Why 145K Is Often Not Enough Max Your 401k

In response to my recent post about Financial Choices As An Associate Determining Your Future, one associate left the following comment:

Thanks, I appreciate this post. As a new associate, it's good to be scared straight every now and then. This is high octane nightmare fuel. I cannot imagine earning biglaw money for five years and not managing to pay off my student loans and maximize 401(k) contributions.

First, congratulations to the associate on being employed in this tough job market!  You are no doubt a very smart and on-the-ball person - it further shows in that you are seeking financial advice early in the game.  Second, the sentiment that the associate mentions - that they can't imagine not paying off the student loans and maxing their 401k - is a pretty common sentiment.  However, as associates find out, it is all too easy to fail to accomplish this.  We will discuss some of the reasons why associates fail to accomplish this and what they can do to help themelves after the break.

Lawyers And "The Millionaire Next Door"

The bestselling book The Millionaire Next Door was a real eye-opener for me.  The book is based on a series of surveys set up by the authors who both work in academia and serve as advisors and consultants to businesses that are trying to market products to the rich.  The book provides a lot of great information about the millionaires in America, including generally how they got there, who they are, and how they live. 

The book also mentions lawyers and provides some analysis of how lawyers can become millionaires and why more laywers aren't millionaires.  We will discuss the advice provided by the book as well as some points that the book may have missed after the jump.

Comparing Hiring Odds Now And In The 1990s Recession

The ABA Journal has an article entitled "When the Detour Becomes the Destination
How 5 grads survived a recession—and how you can too".  The article gives several examples of lawyers that launched their careers during the last legal recession during the early 1990s.  The article is an attempt to be inspirational and give hope to those law students that are struggling to find jobs during the current recession.  That's a sentiment that I applaud.  However, I don't think a straight comparison of the early 1990s recession with the current recession paints an accurate picture of the employment situation - and that does a disservice to current law students and those considering entering law school.  We take a more detailed look at the assumptions and likely outcomes below.

Financial Choices As An Associate Determine Your Future

I'll never forget a conversation that I had as a young associate with another associate a few years more senior than me - who I will call Senior Associate or "SA" for short.  I had been working at the firm (a large law firm with top compensation in the city) for a few months and had come to realize that even though my salary seemed high, after taxes, social security, health insurace, student loan payments, and car payment, there did not seem to be much left over.  At the time, I did not yet have a lot of insight into personal finance, so I came up with the idea of trying to figure out what more senior associates were doing so that I could potentially copy that.

Portrait Of A Recent Law School Grad - Part 3

This is the third and final part of our series about Lawyer X - a 2009 graduate of a Tier 1 law school who is smart, hardworking law school graduate that is trying to make his way in the worst recruiting market in decades.  The first part of the series appears here. The second part of the series appears here.

Three Useful Books For New Attorneys Or Law Students

I sometimes get asked by law students or young associates whether I could give them a reference that might help them make an easier transition to law firm life.  There are three books that I recommend - I'll identify them below and discuss their pros and cons.

Costs To Consider When Buying A Condo

This posting is NOT going to be about 1) the decision whether or not to buy or 2) about finding the area that is most desirable.  Instead, I am going to assume that the potential buyer has already arrived at generally what they want and is now trying to decide among several potential purchases by comparing the costs associated with the ownership of the properties.  One would think that it would be simple to compare these costs, but I see people (even smart young attorneys) screw this up all the time.  I attribute this to their inexperience and the fact that the real estate deal is complicated and their eyes are on the wrong ball.  I'll explain further below.

Increasing US Debt And Its Impact On Investing

In previous articles, we focused a lot on the financial considerations of those who were attending or thinking about attending law school.  Frankly, that's gotten old.  It's time now to shift focus for a time to other financial considerations that may face an attorney later in their career.  In this acticle, we are going to take a look at how the increasing US debt may impact investment returns in the future.  Some specific recommendations that may lead to a higher return are presented after the jump.

Regulation Of the Law School Loan Market Is Needed

As reported on Above The Law, and the National Law Journal, the ABA is lobbying President Obama to allow law students to convert their private student loans to federal student loans.  As federal student loans, the loans will be eligible for a hardship deferrment of up to three years.  That's a great benefit to law students struggling to find a job, but it doesn't solve the problem and a more extensive reform is needed.  More after the break.

