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Law Students => Job Search => Topic started by: ajax198 on March 01, 2008, 01:18:28 PM

Title: Good with finances? ITT, help a 1L plan for SA
Post by: ajax198 on March 01, 2008, 01:18:28 PM
Was lucky enough to get a major market SA gig.

Have 3 options in mind:

1) Take out less loans next year/start paying off UG loans (< 20k)

2) Start saving/investing for a down payment, so I don't have to rent for very long once I graduate

3) Get a car, plus do one of the above

Any advice from the financial whizzes?
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: vaplaugh on March 01, 2008, 01:36:16 PM
3) Get a car, plus do one of the above

If you don't need it, don't buy it.  Cars depreciate.  Loans appreciated.

2) Start saving/investing for a down payment, so I don't have to rent for very long once I graduate

Depends on how long you will stay at that location.  There are significant costs associated with buying and selling a home, which means that staying for a short period of time can wipe out your gains (while subjecting you to unnecessary risk).  Depending on the market, a home will probably be expensive, so you wouldn't buy until 1-2 years after starting the firm job anyway.  If you think you might leave the firm within 5 years of starting (which I'm pretty sure happens to somewhere near 80-90%), I would not pursue this option.  If you are looking at purchasing property, definitely buy below your means so that you are not in serious financial trouble if you switch jobs.

1) Take out less loans next year/start paying off UG loans (< 20k)

Seems like your best option to me.  But of course, you can't go wrong with subsidized stafford loans.
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: plex on March 01, 2008, 02:03:37 PM
Agree with everything said above.

Pay off any loans you have that are 7%+ and don't take any more of them out unless you have too. You would be bleeding much pretty much otherwise, because you would need a guaranteed before-tax investment of about 9-10% to make up for it (which isn't easy to get, you can get a risky 9-10% easily, but you need something that will let you tap into it or use it all within just a couple years).

Also, I would suggest maxing a Roth (5K) for 2008 and if for some reason you get access to a 401k with a match (probably won't), get the match, because that is free money sitting on the table.

I personally have loans that are about the equivalent to 3.1%, so I'm not paying any of them back, maxing them out, and getting a guaranteed after-tax return of about 4-5%. I also plan to max my Roth each year while in school and my 401k, as much as I can.

There is a decent chance you won't have access to a roth when you graduate, anyone who makes over 115k or so can't contribute to them, you'd only be able to get an IRA, which will cause you to take a heavier tax hit.
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: ajax198 on March 01, 2008, 02:04:46 PM
If you don't need it, don't buy it.  Cars depreciate.  Loans appreciated.
Don't need it, but it would sure make life a lot easier.  Though the costs associated with it (insurance + parking + maintenance) will probably dissuade me from getting one.


Depends on how long you will stay at that location.  There are significant costs associated with buying and selling a home, which means that staying for a short period of time can wipe out your gains (while subjecting you to unnecessary risk).  Depending on the market, a home will probably be expensive, so you wouldn't buy until 1-2 years after starting the firm job anyway.  If you think you might leave the firm within 5 years of starting (which I'm pretty sure happens to somewhere near 80-90%), I would not pursue this option.  If you are looking at purchasing property, definitely buy below your means so that you are not in serious financial trouble if you switch jobs.

I'm 99.99% sure that I will be in the city I'm working in for quite some time - so renting for more than 1-2 years would be a waste of money.  I can see myself sticking it out in Biglaw, so I'm not terribly concerned.  But with loan payments and such I don't want to have to wait 3-4 years to have the capital built up to put 20% down.
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: plex on March 01, 2008, 02:10:26 PM
Eh, don't count on staying at the same firm for a long time until you have actually worked there. I am sure you can handle Biglaw, but you have no idea at this time what place has the firm culture you seek while paying well. Also, associates are their most mobile at 3-8 years experience, you would have to be pretty sure it was your dream job not to move.
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: ajax198 on March 01, 2008, 02:34:07 PM
Eh, don't count on staying at the same firm for a long time until you have actually worked there. I am sure you can handle Biglaw, but you have no idea at this time what place has the firm culture you seek while paying well. Also, associates are their most mobile at 3-8 years experience, you would have to be pretty sure it was your dream job not to move.

