Going Broke Earning Five Million Dollars A Year
My 89-year-old father has been in the hospital all week so that’s where my attention has been. No audio this week.
I enjoyed writing this post last May, using current numbers to analyze the financial life of Sherman McCoy, “hero” of the ‘80s novel Bonfire of the Vanities.
In Tom Wolfe’s ‘80s novel Bonfire Of The Vanities, Wall Street WASP striver Sherman McCoy is “going broke earning a million dollars a year.”
My title’s not a typo. The equivalent of McCoy’s one million circa 1985 is five million in 2025. 1 Later in this post I imagine how Sherman McCoy, transported to 2025, might spend his way into insolvency, extravagant details included.
I loved Bonfire, especially the way Wolfe gives specific details on Sherman’s financial life––the crushing cost of servicing his ‘80’s high interest rate personal debt to buy his envy-inducing P ark Avenue apartment, the costs of keeping up his Southhampton home, private school tuition for his young daughter, his wife’s decorating obsession, and so on. 2
Bonfire was the last modern novel I know of that makes an attempt to capture the totality of a wealthy character’s financial life. I have theories on why that is, but that’s for a future essay.
“Master of the Universe”
That’s the nickname Tom Wolfe has Sherman McCoy give himself based on a line of toys, and it’s become immortal. Thirty-eight-year-old Sherman believes that a Master of the Universe like him, earning a million dollars a year, should get whatever he wants. Money should not be a constraint
Sherman and his equally striving wife spend stupendously to keep up with their social set who are mostly older and richer. Their spending more than exhausts Sherman’s entire million-dollar- income. Sherman has a lot of income but minimal savings.
A blank slate of risk
When people say a person is “wealthy,” they could be making a judgement based on what they observe of that person spending. Or they could mean a person has a big income. Or that the person has a lot of assets in excess of their debt, otherwise known as net worth.
Spending, income, and net worth are very different barometers.
Sherman has a big income but it’s not guaranteed. Worse, he has no special talent that would enable him to make that income in a different setting. He happens to be in the right place at the right time with the right connections. 3
People think Sherman is “wealthy” because of his lifestyle, but they have no idea that he’s spending all his income. For Sherman, each year is a blank slate of risk. He could be fired, he could get sick, get a massive pay cut because of poor performance, or, as in the novel, be involved in a hit and run fatality while driving with his mistress. A career ending event.
In polite society no one will ask “What’s your net worth?” Except if you want to buy a co-op apartment in Manhattan. Then the half dozen strangers on the co-op board, your future neighbors, will ask you to parade nude, financially, in front of them. 4
Translating Income into Net Worth
The five million dollars that Sherman-2025 earns can be translated into a net worth equivalent. A short hand way of doing this is to take the after-tax income available to Sherman-2025 of two and a half million dollars and divide by 3% (same as multiplying by 33), which produces a net worth of $83 million.
The 3% number is not plucked from the air; it assumes a 5% investment return on net worth and a 2% inflation rate. Given those assumptions, $83 million is the amount you’d need to have in order to support spending of two and half million, inflation adjusted, in perpetuity. 5
Net worth is much more reliable than income. If some or all of your income comes from net worth, there’s no blank slate of risk at the beginning of each year. Net worth can certainly fluctuate, particularly if it’s concentrated in a few correlated investments, but the level of risk is still far lower than Sherman’s. And in most cases, it’s not an either/or situation. Many, if not most, wealthy people will have both an income from what they do as well as income from the net worth they’ve built up.
The expense of appearances
If you’re a Bonfire fan, you might recall how Sherman and his wife find it necessary to hire a town car to take them to a party a few blocks away and then have the car wait for them for hours to take them home. It would have been an insupportable social disgrace to have fellow guests see them entering on foot or hailing a taxi upon leaving. That behavior seems anachronistic in 2025. Now there’s Uber!
I’ve made Sherman-2025 an investment banker who must preserve appearances in different ways. His clients are mostly hedge fund and private equity guys (the “buy side”) who are far wealthier than he is in terms of both income and assets.6 It’s important that Sherman fits in with them, be at the places they go to, have similar experiences, have his daughter play with their children. Not only does that help him get and retain clients, but also, one blessed day, he might be able to flip from the sell side of investment banking to the buy side of investing other people’s money and become net worth wealthy.
