Good with finances? ITT, help a 1L plan for SA

[ajax198]

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?

[vaplaugh]

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.

[plex]

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.

[ajax198]

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.

[plex]

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.

[ajax198]

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...

[vaplaugh]

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.

[ajax198]

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.

[Peaches]

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?

[vaplaugh]

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.