Personal Finance Advice for New Grad (HCOL, comp better than expected)

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bogglehead125
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Joined: Thu Nov 23, 2017 9:40 pm

Personal Finance Advice for New Grad (HCOL, comp better than expected)

Post by bogglehead125 » Fri Nov 24, 2017 3:11 pm

Hi all! I've been a lurker for some time but just recently made an account (more or less at the behest of my dad, who is a fairly prolific BH - can you guess who?!). I'm about to graduate, and I'd like to head into the workforce with a good personal finance & investing strategy!

I am posting in search of a diversity of opinion about my future personal finances -- my dad is the only person I've ever really talked to about personal finance or investing. I have a lot of questions and am eager to learn from those on the forum. Here is a rough description of my expected situation. I understand that I'm incredibly lucky and privileged to have received the opportunities and education that I've been given, and to graduate debt-free. I will come out and somewhat bluntly say that this is not intended to be a humblebrag, but a humble request for advice. This will also serve as a sanity check!
  • I'll be working in NYC and living in the New York area (I am currently looking in Jersey City/Hoboken, Brooklyn, and Manhattan)
  • I will be making > $200k
  • I will be graduating debt free
  • I have some savings from prior internships (~$70k), with $14.5k in a ROTH IRA and the rest in taxable
My questions are as follows:
  • My understanding is that in my bracket I should max out my 401(k) and max out a backdoor ROTH. Does that make sense?
  • I have heard that it is nothing short of a tax arbitrage to live in Jersey City / Hoboken because one avoids the city tax (worth $6-10k/yr in my bracket as far as I can tell). Do people have opinions about this? My commute to work from JC/Hoboken will not be bad at all.
  • The intersection of personal finance and my friendships seems particularly awkward. My friends seem to know that I'll be doing well based on my employer. I'm not sure how to deal with comments/jokes about it (even well-spirited ones), or suggestions that I start buying dinner etc.
  • How aggressively should I be saving? I am of the opinion that I should be extremely aggressive, but my parents (mostly my mom) have been reminding me that I should enjoy myself and spend a little more than I'm probably intuitively comfortable with. I OTOH am of the opinion that one can speed up the hedonistic treadmill but not slow it down, and that living like a college student for at least a little longer is prudent. I am thinking of a fairly severe "pay yourself first" strategy where I direct deposit 50% of my post-withholding paycheck to Vanguard and invest my entire bonus (non-trivial amount of comp). What do people think?
  • Right now I am at a 90/10 overall AA. I am thinking of moving towards a 100/0 allocation once I start working, with the rationale that I am young/risk-tolerant and that my bonus seems somewhat negatively correlated with the market (I'm in financial services). Does that sound reasonable, or am I just performance chasing?
  • I have thought about a basic CC reward strategy. I will have a 2% double-cash and am looking at either a 3% dining rewards (SAVOR) or the UBER card (4% but subject to change and I am slightly concerned that it will become difficult to redeem for non-uber, etc.). I also have the amex double-cash for groceries (3%). Do people have opinions about savor vs. uber or general advice for developing cc rewards? My credit is somewhat sucky because I'm young, so I've leaned on my parents adding me as an authorized user on their cards in an attempt to boost my credit. Any tips for this?
Thanks! I am hopeful that the ensuing discussion will lead to more interesting questions that I haven't yet thought of :D

quantAndHold
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Joined: Thu Sep 17, 2015 10:39 pm

Re: Personal Finance Advice for New Grad (HCOL, comp better than expected)