Warning: Wealth porn ahead
Below I’ve done my best to replicate the Sherman-1985 lifestyle in a 2025 context and in a detailed category by category format. I’m aware this could be seen as “wealth porn” and be frowned upon (or spat upon) at a time when many people are furious about economic inequality and the behavior of some of the wealthy.
But just as Sherman McCoy in Wolfe’s Bonfire is a fictional character so is his derivative, Sherman-2025. In fact, Sherman McCoy is an outstanding example of my contention that contemporary fictional wealthy characters must be awful and must be made to suffer. In McCoy, Wolfe created an entitled Wall Street jerk brought low by his hubris and moral failings.
First, after-tax income
Sherman’s $5 million a year is all ordinary income and is taxed at an all-in tax rate of 50% taking into account Federal, State, City, FICA, and Medicare tax. That leaves $2.5 million of disposable income.
Manhattan Apartment
Because Sherman is income rich but relatively net worth “poor,” he doesn’t have the money to buy a “prestige” apartment, and he’s certainly not a viable candidate to pass the Board of a Park Avenue co-op. Those co-op Boards require significant liquid net worth in excess of the price of the apartment you want to buy before they will accept you into their buildings. 7
Nevertheless, Sherman and his wife must have a drop-dead apartment like his 1985 doppelganger. As Wolfe described McCoy’s apartment in Bonfire,
“…the sort of apartment the mere thought of which will ignite flames of greed and covetousness under people all over New York.”
The solution is to rent rather than buy an envy inducing apartment. So Sherman lives in an apartment at 15 Central Park West, a new building designed successfully to look like an older, pre-war building. His apartment costs $60,000 a month, or $720,000 per year.
Picture below from StreetEasy. 8
The Hamptons
Sherman doesn’t have the savings to buy a house in the Hamptons. He has to rent there too. His image demands that he has to be South of the Highway in an estate area, where his clients own houses. He and his wife want a house large enough for house guests. They need at least five bedrooms.
They rent in East Hampton near The Maidstone Country Club. (Perhaps Sherman-2025 belongs.) The house rents for $425,000 for the “Season,” meaning Memorial Day Through Labor Day. 9
Children
In the Manhattan bubble, kids are super expensive. Tuition at private school is $70,000 for Sherman’s six-year-old daughter compared to about $7,000 in 1985.
They have to have a full-time nanny for their daughter: $75,000.
One of Sherman’s clients told him “It’s a crime” not to take advantage of annual tax-free giving to their daughter. In 2025, Sherman and his wife can give $36,000 annually to their daughter without any tax being paid.
Then there’s new clothing for their daughter, toys, after school and summer activities including equestrian lessons ––another $30,000.
Total cost is $211,000.
Vacations
Flying business yes, flying private no, unless invited on planes owned or chartered by Sherman’s wealthier clients/friends.
Two family trips:
Skiing at Beaver Creek for President’s Week requires two rooms at the Park Hyatt Beaver Creek (the nanny stays with the daughter) and a private ski instructor for their daughter. Cost: $50,000.
For Spring Break in March, two rooms at the Four Seasons in Hawaii. Another $50,000.
In the fall a week in Paris for Sherman and his wife. $25,000 not including shopping.
Total travel: $125,000.
Charitable Contributions
Sherman’s wife is on the Board of three not-for-profit organizations. She’s expected to give $100,000 a year to each. She asks her friends to attend the organizations’ annual galas and contribute smaller amounts––$10,000 here, $25,000 there.
In order to ask their friends for contributions, she and Sherman have to be prepared to reciprocate by giving to their friends’ favorite causes. Sherman also has to give to the favorite charities of his best clients. In addition, Sherman has to give at least $25,000 a year to their kids’ school’s annual fund.
On the gala invitations and in the annual giving report of the school, everyone can see who’s given how much based on which giving tier they’re placed in––Platinum, Diamond, Emerald, or Quartz. People scour the lineups of these tiers like baseball fanatics scour box scores.
Charitable contributions add up to about $500,000 a year, a neat tithe or tenth of Sherman’s pretax income. The contributions shield about $200,000 of tax so the after-tax cost is $300,000. 10
Health and Welfare
Sherman pays for his family’s health insurance through his bank’s plan. It costs about $5,000 a month or about $60,000 a year.
The insurance plan is top notch, and Sherman and his family are young and healthy so they bear only $10,000 a year in non-reimbursed medical expenses, mostly dental.
An investment banker must present a good physical image, and Sherman’s wife is a fanatic about exercise.11 Flab in their world might signal sloth. Sherman and his wife both work out with private trainers three times a week. Six sessions at $200 each=$1,200 a week=$60,000 a year.
