Many young aspiring business professionals only tend to look at finance jobs such as investment banking and private equity or consulting jobs at firms such as McKinsey, Bain, and BCG. The reasons for such a limited mindset is that these jobs are considered extremely prestigious, pay very well at all points of the career, and create tremendous exit opportunities. However, I am here to tell you that there are other ways to be successful, even more successful than taking those so-called prestigious jobs. If you only limit your mindset to those types of positions, you are putting yourself at a huge disadvantage career-wise.
What is Important
First, you need to think about what is important to you. The things that are important to you will change over time as you mature, get married, and possibly have children. I know that I’m a very different person now than when I was in college. Are you looking for a good work-life balance? Are you looking to contribute as much value to society as possible? Are you looking to become uber wealthy? Are you looking for a lot of job flexibility? Think deeply about each of these goals.
If You Are Looking For Work-Life Balance
If you want to have time to play recreational kickball, attend happy hour with your buddies, or spend time with your kids, then investment banking and consulting jobs probably aren’t for you. Investment bankers work 80+ hours a week at the entry-level. Top consultants travel at least 80% of the time and can easily clear 60 hours a week. There’s simply no time for work-life balance.
Instead, you may be better off at a different type of corporate position. Some people do two years of banking or consulting and then head off to an industry position at a higher level. That is definitely a feasible strategy if you can’t see yourself working such long hours for the rest of your life. Also, if you discover that you are extremely talented in a certain area within a company, you can get to the top of that area over time.
If You Want To Be Wealthy
As I stated earlier, people in finance and consulting get paid very well at every stage of their careers. Investment bankers make six figures coming out of college. Consultants with top MBAs can clear $200K their first year out of business school. Partners at these firms can generate over $1M per year. These jobs are a very risk-averse way of making a high-income in exchange for a lot of hard work, time, and expertise. As high as these numbers may seem, earning a salary is not the way to become wealthy. Your ability to save and invest your money or build businesses are the ways to become wealthy.
What is wealthy anyway? A partner at an investment bank, who has worked for 10 years at 80 hours a week with very little vacation time, can make about $500,000 a year in salary with a bonus that can put him just over $1M in total compensation. $500,000 in salary results in about $23,000 a month in New York (where most investment banking jobs are) after taxes, medicare, social security, etc. By retirement age, If he had spent everything and had nothing saved, is he wealthy? Definitely not.
If you max out your 401K retirement fund (assume $18,000 contribution per year) for 40 years straight (ages of 25-65) with no employer match and generate a 7% annual return, you’ll have approximately $3.7M dollars. If you withdraw 4% each year in retirement, that’s approximately $150,000 a year. I would say that’s wealthy, much wealthier than the high-earning investment banker who saved nothing. You’ll have almost $4M in net worth to rely on. You no longer need to work or answer to anyone while pocketing a six-figure income. Chances are, you’ll even have your mortgage paid off at that point. Furthermore, you don’t even need an extremely high-paying job to max out your 401K as long as you don’t live in a very high cost of living area.
Consistently investing and reinvesting in assets such as stock and real estate over time are tried and true ways of building wealth. Warren Buffett became a billionaire by investing in stock, reinvesting dividends, and buying entire companies that he thought were undervalued. By investing in stock and real estate, you make your money work for you 24/7.
Besides investing, how else can you become wealthy? You can run your investment bank or become a top executive at a Fortune 500 company. As a result, you’ll get paid a lot of stock, bonuses, and profit share that can be saved to generate more wealth over time. However, your upside is still limited. You’re still an employee who is being paid a salary, albeit a very nice salary.
So, how do you generate even more wealth? Think of ways to add value to people that are extremely scalable, have global reach, have little or inferior competition, and will generate high demand. Scalability is key. A successful local business will be profitable, but its revenues will be limited by its reach. An online business selling a physical product has extreme reach but limited scalability since there may be a high cost to produce each product. An online business with a unique digital product has both high reach and high scalability. With that type of scalability and reach, the sky's the limit to how much revenue it can generate. Obviously, it takes a tremendous amount of insight, ingenuity, and knowledge along with some luck to conceive of a product with that kind of demand, reach, and scalability. It also takes a lot of hustle and hard-work to make it work. That’s why there are so few billionaires.
Think of digital products and services such as the Uber app, Facebook social network, Taylor Swift music, and Google search engine. These are all products that have generated hundreds of billions of dollars in wealth in a very short time due to their scalability, demand, and reach. On the other hand, think of a law firm or consulting firm. These companies generate good money, but that money is limited since earnings will always be limited by billable hours, and each person can only bill so many hours per day. Your successful, local frozen yogurt shop may be able to create a lot of frozen yogurt, but its reach will be limited to only its surrounding cities.
If You Want to Retire Early
What if your goals are not to become uber wealthy, but to retire early? Then you need to figure out a way to generate a lot of passive income.You need assets that will work for you by generating income 24/7. Assets such as rental properties, dividend stocks, websites, intellectual property, YouTube videos etc. can generate passive income. Each one of these assets is another topic in itself, so I won’t be writing about them here. If you can generate enough passive income to live your desired lifestyle, then you no longer need to work for an employer as long as you can maintain that income and avoid lifestyle inflation. You can just maintain and potentially grow your assets. Perhaps you can even consider living in a cheaper state or abroad to lower your cost of living as your assets pay you back.
In today’s world, there are just so many different ways to make money and generate wealth. Each of these ways comes with its own set of pros and cons. The internet has brought to our fingertips the ultimate money making platform. Those who can think outside-the-box, learn quickly, and adapt effectively will be the most successful. If you open up your mind to all these different avenues of wealth, you’ll achieve your financial, personal, and career goals much more easily.
Professional Development and Personal Finance Blog