Post by quantAndHold » Fri Nov 24, 2017 3:51 pm

Congratulations! It sounds like you already have it pretty much wired. Anything you get from any of us is just opinion, so take it for what it’s worth.
  • max out 401k + Backdoor Roth. Check.
  • if your commute from Jersey City/Hoboken is acceptable, it will certainly be cheaper than living in the city. Quality of life might suffer, though. If it were me, I’d start in NJ, then see how much it hinders your social life. Reevaluate when your lease is up.
  • your old friends? Just shrug and smile. If you continue to live modestly, they’ll get over it soon enough.
  • you clearly know that there’s a school of thought that you should continue to live like a broke college student for as long as possible. I’m not entirely convinced by that. There’s a middle ground somewhere where you can set a good enough budget to have a decent apartment with furniture in it and travel, but still save a large percentage of your salary. Mostly it’s about finding that budget and sticking to it.
  • 90/10 and 100/0 are basically the same. Pick one or the other and stick to it. You are correct that your human capital is the bulk of your portfolio right now. The rest is small potatoes.
  • credit card rewards seems to be a personal thing. How much you want to work at it, what do you spend your money on, what kind of rewards do you want. Probably worth starting a separate thread just for that. Or reading the many threads that are already in progress.

afan
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Re: Personal Finance Advice for New Grad (HCOL, comp better than expected)

Post by afan » Fri Nov 24, 2017 4:51 pm

Enjoying your life does not require spending a lot of money. Many people fall into the trap of assuming that the only way to be happy is to increase consumption. Nonsense.

In NYC, in particular, there are ways to spend any amount of money. They are hedge fund billionaires setting the top end of the market and wealthy people all the way down frustrated that they cannot compete.

You will find that living near NYC is extremely expensive, even if you are in NJ. Things that are free will be expensive. Things that you pay for now will be very expensive. I don't know about NYC and NY State taxes. But NJ taxes are not cheap and you will be paying an amount in federal taxes you will find amazing.

You have a chance to start building a good asset base. Don't get distracted by trying to keep up with others.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

2stepsbehind
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Joined: Wed Jun 20, 2007 10:03 am

Re: Personal Finance Advice for New Grad (HCOL, comp better than expected)

Post by 2stepsbehind » Fri Nov 24, 2017 8:41 pm

(more or less at the behest of my dad, who is a fairly prolific BH - can you guess who?!).
TomatoTomahto.

My understanding is that in my bracket I should max out my 401(k) and max out a backdoor ROTH. Does that make sense?
yes

I have heard that it is nothing short of a tax arbitrage to live in Jersey City / Hoboken because one avoids the city tax (worth $6-10k/yr in my bracket as far as I can tell). Do people have opinions about this? My commute to work from JC/Hoboken will not be bad at all.
Live in Jersey; you get more space/amenities than you will in NYC

The intersection of personal finance and my friendships seems particularly awkward. My friends seem to know that I'll be doing well based on my employer. I'm not sure how to deal with comments/jokes about it (even well-spirited ones), or suggestions that I start buying dinner etc.
For the latter, offer them their choice of items on the dollar menu. Otherwise don't make your finances a big deal/i.e. don't develop expensive habits/be cognizant of their own financial limitations and don't suggest activities that would be a stretch if you made 1/4th of your salary

How aggressively should I be saving? I am of the opinion that I should be extremely aggressive, but my parents (mostly my mom) have been reminding me that I should enjoy myself and spend a little more than I'm probably intuitively comfortable with. I OTOH am of the opinion that one can speed up the hedonistic treadmill but not slow it down, and that living like a college student for at least a little longer is prudent. I am thinking of a fairly severe "pay yourself first" strategy where I direct deposit 50% of my post-withholding paycheck to Vanguard and invest my entire bonus (non-trivial amount of comp). What do people think?
Aggressively. Your strategy seems fine.

Right now I am at a 90/10 overall AA. I am thinking of moving towards a 100/0 allocation once I start working, with the rationale that I am young/risk-tolerant and that my bonus seems somewhat negatively correlated with the market (I'm in financial services). Does that sound reasonable, or am I just performance chasing?
Performance chasing

I have thought about a basic CC reward strategy. I will have a 2% double-cash and am looking at either a 3% dining rewards (SAVOR) or the UBER card (4% but subject to change and I am slightly concerned that it will become difficult to redeem for non-uber, etc.). I also have the amex double-cash for groceries (3%). Do people have opinions about savor vs. uber or general advice for developing cc rewards? My credit is somewhat sucky because I'm young, so I've leaned on my parents adding me as an authorized user on their cards in an attempt to boost my credit. Any tips for this?
If you will have a lot of business spending, you should look into travel rewards cards/directing your spending to meet sign up bonuses. There are a number of threads on this subject here, on reddit personal finance, and on flyertalk.