Sherman’s wife is proactive about her beauty treatments and spends about $40,000 a year on facials, injections, skincare products, manicures, and pedicures.
Total is $170,000.
Clothing and accessories
The wife of a five-million-dollar husband assumes she should be able to buy whatever she wants. In the context of five million, why can’t she buy a $20,000 Chanel suit or a $3,000 Prada cashmere sweater?
Or a limited edition Hermes Birkin bag, which she buys for $30,000 on the secondary market because she doesn’t want to wait to be allowed to buy one from Hermes. (According to Sotheby’s, the secondary market price is 2.4x the price at Hermes.) 12
I have a good friend who is a personal shopper to a wide range of women. I gave her the profile of Sherman-2025’s wife. Her estimated range of spend was $150,000 to $250,000. Using the midpoint, that’s $200,000.
Household and Miscellaneous
Sherman and wife have a housekeeper who has the same cost as the nanny: $75,000
Two cars leased and garaged: $20,000
Insurance: renter’s, auto, collectible, and liability : $50,000
Food and restaurants: Three meals out per week at $350 each. Plus groceries, which in the city cost $300, and in the summer cost $600 because Round Swamp in the Hamptons is so expensive.13 Total: $70,000
Club Memberships- Dues at a New York private dining club at $10,000 plus a tennis club and lessons in the summer at $10,000. Total $20,000.
Total Household and Miscellaneous: $235,000
Total Identified Spending
The numbers above add up to $2.2 million compared to $2.5 million in disposable income so there’s about $300,000 left over.
But I’ve left out some important categories.
Furniture, art, and jewelry.
If Sherman-2025 is having an affair like his 1985 predecessor, there’s the cost of the affair, which might include rental of a “love nest” nearby or hotel rooms.
Sherman would probably belong to a golf club although between his work and his affair he might not have time.
Utilities would be paid by Sherman on his two rental properties.
Various streaming (and Substack!) subscriptions, but more significantly, outrageous bills from the A/V company when their televisions and remote controls inevitably malfunction. (This one’s personal!)
Various one-time expenses that occur every month.
The Real McCoy
If Sherman McCoy, either 1985 or 2025, is a realistic character, and I believe he is, what can we glean from his spendthrift ways?
Seeing what a person decides to spend their money on is often a poor guide to their financial situation. If Sherman-2025 loses his job, he has nothing to fall back on. His wife, grown accustomed to a certain standard of living, probably would leave him. She certainly will when she learns about the affair.
When Sherman’s whole life blows up, everyone will be surprised if not shocked. How could a Wall Street guy, given his facility with numbers, put himself in such a fragile position when he could have been saving a great deal of his income during his years of plenty?
We say that the past is not prologue to the future but we don’t really believe it. When prosperity has been the status quo for many years, it’s difficult to remember that fortune is fickle. Right now, as I write this, everyone I know inside the Manhattan bubble says they are worried about the future of the economy, among other things. But I have no evidence that the wealthy are changing their spending habits. I’ve looked for a tightening trend and it’s not there yet.
Those who experience a long stretch of good times can become soft, vulnerable, fragile to shocks. Joseph gave his Pharoah seven years of plenty. We in the privileged bubble have had seventeen.
Question for the comments: “Who is rich? He who is happy with his lot.” Is it possible for anyone today to truly feel that way?
The comments from last week’s post on Beauty, Class, Wealth inspired me to post this one minute video note highlighting a few of the most interesting comments.
According to Measuring Worth, the income equivalent of $1 million in 1985 is about $5 million in 2024. Income equivalent is different than the CPI adjusted equivalent in that it compares GDP per capita between different periods.
Measuring Worth is a great tool to give context to amounts in different eras. it especially helps when reading 19th century British literature,
Tom Wolfe was a great writer but not so great at math. In Bonfire, he uses different tax rates for Sherman McCoy in different places and tax adjusts some items and not others. I give him credit, however, for being explicit about what things cost. I took a crack at a spreadsheet of Sherman McCoy’s spending as detailed by Wolfe in Bonfire in this post.
Elton John went bankrupt through lavish spending but he’s Elton John so his talent was intact and he recouped his fortune.
Co-ops today require potential buyers to provide their Boards with a few years of tax returns and a specific balance sheet with supporting third party documentation. It’s ridiculous overkill, and it hurts the price of co-ops because many buyers won’t go through the complete financial striptease.
