Monday, January 25, 2010

Books for Lawyers: Debt Is Slavery

Over the last 20 years, I have read easily more than 100 books on personal finance and investing.  Some of the books were eye-opening studies like that in the Millionaire Next Door that we discussed in this earlier post.  Many of the books included some tidbits of wisdom, but may not have given practical, dollars and sense advice - like Rich Dad, Poor Dad as we discussed here.  Frankly, it's been a lot of work and effort over several years to mine these books for their wisdom.

Consequently, I could not help but be a little irritated when "Debt Is Slavery" came out - Why?  It's just too darn good!  In its short 102 pages the book clearly and concisely sets forth about 80% of the basic personal finance advice that I had to learn the hard way. 

I highly recommend "Debt Is Slavery" and I have given the book to several of my younger relatives. Let's take a more detailed look at it below.

The author of "Debt Is Slavery" (DIS) mentions in the forward that he had read many self-help personal finance books and he felt that most of them could be half as long and twice as interesting.  Boy, did he hit that nail on the head.  Many of the books that I have read include a lot of self-aggrandizing passages and thinly veiled sales efforts to sell another of the author's products.  For example, Rich Dad, Poor Dad was chock-full of the author's self-aggrandizing exploits.  DIS, however, is written by an engineer with no other products to sell and is written in a "just the facts" style that keeps you reading.

The author gives five reasons why people go into debt:
  1. Impulse buying
  2. "Rewarding" themselves
  3. Keeping up with the Joneses
  4. Impressing Other people
  5. Overcoming depession of a feeling of inadequacy
Now, we as lawyers are going to enter the profession with a mountain of student loan debt.  We know why we went into that debt - to get a law degree.  However, I see many, many lawyers falling victims to the above reasons as their cause for taking on additional unnecessary and avoidable debt.  For example, the practice is so draining that the temptation of "rewarding" yourself is always there.  In combination with this is a sense of "keeping up with the Joneses" other than the traditional sense.  For example, in the traditional sense, "keeping up with the Joneses" means that if the Joneses get a grill, then you feel compelled to get one as well in order to illustrate that you are just as good as the Joneses.  The non-traditional sense of "keeping up with the Joneses" is that when one lawyer splurges on a reward, it's not that other lawyers feel like they have to get one too, but it seems like it creates a precedent that it is OK for the other lawyers to reward themselves in that way.  It seems like the other lawyers look at the first lawyer and say "he can afford that, so I can also."  Unfortunately, the other lawyers don't know the first lawyer's financial position - he or she might be receiving financial assistance or on the brink of bankruptcy.

One of the author's first punches is "you don't own it if you owe money on it" - very true, but so often overlooked and brushed aside in the sales effort to saddle you with "easy payments".

Chapter 2 discusses how time may not be money, but money is definitely time.  The author presents the idea that before making a purchase, he would divide the cost of the purchase by the amount of his "life" that the purchase would cost.  In this regard, if the author was making $50/hour, then a new, beautiful $20K car would really cost him 400 hours of his life - that's 10 weeks of work.  In this way, the author found it much easier to resist impulse buying - it's no longer just money, it's the irreplaceable resource that is his life.

I have seen other books that do a more complicated analysis in this regard.  For example, someone making $50/hour has to pay a certain percentage in taxes and living expenses.  Often they are lucky if they have $10/hour left over to spend.  Consequently, that new car would actually be costing 2000 hours of life.

Another way that some books have looked at this is to determine an end goal, such as retirement or paying for a college education and then looking at just how much this expense would set the time frame back.  For example, if you are saving for retirment and buying the new car is going to cause you to spend an extra six months on the job, maybe you will just keep the old one in order to get free sooner.

In the next chapter, the author reviews how possessions are really a prison - that just about everything that you own costs money, time, and peace of mind.  However, the Giant Marketing Machine (GMM) as the author calls it, is out to convince us that we need more and more "stuff" - and that only through "stuff" can we achieve happiness.  The author advocates "putting stuff back into circulation" by selling it or donating it and taking the write-off on your taxes.  This can have a really positive financial impact - more than is immediately apparent.  I will address it more in an upcoming post.

Next, the author makes clear that although money does not buy happiness, it does buy freedom.  That's a powerful statement and a good counter to those who are seeking to buy the latest toys in order to try to make themselves happy.  For example, instead of buying a new Ski-doo, you are buying yourself the present that will make you the happiest of all - your freedom.  It is going to cost a lot more than a Ski-doo, but you will most likely be able to enjoy it a lot longer!