It's not as much the job as it is that I am pretty damn sure where I want to live.  Either way, however, saving for a downpayment would help me buy property anywhere I wanted.  If I know where I want to live, I just don't see how it makes sense to rent for a long period of time, be no closer to owning anything, and not get the tax benefits of a mortgage. 

While associates are most mobile from 3-8 years of experience, I would hardly say that calls for renting instead of buying for upwards of 8 years...
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: vaplaugh on March 01, 2008, 03:37:07 PM
I'll second what the other poster said about Roth.  Definitely max it.  If you don't know much about it, check it out.  It coincides with your housing plan: for purchase of new home, so long as you have had a Roth for 5 years, all earnings are tax free.

If you want a house, go for it.  But I stick by my advice from before about buying well below your means.  Also, I know it seems strange that a big firm might fire you outright after investing $20K+ for a summer and several years of $160K-$200K salary (plus other expenses), but it happens.  Biglaw jobs are not any more secure than at a profit driven company that seeks to cut fat during periods of economic downturn.  Combine the profit motive of the firm with the fact that most associates leave voluntarily, and there is significant turnover.

While associates are most mobile from 3-8 years of experience...

I haven't thought about mobility from biglaw very much, but why do you say 3-8 years?  My understanding is that you become more mobile after making partner.  That is, more mobility from firm to firm.
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: ajax198 on March 01, 2008, 03:44:02 PM
I'll second what the other poster said about Roth.  Definitely max it.  If you don't know much about it, check it out.  It coincides with your housing plan: for purchase of new home, so long as you have had a Roth for 5 years, all earnings are tax free.

I will definitely look into this.  Ty.


If you want a house, go for it.  But I stick by my advice from before about buying well below your means.  Also, I know it seems strange that a big firm might fire you outright after investing $20K+ for a summer and several years of $160K-$200K salary (plus other expenses), but it happens.  Biglaw jobs are not any more secure than at a profit driven company that seeks to cut fat during periods of economic downturn.  Combine the profit motive of the firm with the fact that most associates leave voluntarily, and there is significant turnover.
I'm not planning on buying property blindly, but assuming that I know where I want to be (city-wise), renting just makes very little sense.  Also, anecdotally it seems that BigLaw layoffs are relatively rare - the turnover from people who want to leave anyway, combined with less hiring, seems to cover the firm's concerns.  Again, that's purely anecdotal, but from everything I've read and heard, seems accurate.

I haven't thought about mobility from biglaw very much, but why do you say 3-8 years?  My understanding is that you become more mobile after making partner.  That is, more mobility from firm to firm.
Well, I was taking plex's statement for granted.  However, I have heard from several people that mobility definitely kicks in when you're around 3-4 years in, because at that point you can do more with less guidance, and yet are still flexible enough and not set in ways to learn how to adjust to the new employer's system/ways of doing things.
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: Peaches on March 01, 2008, 04:00:10 PM
I wouldn't be scared of layoffs unless you are bad at your job, or specialize in a practice area that is virtually useless in lean times.  People on this board love gloom and doom.

Does anyone know a competent lawyer who has been fired from big law in mass layoffs?
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: vaplaugh on March 01, 2008, 04:34:14 PM
Does anyone know a competent lawyer who has been fired from big law in mass layoffs?

I met someone who was fired - no idea if he was competent, though.  :D
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: plex on March 01, 2008, 05:44:37 PM
I'll second what the other poster said about Roth.  Definitely max it.  If you don't know much about it, check it out.  It coincides with your housing plan: for purchase of new home, so long as you have had a Roth for 5 years, all earnings are tax free.

