How I bought an apartment, funded business school, and still had fun in the midst of difficult economic times
When it comes to timing the market and getting that anticipated bonus you’ve worked hard all year for, I couldn’t have gotten unluckier. I started my career in 2014 as an investment banking analyst in an oil & gas coverage group. In June of 2014, when I finished training and first hit the desk, the price of oil was $105 per barrel (West Texas Intermediate, or WTI). By December of that year, prices had fallen to $59 per barrel. It quickly became uneconomical for exploration and production companies to keep on drilling, meaning there was no need for the equity and debt capital that was typically raised on a quarterly basis. Similarly, the unpredictability of how much lower prices would fall meant M&A deals were put on hold, and in several cases, pending deals were pulled completely. As you can imagine, this wasn’t great news for our bonuses or buyside recruiting opportunities.
In June 2015, I transferred groups, moving to London and joining a European coverage group. That very same month, Greece missed its $1.7Bn payment to the IMF, becoming the first developed country to default on the Fund. Exactly one year later, the UK voted to leave the European Union via referendum. The implications of these events were massive, fueling fear and speculation that other countries would similarly leave the EU. There’s nothing worse for the financial markets than shock waves and uncertainty. The sudden and significant flee to safety pushed government yields to negative values, and the British pound dropped to its lowest value against the dollar since 1985. Yet again, deals were suddenly nonexistent, and buyside firms paused recruiting processes or pulled offers altogether.
My banking career felt like one massive crisis after another, and while I did eventually move to the buyside, I chose to stay in London, where even in the best of times, salaries and bonuses are incomparable to what you’d expect to see in the U.S. Yet, at 27 years old, I had saved enough to put 15% down on the 2-bedroom Victorian walk-up I had long been wanting to buy in one of London’s most prime neighborhoods. A year later, I started business school and funded the entirety of my first year with my savings, and I did all this while still enjoying those first 5-years of my career. How? Through planning ahead, diligently budgeting, and understanding how to time the market. If you’re currently recruiting or if you’re an incoming investment banking analyst, you’re likely worried about the similarly challenging economic circumstances you are likely to face. These three simple steps are how you can make financially smart choices without needing to sacrifice your personal life.
Step 1: Plan Ahead
The most important part of making financially sound choices is to have a sense of your 5-year goals. While this doesn’t have to be overly sophisticated or even very detailed, you should broadly assess what you want to achieve over the next five years. What are your financial priorities? I knew I wanted to purchase an apartment to live in and eventually rent out, and while I wasn’t certain about business school, I knew I wanted to at least apply to a few of my top choices. Your goals may be vastly different; perhaps you’re in a serious relationship and want to get engaged. Maybe you’re married and expect to have a baby over the next few years. Or maybe you want to take a year off and travel the world. Rather, perhaps your biggest goal is to save enough to help support your parents or other family members. Whatever your personal intentions, you can’t expect to achieve a goal without understanding and planning for it first.
Once you’ve identified what matters most to you, you’re then in a position to plan how much money you want to set aside each month to achieve your goals. While bonuses are certainly not a guarantee, if you’re thinking at least 5 years ahead, it’s fair to assume that the majority of your savings will still come from your bonus – as long as you’re ok with being slightly flexible with the timing of your goals. I was hoping to buy a property by 25, but the way things ultimately worked out, I had to wait another 2 years before I could make that happen. My business school goals somewhat changed too. I initially didn’t want to take out any student loans, but certain career decisions coupled with the opportunity to take out loans at low rates led to a shift in my initial thought process.
The way I primarily managed my savings was to think of what I set aside on a monthly basis as more of an “emergency fund”. It was important for me to know I could financially sustain six months or so of unemployment if anything were to happen. The percentage you save from your monthly salary will change over time and should correlate with career choices, such as moving cities, positions, or firms. My bonus, however, I saved almost all of it, at least 80% each year. I viewed that annual income as what would make up the majority of what would go toward achieving the goals I had set aside for myself.