The title of chapter 7 is simply "Own" - use passive investments to earn money without spending time.  The author does not address specific investment strategies, but there are plenty of other books for that.

Chapter 8's title is "Save 50 Percent Of Your Salary".  Pow.  None of this namby-pamby "well I guess I can save $10/month by cutting a magazine subscription if I don't feel too deprived" advice that has become so common with an increasingly over-luxuried American populace and is so very easy to ignore - and even if successful produces very little benefit.  No - instead its "show me your war face!" *smack*  "and give me 50%."  Now, the author recognizes the reality that most people are not going to be able to save 50%, especially just starting out.  However, just by getting that number out there, and showing that by saving at that rate he was able to cope with being laid-off not once but twice, he's changing the way that money is looked at.  I think that the goal here is to help people get away from the common spending habit of measuring your spending by your income (when your income goes up, so does your spending) and instead measuring your spending by what you need to live a reasonable, fairly frugal life and then saving the rest, regardless of whether your income goes up.

Now, if you are right out of school, this goal is obviously out of reach.  There is just too much debt to repay.  However, if you are a lawyer who has been making top dollar for 3-5 years, what's really stopping you from saving 50% of your post-tax income?  Figure that you make $200K and lose $50K to taxes and health care.  That leaves you with $150K, 50% of which is $75K.  You can live pretty well in many places in America on $75K/year (maybe not New York and San Francisco due to the high housing prices, but still).  You were most likely living on less than that as you were repaying your loans - why have you allowed your lifestyle expenses to creep up?  Is it a case of "nobody minding the store" with a side helping of "I feel like I have plenty of money"?  Why not make a new challenge for yourself and buy your way to freedom.  You don't have to stop working, but your work is likely to take on a whole different aspect when it is not essential for your continued existence.

By Chapter 10, we are becoming accustomed to the author's brutal honesty and the title "Control your money or your money will control you" is no surprise.  Chapter 10 shows how to list your debts and plan your repayments based on the timing of your checks.  It's good for those just starting out and one of the reasons that I give it to younger relatives.

The final chapter is an admonition that you will never be as young as you are now - so get to work right away.  Boom.

All in all, I really liked the author's "in your face " style and "right to the point" writing and I find that Debt Is Slavery a great starter book.  Although you may have to look elsewhere for more detailed advice (for example, about specific investments), Debt is Slavery clearly and concisely presents a complete and aggressive vision for personal finance.


  1. I will check this book out immediately, MP. You have some great suggestions for reading material. I love brutal honesty and hard-hitting reality. This country could sure use a heavy dose of both. We need to get away from "instant gratification." I knew plenty of my law school classmates who ate lunch at restaurants nearly 5 times a week. (Although, this is clearly not endemic just to law students.)

    I guess not covered in this book is the fact that people want to be entertained, i.e. watch TV and let it wash over them. It helps them get through the doldrums of life. However, there are MANY activities that are enjoyable and free (or nominal cost). And, yes, I am beyond tired of specious "financial advice" that consists of saving $12 a month here or $16 a month there.

  2. I'll be checking this out from the library ASAP. Thank you.
    One question and one quibble:
    Question: Any recommendations on investment strategy or books discussing it? I have been very, very lazy and basically just held 10% in cash and 90% in various diversified index funds (my time horizon is 40 years plus). I'm not sure there's a good way to chase a higher return, or if I should even try. And, of course, I have to clear every individual stock transaction through work, so it would be another headache on top of everything else.
    Quibble: I disagree with the proposition that you can't save because you're repaying debt. For these purposes, repaying debt IS a form of saving-- you're deferring consumption now to improve your net assets. I’m using NYC numbers (these will look familiar, I’m the same associate who posted a Tolstoy-length comment in the “Why 145K isn’t enough...” thread). If you’re a single person with no dependents living in NYC, your total tax liability-- FICA, federal income, state, city, -- is going to be around $50,000 on $160,000 of salary. That leaves $110,000 (who says lawyers are bad at math?). Maxing out a conventional 401(k), taking advantage of the new IRA rules to open a traditional at $5,000 and immediately convert to a Roth. Then, devote $2,300 of your $7,000 monthly paycheck to debt service (with the later months, with bigger pay due to social security being paid in full, as a safety net in case you fall short on an earlier month). Those three simple things will cause you to ‘save’ about $45,000 a year. Closer to 40% than 50%, but quite good and fairly painless-- that still leaves $4,700/month in early months for instant consumption, and about $5500/month in later months. Even in NYC, that’s easily doable if you don’t rent too much apartment. In a city with a cheaper housing market, hitting that 50% would be fairly straightforward.