If you want a house, go for it.  But I stick by my advice from before about buying well below your means.  Also, I know it seems strange that a big firm might fire you outright after investing $20K+ for a summer and several years of $160K-$200K salary (plus other expenses), but it happens.  Biglaw jobs are not any more secure than at a profit driven company that seeks to cut fat during periods of economic downturn.  Combine the profit motive of the firm with the fact that most associates leave voluntarily, and there is significant turnover.

While associates are most mobile from 3-8 years of experience...

I haven't thought about mobility from biglaw very much, but why do you say 3-8 years?  My understanding is that you become more mobile after making partner.  That is, more mobility from firm to firm.

You only become more mobile as a partner if you have portable business. There are a number of reasons why firms don't like people with a lot of experience, but no significant portable business. So it does sort of go along with whether you are a good lawyer or not, if you are a decent rainmaker, you will have lots of options. Associates are mobile, when they have some experience, because they are believed to know enough to be useful, but still are willing to learn.
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: jacy85 on March 02, 2008, 07:27:36 AM
I wouldn't be scared of layoffs unless you are bad at your job, or specialize in a practice area that is virtually useless in lean times.  People on this board love gloom and doom.

Does anyone know a competent lawyer who has been fired from big law in mass layoffs?

Yes, I know several, but they were laid off late 1990s early 2000s when several firms went under or completely reorganized.  Some firms still have pretty untenable growth strategies, so its possible you'll see layoffs again from them.  I'd bet that many firms will weather through any tough spots just by laying off the incompetents.

One thing to remember though...lots of attorneys are never laid off; they're politely pushed to find somewhere else to go and given 6 months or whatever to find other work.  Most do, and leave voluntarily.  I'd say this probably wouldn't get reported as a layoff, it would get counted as voluntary departure.
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: Peaches on March 02, 2008, 08:50:06 AM
Other than basic personal finance strategies (set aside six months of expenses in savings as quickly as you can), I don't think OP needs to plan for layoffs.  They won't fire someone they've just put money in on and haven't gotten a return on yet.  They'll fire someone who has proven over 5-6 years that they aren't partner material.  And if you pick a good firm, they won't need to fire anyone.
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: jacy85 on March 02, 2008, 09:55:28 AM
Other than basic personal finance strategies (set aside six months of expenses in savings as quickly as you can), I don't think OP needs to plan for layoffs.  They won't fire someone they've just put money in on and haven't gotten a return on yet.  They'll fire someone who has proven over 5-6 years that they aren't partner material.  And if you pick a good firm, they won't need to fire anyone.

5-6?  I think that's generous. 3-4 may be more likely for the next few years, especially if the economy stays the way it is for some time.  A firm may not *need* to fire someone, but they'll be damn sure less likely to let the people who aren't pulling their weight sit and get paid to do it.  Firms don't fire or lay people off because it looks bad; but when they have the opportunity (like now, when they can say, "Oh, it's the economy"), they'll take it to cull the fat.  (granted, this is all just my opinion based on what I know about how the firms I've worked for function - other people with different experience at different firms may come to a different conclusion)

That being said, I do agree that the OP, if he picks a good firm, won't have to worry about it.  He (or she) will have a few years before having to worry about whether the firm will ask him to leave.  From what I understand, when it happens, the people who are asked are usually not surprised.
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: ajax198 on March 02, 2008, 04:38:38 PM
I briefly read about the Roth idea, and maybe I'm misreading, but don't you have to have it for 5 years and be 59.5+ before you can withdraw without large penalties?
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: plex on March 02, 2008, 04:55:12 PM
Yes, you can't draw the earnings until your 59.5. You can still take out any money you put in yourself. Don't do that though, bad idea, the whole point of the account is to have a place completely protected from taxes. There are some types of funds that are extremely tax inefficient that you may want, and you need a good place to put those tax inefficient funds.

Also, if you don't use it during a particular year, the chance to use it is gone, forever, they don't let you make up for missing the boat earlier.

Also, if you do retire early, you should have more than just a Roth with your high earnings, since the cap on a Roth is pretty low. You will very likely have much more taxable income than you will in your Roth.

Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: cesco on March 02, 2008, 05:23:53 PM
OP - I think we need more info. 

