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

[plex]

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.

[jacy85]

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.

[Peaches]

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.

[jacy85]

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.

[ajax198]

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?

[plex]

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.

[cesco]

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?

 

[ajax198]

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.

[vaplaugh]

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

[cesco]

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? 

.