The result: High earners who once spent on wants are now increasingly thinking about “needs” (needs being relative for $40,000-a-year-private kindergartens). Executives who once regarded their seven-figure bonuses as fair compensation for their grueling hours and rare skills are being forced to examine their lifestyle.
For many bankers, after-tax cash bonuses of less than $60,000 represent a fraction of the seven-figure checks they received in previous years. Many built their lifestyles on the assumption that those bonus checks would go on forever, becoming as routine as their February ski trips to Aspen and summer pilgrimages to the Hamptons.
“For any banker who’s been in the business more than a few years, this is a new reality,” says Michael Holland, who runs investment firm Holland & Co. “The smart and conservative ones probably prepared for this. But there are a lot of bankers who now have to cut back the whole consumption part of their lives.”
Burn, Baby, Burn
The lifestyle costs, or what bankers call their “burn rates,” can be substantial. For a typical top Wall Street executive with a family of four, the cost of a Manhattan apartment, household staff and private school can easily top $500,000 a year, consultants and bankers say. That doesn’t include the restaurants, clothing, second- or third-home upkeep and charity dinners that also are fixtures in finance.
“It’s like the Wilkins Micawber principle from Charles Dickens,” says Keith Whitaker, a consultant at Wise Counsel Research Associates, which advises wealthy families. “If you make $100,000 a year and your expenses are $99,000, that’s bliss. If you make $100,000 and your expenses are $101,000, the result is misery.”
For now, bankers are mainly trimming around the edges, in hopes that the income dip is temporary.
H. Dolly Lenz, one of New York’s top luxury real-estate agents, says bankers have cut back their spending in recent years. Few are downsizing, but many are postponing plans for bigger apartments or putting off a vacation-home purchase.
“Normally this time of year is one of the best times in New York real estate,” Ms. Lenz says. “Bankers would be spending the money they just received and we would see a flurry of activity. Not this year. It’s very quiet.”
While rentals in the Hamptons for this summer are strong, sales are weak, Realtors say.
A decade ago, Ms. Lenz says, Wall Street bankers made up the majority of her clients looking to buy in New York and the Hamptons. Now, she says, “I haven’t got a single one.” Her clients now are mostly entrepreneurs and dot-commers.
Wall Streeters also are learning how to trim their household overhead. Steven Laitmon, co-founder of the Calendar Group, a Westport, Conn.-based staffing firm, says many bankers have consolidated their staffs. A family that might have had a butler, private chef, laundress, nanny and cleaning person might now have only a cleaning person “who also does some cooking and is child-friendly.”
“I think some bankers realized they were over-staffed at home and now they’re trimming,” he says.