An example: let’s say you have $100 million and you think you can earn 5% after tax consistently and you think long term inflation is going to be 2%. You spend $3 million. Your $100 million increases by $2 million to $102 million ($5 million of investment income minus $3 million of spending). At the end of the year you have $102 million which adjusted for 2% inflation is back to the original $100 million. There’s nothing magical about the assumptions but the formulas are useful.
The buy side is where investors’ money is managed for fees. The people at the top of the pyramid on the buy side typically make hundreds of millions a year. For example, in 2024 the top 25 hedge find managers made a combined $30 billion according to this report by Institutional Investor, which may be paywalled.
The sell side are the bankers who act as agents in putting together deals for fees and traders earning commissions. Sherman-2025 is a banker.
We bought our first apartment, a one-bedroom in a co-op in 1985. I recall the transaction being very informal. No board interview. The seller knew my wife’s family. Our closing was on a day that NYC was expecting a hurricane so banks were closed. We closed with a personal check to the horror of the seller’s lawyer.
Here is the StreetEasy listing. Real estate descriptions contain some of the most atrocious writing to be found anywhere.
15 CPW is described on StreetEasy as
“the lovechild of prewar charm and postmodern architecture.” and “If 15 CPW is an epitome of luxury preposition [sic?], the price tag attached to its apartment is no longer measured by dollars; it is a symbol, a status, a ticket to an inclusive club. Once you are here, you are part of the family, you are safe at home, a home of richness, exclusivity and democracy unheard of for a long time to come.”
South of the Highway means south of Route 27, south being in the direction of the beach and ocean. The price quote of the rental is from a friend who owns a house on Egypt Lane near The Maidstone Club.
In NY you don’t get a full deduction for charitable contributions.
In Bonfire, Sherman’’s wife and her friends are described as too thin with “scrawny shanks,” exercising until they looked like “social x-rays,” another memorable phrase coined by Wolfe.
Round Swamp is a store that sells prepared foods as delicious as they are expensive. Cooking is cheaper but Sherman’s wife doesn't employ a cook…
A few years ago, for the first time in my life, I crossed over into earning six figures. I can now afford a house in my area, pay for the normal run of activities for my daughters, and buy more books when I feel like it. I can remember the days of putting exactly enough gas in my car to get to the bookstore and back with something quite well, so as far as I’m concerned, I’ve made it.
I'm sorry to hear about your father.
Your essay illuminates the fact that some people can go broke on any amount of money, and people with those kinds of spending habits can exceed any amount of income. Here's is my farcical example, in which I'll play such a person for a moment:
The constant drumbeat of putdowns of rich people is completely unfair. The fact is, rich people need things other people don't need. For example, I pay a fortune for my kidnap and ransom insurance. The guy running the corner store doesn't understand how much that costs, or, at least, my butler says he doesn't.
To keep my helicopters in good trim, I have to repaint them monthly. My color consultant suggests new paint schemes each time, but the painters cost a fortune. My butler doesn't like to travel by helicopter, so I have to retain a helicopter butler and send my usual butler by private car to my destination.
It's critical to maintain quality. People don't understand the importance of having solid precious metal accessories as opposed to ones that are merely plated. The bathroom fixtures and door hardware in each and every one of my houses are white gold - gaudy yellowish plating is for tasteless parvenus. Ditto on my helicopters, planes, and yachts.
As far as art goes, I stick to NFTs. How else do I know it's not a forgery?
The same principles apply to fashion. None of the fake stuff for me. I maintain my own mink farm to supply my fur-related needs. When I wear down, it's swans' down; for decorative feathers, I use ostrich.
Of course, the same principles hold true for food. My chefs use exclusively Nepali Yak butter. I have greenhouses near each of my houses (but out of view) to supply the latest in fresh ingredients. For my warm-climate homes, these greenhouses are air-conditioned.
It's true that I do spend a lot on my precious dogs, Lauren, Elon, Leona, and Anant! I maintain a grooming staff at each of my houses and travel with an emergency dog groomer at all times. Nothing is too good for them! Generally I buy Prada dog accessories, which are a good value.
And I do care about value.
Which leads me to the importance of sustainability. I re-wear everything at least once. And when I'm done with any particular item, I have the butler deliver it to the nearest cotillion committee. I'm very committed to helping the less fortunate. It's regrettable that so few people understand the special challenges I face or appreciate my resolve to spread a little sunshine wherever I go.