7 Basic Principles of Wealth

What Investment Banking Taught Me About Money

Hey friend,

So much has happened since my last newsletter. I quit my job in Dubai, and I have basically spent the last 4 weeks 'transitioning' from being employed to being self-employed. This includes getting fully registered as a business in Dubai, sorting out visas, and more. I still have one more huge transition to make, but besides that, I’m feeling a bit more settled and ready to delve back into the topics I love talking about.

I have spent over 3.5 years working in investment banking, and though I have left now, there’s so much it has taught me about wealth and money that I thought I’d share with you guys.

The Importance of liquidity

When assessing the financial strength of clients, one key aspect we’d always consider is liquidity for banks and cash flow for corporations (similar-ish concepts). This essentially examines whether an entity has sufficient cash or equivalents to meet its financial commitments for the month. If a bank does not have enough cash to fulfil its obligations even for one month, it would be deemed insolvent. It doesn’t matter if millions in revenue are booked in the following months; if it doesn’t have enough cash for the current month, it fails.

We should think of ourselves in a similar way. If you are constantly borrowing from your future paycheck — 'Hey, can you borrow me £100? I'll pay you back when I get paid next week' — you’re operating as an insolvent entity. Keeping your monthly expenses below your monthly income should be your primary focus for improving your financial health.

Key Person Risk

If a company has too much riding on one person or a group of people (e.g., no clear succession plans, knowledge is not distributed), then it is exposed to key person risk. A great example of this is with the ‘Crypto King’ Gerald Cotten, who died mysteriously and was reportedly the only person who knew how to access the exchange wallets where millions of dollars worth of cryptocurrency were stored. The fund became insolvent, and thousands of investors and users lost their money because they did not foresee the potential impact of key man risk.

In the same way, if you only have one stream of income or rely on someone else to provide for you, you are most definitely exposed to key man risk. This is why it’s so important to diversify your income, even if it's just through investments. And if you do have someone taking care of you financially, you still need to have your own.

There’s Always More
Lastly, you might as well get good with your money now because there is also more to want. People often look at those who work in banking and the salaries and assume that if they were in the position, then all of their financial worries would be appeased. However, I can tell you that many of those same bankers are saying the same about those who work in Private Equity or Hedge Funds. With every level you get to, you’ll always see the next and want more. But at the end of the day, having more money doesn’t mean you’ll get better at stewarding over your money as people seem to think; having more money will just magnify whatever money habits you already have. So yes, by all means, aspire for more money, but get good with whatever you have now so that you’ll continue to steward well when you have more.

I hope that was helpful. I discuss four more basic principles I learned from my time working in investment banking in my latest YouTube video:

I’ll leave you with a quotation that I really liked when writing up my notes from a book I read towards the end of last year:

If you want your life to have impact, focus it! Stop dabbling. Stop trying to do it all. Do less. Prune away even good activities and do only that which matters most.

📚 You can find the book here - https://amzn.eu/d/6vyjS5l