Why bankers shouldn’t splurge after getting their bonuses
It is that time of the year when finance professionals start to think about their bonus and the big items they are going to buy. When I received my first large bonus as a banker, I was also excited about spending it, just as you would expect the average 30-year-old to be. However, even though I could afford one, it wasn’t a Rolex that I bought, but a Timex.
Why? Because I was hoping to achieve financial independence by my mid 40s and I knew that this would not happen by accident, even in banking.
There are three components every investment kit must have: Where do you make the savings? How do you spend? Where do you invest?
Like most Asian young adults, I continued to stay with my parents even after finishing my studies and starting my first job. The idea was to save up to afford the down payment for an apartment of my own. Being ‘forced’ to set aside some money each month to pay for a mortgage drove my decision. Without the money for the down payment, I would have to rent, and the rental would go to the landlord, not towards my fixed asset. Owning a property hedges against inflation too.
The second life decision I delayed and which paid off handsomely was the decision to buy a car (and cars are very expensive in Singapore). I delayed this purchase rather than buying a car the moment I could afford it. I don’t believe in taking a car loan as the interest rate is much higher than that of a housing loan. I have always paid for my cars in full.
So does this mean life is just about delaying gratification? No! Then what was I spending money on? Social capital and upskilling.
By social capital I mean the goodwill with people you have accumulated over the years and the relationships you have built. It’s a bit like putting money in a bank – every time you help someone, you deposit some social capital. It will grow over time because the people you help today will become more senior tomorrow. For example, I kept in touch with many of my ex-colleagues. When one of them moved from Citi to UBS Investment Bank in Hong Kong, he alerted me about a managing director position that required skill sets that matched mine. I got the job.
To build your social capital, you can (for example) buy lunch, travel to meet your connections (Covid rules allowing), and treat people with respect, no matter how junior they are. When you build social capital with others like this, you will be rewarded over the long run. Recently, I began to realise that the saying ‘your network is your net worth’ is actually true.
And staying liquid helps too – keeping two years of earnings in liquid investments, allowed me to take risks in my banking job. I felt free to speak my mind at work rather than saying things people liked to hear. Because of that, I could contribute more and get recognised.
Upskilling pays off
The best investment young finance professionals can make in the early stage of their career is to invest in themselves – upskilling’s pay-off is huge if you have some patience.
One day, my life insurance agent told me he had just attended an ABC course, ‘Awareness Before Change’. It was to train, more like brainwash, insurance agents on how to face rejections and still stay motivated. I knew this ABC course was what I needed to advance my banking career. I asked my agent to sign me up, and he did. I paid for it out of my own pocket and took leave from work to attend the training. Among the few hundred participants, I was the only one not from the insurance company.
That five-day course changed my life. By the end of the course, I felt I could take on any seemingly impossible task. The resilient mindset I developed helped me sail through the great financial crisis in 2008 and other turbulent situations during my 20-year banking career.
Still, the most valuable investment I made was in social capital – it landed me the jobs in Citi Singapore and UBS Hong Kong, without which I would not have the financial capital I have today. It is that lesson that motivated me to keep writing for my LinkedIn followers and offering them career advice.
Don’t be tempted to splurge on luxury goods, the thrill won’t last. A few finance professionals I know are miserable in their jobs but can’t quit because they are still paying for their exotic cars and expensive renovations of their properties. I am happy with my small orange Audi and a little garden to care for. I value the freedom to choose what I do, when I do it, and who I do it with.
Eric Sim, previously an MD at UBS Investment Bank and an Adjunct Associate Professor of Finance at HKUST, is the founder of Institute of Life and the author of the book Small Actions: Leading Your Career to Big Success.