but once Ryan found his groove, you simply couldn’t stop him.
Ambitious and hard-working, he excelled at his job – and his personal finances.
Over the next ten years, Ryan saved 50% of his post-tax income (equating to $60k a year), and religiously invested the money into low-cost index funds.
As it turns out, those personal finance bloggers he’s been following didn’t lie.
Compounding works. And so, just a decade later, Ryan is about to enter that coveted millionaire territory:
Life is grand, isn’t it?
Well, perhaps not. And if Ryan was to be perfectly honest, he would tell you he is somewhat concerned about the journey ahead.
You see, Ryan is good with numbers. He can certainly forecast out the years ahead:
However, what looks like a finance blogger’s wet dream definition of nirvana does nothing for Ryan.
Zero. Absolute zilch.
As a matter of fact, it fills him with a sense of utter dread.
Beyond The Spreadsheet
You see, Ryan is tired.
On average, he works about 60 hours a week, but the workload can spike when he closes the quarters and the years. Also, the annual budgeting process is a royal pain in the backside.
Overall, the finance organization hasn’t grown as quickly as the company.
While Ryan is constantly getting better and faster at his job, there’s a never-ending stream of new responsibilities on his plate.
It was fine when Ryan was in his early 30s. But then he got married and now there are two little boys to look after.
Being a weekend dad is far from what Ryan had in mind when he was starting a family.
The other problem Ryan has is one of diminishing returns.
I mean, it’s not like he is doubling his net worth every year, like he did at the very start of the journey.
These days, the reward for yet another punishing year of work is just a slight uptick in “the number”.
So Ryan is doing a lot of soul-searching.
He’s not as fit as he used to be, but there just isn’t enough time to work out.
He’s not spending nearly as much time as he would like with his wife.
Most importantly, he’s not sure the grind is worth it.
Ryan stares at the spreadsheet and sees the price:
Two million dollars in exchange for what should be the best decade of his life.
At this point, you can cut the argument a couple of ways.
You can tell Ryan to suck it up. I mean, the man will retire at 55 with five million in the bag. Give me a break – and put in those damn hours!
Alternatively, you can tell him to peace out.
Take a lower-paid, less demanding job. Even if Ryan doesn’t contribute another cent to his portfolio, he will end up with more than three million at 55. Not too shabby.
The challenge is that Ryan doesn’t like either option. And to be perfectly honest, I get it.
You see, Ryan isn’t alone. There are plenty of highly ambitious engineers, executives, lawyers, consultants, and yes – bankers – facing the same issue.
They want to build real wealth.
Not just a million – or a couple. No, these folks are angling for a much higher number, perhaps north of $10m.
At the same time, they don’t want to sacrifice their life and health in doing so.
You may say that their problem is unrealistic expectations.
But in fact, it’s something entirely different. It’s the fact that:
What Got You Here Won’t Get You There
If you’ve been reading this blog for a while, you’ll know that I am very skeptical of what I call entrepreneurship porn.
Nothing quite like those college
dropouts “influencers” denigrating the 9-5 jobs (that they weren’t going to get in a million years in the first place) just to build a Twitter following and sell some Gumroad courses.
But the reality is that while a highly-paid career is one of the best ways to make that first million (or a couple), it will never make you truly wealthy.
The math is simple.
Over time, your annual savings account for an ever-smaller portion of your portfolio.
Pay rises are harder to come by. The cost of living is going up. And so are taxes.
As such, the increase in your net worth will eventually converge to whatever the market returns are.
History suggests that to be somewhere in the 8% range.
Unless you managed to reach escape velocity (which I define as a net worth of around $5m), you are pretty much guaranteed to stay on the hamster wheel, however plush it may be.
This is why you won’t find lawyers or bankers headlining any sort of a wealth list – but they sure headline many lists of unhappiest professions out there.
And the only way to get out is to get some skin in the game.
The good news is that there’s a spectrum of options here, especially once you’ve got some capital saved up.
At the bottom end of the spectrum, you’ve got things like real estate investing.
Assuming you can put money to work at a 10-15% IRR, you are bound to end up far ahead of where the stock market alone would take you, especially once you compound it over 10+ years.
Taking things up a notch, you could consider angel/venture investments.
The past decade has seen massive democratization of private investing.
It will take a decent chunk of capital and many investments (the majority of which will go to zero), but there’s also a chance of stumbling onto the next Revolut or RobinHood.
Another path, beloved by many a banker and consultant, is to join a start-up in order to get your hands on some skyrocketing equity and stock options.
I personally know a former banker who left a very senior position (think European group head level) in order to join a tiny but fast-growing tech business as a CFO.
Five years later, he cleared well north of $100m after a successful IPO, much to the amazement and envy of his former colleagues.
Finally, you could try to take the swing at the grand prize.
Launch a business of your own, hold on to as much equity as possible, and walk away wealthy beyond your wildest dreams if things work out.
The big problem, of course, is that all of the options above are mutually exclusive with that highly paid job of yours.
It’s not just the lack of time.
The reality is that your employers don’t want anyone getting in the way while they get their pound of flesh. Hence all the restrictions on outside business activities, investments, and directorships.
The other problem is your own expiry date.
Sure, there are exceptions. But if you are on the wrong side of 40, make no mistake – you are almost out of time.
Your skills are becoming dated, and there’s no place for old geezers in the new economy. Revolut’s new CFO is 29 years old.
At the end of the day, there’s nothing wrong with a long and illustrious professional career. As a matter of fact, it’s still one of the best ways to get started.
But if you are setting your sights really high, you better be aware of the limitations.
Yes, a well-paid job will help you get much closer to your goal. But it will never take you to the finish line.
Thank you for reading!
About Banker On Fire
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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