Good luck!

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TomatoTomahto
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Re: Personal Finance Advice for New Grad (HCOL, comp better than expected)

Post by TomatoTomahto » Fri Nov 24, 2017 9:24 pm

2stepsbehind wrote:
Fri Nov 24, 2017 8:41 pm
(more or less at the behest of my dad, who is a fairly prolific BH - can you guess who?!).
TomatoTomahto.
:D

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TomatoTomahto
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Re: Personal Finance Advice for New Grad (HCOL, comp better than expected)

Post by TomatoTomahto » Fri Nov 24, 2017 9:33 pm

quantAndHold wrote:
Fri Nov 24, 2017 3:51 pm
[*]your old friends? Just shrug and smile. If you continue to live modestly, they’ll get over it soon enough.
I think his old friends, being good friends, will be fine, and the ones that aren’t, well, c’est la vie. I worry about new friends some. I’ve said, probably eye-rollingly often, that you somewhat know who your friends are when you’re down and out, but you truly know who your friends are when you’ve had some luck.

IngognitoUSA
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Re: Personal Finance Advice for New Grad (HCOL, comp better than expected)

Post by IngognitoUSA » Fri Nov 24, 2017 11:10 pm

The most important thing to keep in mind is finding the right spouse. It can either make or break your life, financially and emotionally.

Super Hans
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Re: Personal Finance Advice for New Grad (HCOL, comp better than expected)

Post by Super Hans » Sat Nov 25, 2017 12:41 pm

In my high-flying days just out of school, I lived in Manhattan and enjoyed myself, tried not to think much of the city tax, joined a private club, never used the apartment kitchen, vacationed around the world &c. For the most part, though, I was a prodigious saver. A complexity for me was that I never expected the good times to continue. I correctly anticipated I wouldn't be in the game for the long run, and I never was sure how to think about that compared to a more typical career path where income generally rises through the years. Now I make half what I did ten years ago. The mistake I made was being too conservative and maintaining an asset allocation sharply skewed to fixed income. I didn't know if I would have a soft landing or need to cover years of expenses while unemployed--a real possibility, though I ended up avoiding layoffs and transitioned smoothly to a sane, stable job. The risk aversion I developed in those early days continues to be a drag on my portfolio, unfortunately. But if you don't plan to be at GS forever, it might be worth thinking through whether 100/0 is the right AA.

bogglehead125
Posts: 9
Joined: Thu Nov 23, 2017 9:40 pm

Re: Personal Finance Advice for New Grad (HCOL, comp better than expected)

Post by bogglehead125 » Sat Nov 25, 2017 1:00 pm

But if you don't plan to be at GS forever, it might be worth thinking through whether 100/0 is the right AA.
https://www.youtube.com/watch?v=Lx4poQw1mZo (warning: excessive profanity that I didn't catch before posting -- I want to work for the Goldman Sachs!)

Super Hans, thank you for your post! That's an interesting point. I can definitely imagine staying at my job for the long-haul -- it's definitely not GS ( :D ) and as far as I can tell I will be doing math in a t-shirt for a sane number of hours. That being said, you've made the great point that I should not center my financial planning around staying at my current job in perpetuity.
Last edited by bogglehead125 on Sat Nov 25, 2017 1:34 pm, edited 2 times in total.

bogglehead125
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Joined: Thu Nov 23, 2017 9:40 pm

Re: Personal Finance Advice for New Grad (HCOL, comp better than expected)

Post by bogglehead125 » Sat Nov 25, 2017 1:03 pm

Enjoying your life does not require spending a lot of money. Many people fall into the trap of assuming that the only way to be happy is to increase consumption. Nonsense.
Very true!

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