  3. Nando - Thanks for the comment! Yes, I have noticed the same thing, that the "financial advice" that is being sold lately is becoming less and less effective and requires the person to change their lifestyle less and less. I suspect that this is because many of the advice-givers are really just trying to sell books, and what really sells is telling people that they can get something for nothing. For example, that they can save huge amounts of money without changing their over-spending lifestyles.

    11:38 - OK, I can see that my next book post is going to have to be about "A Random Walk Down Wall Street", which is the best introduction to investing book out there - and a recently updated classic. You may also want to start reading the magazines Kiplinger's Personal Finance and SmartMoney. I'll do a post some time about how I surveyed all of the major personal finance magazines and found these two to be the best.

  4. Great posts, look forward to your next post.

    In regards to law school and debt, just went to a open house last week. With all the information from your website relating to the current turmoil legal job market, when i was listening to them, i felt the whole event was a big sales pitch, trying to look nice, with no specifics or responses to the job market. When a student started to ask the hard questions of how the school can guarantee success and a good return on investment, the response from the dean was redundant and the questions was never answered and instead was put in circles and moved on.

    Even more sadly more funny, was when the financial aid q&a section came up, when students asked questions about loans, they answered the questions implying to the prospective students that everything will be fine with loans, all will be covered. No information was given on how interest rates work, especially with private loans and plus loans and how interestes accumulate even though it is deferred.

    Sucks how easy prospective law students can be duped into thinking law school is a easy decision without the adequate and hard cold bold facts they have to research on their own when you would expect it should come from a law school. Can't say enough of how your website has really helped me see the true picture of law school.

    Thank You

  5. 12:42 - Thanks for the comment! It is great that you were more prepared with regard to what to look for in the law school sales pitch. Please pass the information on and help other people.

    On the other hand, it is very distressing that the law schools view it as a sales pitch and either decline to collect the relevant data, decline to tell you the relevant data, or spin the relevant data to steer students towards going to law school. If law schools had half of the "ethics" that they like to proclaim that they have, they would be providing much more in the way of unvarnished, balanced information to students so that students could make an informed decision.

  6. Interesting tidbits. Though, I think 50% is a tad on the high side. It's good to shoot high with goals, but there should be some kind of scale there. Perhaps something like 30% while you're under 30, then 40% to age 35, and then 50% to age 40, and then game-time decisions for ages above 40. Nothing too rigid, but something like that.

    I really think that while it's good to save money, it's good to increase one's lifestyle as one gets older and accumulates money. If for nothing other than psychological comfort, one should "reward" themselves for years of hard work. That's not saying you should have multiple vacation homes and yachts, but perhaps a sailing yacht or a condo on a ski slope or whatever strikes your fancy. Personally, I'm somewhat of a money grubber/cash hoarder, and even I plan to blow some of my money in the future.

    Cash hoarders remind me of this one joke about a doctor telling his patient that if he cuts all the French fries out of his diet, he could live to 100 yrs old. "Why would I want to live a hundred years never eating French fries?"

    As with everything, moderation is key. Sometimes, we have to do "bad" things just to make life worth living. 50% sounds a bit much.

  7. Coder Emeritus - I think that you have it right with regard to the scaling, but I am not sure that it should be scaled based on age - or even percentage of income, really. I think that I am going to do a post about an alternative strategy that I have been thinking about and I hope that you will give me your comments.

  8. Just found your blog today -- immediately added to my Google Reader!

    I'm a 3L and I'm absolutely terrified of leaving school and having my loans go into repayment. And I'm one of the lucky ones! I survived the low summer of 2009 offer rates and managed to snag a post-graduation offer at one of the big NYC firms, but I'm deferred for a year at $75K. I turned down the T14 to take a $20K per year scholarship, which feels like a great decision now. But, I have undergraduate loans as well, so it's going to be interesting to see how it all turns out.

    I am definitely going to check out the books you've recommended on the blog -- thanks for the great content; I know I'm going to learn a lot!

  9. Great site! Just stumbled onto your site today. I started blogging about my personal finances when I didn't get an offer at Big Law. I have no law school or undergrad debt.

    I wanted to go to a law school where I could graduate without debt because I never expected to work for Big Law. Getting a summer associateship for my 1L & 2L year was icing on the cake!

  10. KK - Congrats on your offer and I hope that your deferment ends soon!

    SeeJaneGetRich - Congrats on not having any law school or undergrad debt! Although you might not want to mention it too often to the poor souls with 200K in debt!