Step 2: Diligently Budget
It’s nearly impossible to achieve your financial goals by just “winging it”. Most people never get to where they want to be because they fail to put together a budget and diligently stick to it. So how exactly do you develop a budget? I started with my monthly after-tax salary and, from there, subtracted necessary expenses such as rent, utilities, and other reoccurring expenses. From there, I took out the amount that I wanted to save on a monthly basis (generally, you can start with a percentage of your salary and then adjust from there). Whatever is left is your discretionary spending, which I categorized into buckets. These categories will certainly vary between individuals; for me, I generally used the following: groceries, restaurants/eating out, bars, travel, shopping, personal care/gym, healthcare, and others. Ideally, your categories should cover enough commonly used expenses to whatever ends up in “other” is quite minimal. For each of these categories, I allocated a certain monthly spend. If you feel you’ve run out of your “discretionary” spending, you can then adjust your savings accordingly (e.g., perhaps you save less now and increase the percentage as your salary increases).
So now that you have your budget, how do you keep track of your expenses? I’ve had some friends use their credit card apps or manually budget via Excel, but personally, I have always subscribed to budgeting apps that sync to your bank accounts and credit cards, auto-categorizing your spending for you. My recommendations are Mint or PocketSmith. I used Mint religiously while I lived in the U.S., but then switched to PocketSmith once I had international bank accounts I wanted to integrate into my budgeting (PocketSmith seamlessly converts currencies and allows you to sync accounts from all over the world). Initially, you may have to do a bit more manual categorizing/correcting, but over time, both apps learn how you want certain expenses categorized and will do more of the work for you. There will be, naturally, months where you go over your budget, but diligence then comes into play by trying to make up for the overspending by underspending in the following month. Both apps allow you to do so by shifting the dates of certain expenses (for very large unexpected expenditures, I would sometimes break these up into upcoming months) or increasing/decreasing your expenses as necessary.
Step 3: Time the Market
While you’ll never be able to perfectly time the market, you certainly have some control over when and how you make significant financial expenditures. I bought my apartment in the midst of COVID, which to some may sound like an absurd decision, but I had done enough research to know that for me, it made a lot of sense. I had been tracking real estate prices, specifically for that particular apartment, for quite some time, leading me to buy when the owner decreased the price enough to make the apartment much more affordable for me. I also got a significant tax break, as the UK government was offering lower stamp duty (which is essentially property tax paid, but paid once and at time of purchase) during the pandemic. Interest rates were still very low, so my mortgage rate was also extremely attractive. Lastly, given the apartment purchase was the majority of my net worth, I had chosen a relatively stable part of London to buy in – giving me additional comfort that valuations would likely not significantly decrease over the longer term.
When it came to funding business school, I did so by liquidating a portion of my investments (which were mostly in S&P index tracker funds), as soon as I made the decision to pursue an MBA. The market was at an all-time high, and sure, it may have gone up more, but I knew I would need that money, which made the risk of waiting for further increases make less sense. In some ways, I got lucky; the pandemic happened not long after, but in other ways, it was planning ahead and utilizing what were already attractive returns to my advantage. The same thought process can be used when deciding whether it makes sense to take out debt or instead finance an expenditure with your savings. Part of why I chose to take out student loans, despite being able to afford to pay more out of pocket, was because rates were still attractive, yet the market was already showing signs of a possible recessionary period. Interest rates were expected to increase, as they eventually did, which I realized implied that taking out a fixed-term loan and instead investing my cash was likely the better decision. Having a simple understanding of where markets are and the implications of where they’re expected to go can do wonders for your decision-making.
While this sort of planning and thinking may seem excessive or unnecessary to some, the reality of life is that you never know what will happen, and you want to protect yourself from a downturn whilst ensuring you will achieve your longer-term financial goals no matter what happens. Sure, not budgeting may have left room for a few more nights out or trips abroad, but 5-years down the line, I’m grateful I was as on top of things as I was. I also never felt like I missed out- which is an important point to make. Simple steps such as planning and managing your expenditures are typically sufficient to make the most of your early 20s whilst still ensuring you get to enjoy life to the fullest.
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