Is a car going to be a necessity or a luxery for you upon graduation? 
How much student debt total do you have? Private v. Gov't?
Do you have any credit card/other debt? 
Do you have an "emergency fund" set aside? 
Will your firm cover your bar prep costs/living expenses while you are studying next summer?

 
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: ajax198 on March 02, 2008, 05:34:26 PM
Is a car going to be a necessity or a luxery for you upon graduation? 
Since I'll 95%+ be living in the city, it would probably more of a luxury.  Which is why I'm thinking I'm not going to get one.  At least not yet.

How much student debt total do you have? Private v. Gov't?
All government.
Around 15k from UG
Around 44k from this year of law school

Do you have any credit card/other debt?
Very little (< $750)


Do you have an "emergency fund" set aside? 
A small one

Will your firm cover your bar prep costs/living expenses while you are studying next summer?
I'm only a 1L, so it would be 2 summers from now.  If I stay at the same firm, then yes they pay a $10,000 bar stipend.
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: vaplaugh on March 02, 2008, 05:42:20 PM
I briefly read about the Roth idea, and maybe I'm misreading, but don't you have to have it for 5 years and be 59.5+ before you can withdraw without large penalties?
Yes, you can't draw the earnings until your 59.5. You can still take out any money you put in yourself.

As Plex said, you can withdraw your own contributions at any time without paying tax or penalty.  But, you can also withdraw up to $10,000 in earnings (not including your own contributions) without penalty or tax for the purchase of your first home regardless of your age.  To qualify, however, you must have had a Roth IRA for 5 years.

There are several other non-penalty and non-tax situations.  There are also several non-penalty situations (not non-tax), the most important to us probably being for qualified education expenses.  Even if you need to withdraw for education expenses, the money is still tax-deferred, so you are paying less in taxes than if you would have had a normal mutual fund.

Also note that if you have the money available, you can apply any contributions you make from now through April 15 to the 2007 tax year.

More info about distributions:
http://www.irs.gov/publications/p590/ch02.html#d0e10521
Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: cesco on March 02, 2008, 06:02:19 PM
Is a car going to be a necessity or a luxery for you upon graduation? 
Since I'll 95%+ be living in the city, it would probably more of a luxury.  Which is why I'm thinking I'm not going to get one.  At least not yet.

How much student debt total do you have? Private v. Gov't?
All government.
Around 15k from UG
Around 44k from this year of law school

Do you have any credit card/other debt?
Very little (< $750)


Do you have an "emergency fund" set aside? 
A small one

Will your firm cover your bar prep costs/living expenses while you are studying next summer?
I'm only a 1L, so it would be 2 summers from now.  If I stay at the same firm, then yes they pay a $10,000 bar stipend.

I missed the part about you being a 1L.  Sorry.  My thoughts: 

---Avoid the car until you need it.  You'll have to deal with parking costs, gas payments, regular maintenance, and insurance. Yuck.

---Put a chunk of the money in an easy access money market account. I think you will appreciate having access to some cash, especially considering that you'll still have two years of school left, and will have little to no cash flow other than student loans.  Having the freedom to make a plane ticket somewhere, or buy a suit if needed will be nice. 

---Put a chunk of it towards your education costs.  I'm not sure it makes much of a difference whether you put it towards your UG loans, or towards your tuition next year.  I am guessing you probably have a lower interest rate on the UG loans, but maybe its worth the piece of mind just to pay a portion of those off? 

Title: Re: Good with finances? ITT, help a 1L plan for SA
Post by: Peaches on March 02, 2008, 06:12:12 PM
No need to pay off the educational loan debt.  You are only accruing interest on a portion of it, and educational loan debt is low interest and payable over a long period of time.   You can make more on the amount by investing (even as an average, or below average, investor) than the interest that is accruing for a net profit.

If you will want to buy a home, get married or have children soon after graduation you will need access to substantial amounts of cash so that you don't have to finance through piggyback loans, can buy a larger home, or get a better interest rate.