Portrait Of A Recent Law School Grad - Part 2

This is the second part of our series about Lawyer X - a 2009 graduate of a Tier 1 law school who is smart, hardworking law school graduate that is trying to make his way in the worst recruiting market in decades.  The first part of the series appears here.

On The Nature Of Evil: Encouraging Law Students To Go To Law School

I recently posted about the lack of wisdom of going to law school during the present huge bubble in the number of law students - and that the bubble might even get bigger because of application increases, like the 62% application increase at Iowa law school.

However, when I was discussing this matter with a colleague, he made some comments that caused me to contemplate the nature of evil with regard to law school attendance.  Sounds kind of strange, doesn't it?  More after the fold.

Law School Enrollment Bubble: Law School's Applications Up 62%

I previously posted about the relative lack of wisdom of buying a law degree at the height of a bubble in law school attendance.  Frankly, the supply and demand relationship is not in balance and the increased enrollment in law school just makes things worse for law students.  However, a number of people are clearly not getting the message.

Law.com Article On Where Salaries Are Headed

There's a good article today at Law.com about the direction that associate salaries are headed in the near future.  (Update: It's also on ATL.) Interestingly, the article mentions that 55% of the participants in a recent online seminar viewed the salary cuts as only tempory - that might be a ray of hope.  However, the consultants were adamant that even further cuts would be necessary.  See how much and some other interesting nuggets after the fold.

Portrait of a Recent Law School Grad - Part 1

I was recently corresponding with a 2009 graduate of a Tier 1 law school who I will call Lawyer X.  Lawyer X is a smart, hardworking law school graduate that is trying to make his way in the worst recruiting market in decades.  In many ways, Lawyer X is representative of a large portion of current law students.  Lawyer X generously agreed to answer some questions that I posed with regard to his thoughts on law school, the legal profession, and recruiting.  For current lawyers, Lawyer X's experiences can provide insight into the current law school experience.  For prospective law students, reviewing Lawyer X's answers may help you make your decision as to whether to attend law school, or may help you get more out of your law school experience.  This will be the first of a multi-part series.  My questions, Lawyer X's answers, and some comments appear below.

WSJ Article - Americans Feel Increasingly Disheartened

In an absolutely excellent article in today's Wall Street Journal, Peggy Noonan nails a trend that I have felt growing for some time now, but have not previously been able to but words to.  It's an important trend that impacts lawyers and will impact the amount of legal work available (and thus employment opportunities) in the future.  More after the jump.

Did Starting Lawyer Salaries Really Increase From 2000-2008?

In the year 2000, three trends converged to boost starting salaries at large firms: 1) the economy was booming with the "Internet Revolution" and it seemed like every startup that could get funded was turning ordinary people into millionaires, 2) due to the ability of the internet to quickly and anonymously propagate information, there was an increased  level of salary clarity and openness, and 3) due to the increase in work from startups as compared to a relatively static supply of new lawyers, and the presence of the internet as a new information channel, firms began to publically advertise their starting salaries, and increases in their starting salaries, in order to attract needed new lawyers.

GAO Report On Increased Cost Of Law School

As you may have heard from the ABA Journal or from AboveTheLaw, the non-partisan Government Accountability Office (GAO) recently released a report that has some interesting finding about the increased cost of law school.  More specifically, it identifies the following factors on slide 19 as affecting cost:

• increased emphasis on hands-on clinical experiences, and smaller skills-based courses
• increased diversity of course offerings–e.g., international law and environmental law; and
• increased student support–e.g., academic support, career services, and admissions support

Admittedly these may represent some small impact, but we take a look at the bigger factors below:

System For Savings Thousands Per Year On Your Student Loans

As you know, payments for both federal and private students loans are deferred while the students is in school.  That's great because it allows the student to complete their education without having to worry about making a loan payment until after they graduate - and those loan payments can be pretty big.   For most private loans, even though payments on the loan is deferred, the loan continues to accumulate interest during the deferral period.  However, federal student loans many be either subsidized or unsubsidized.  The unsubsidized student loans accumulate interest during the deferment period, but the subsidized student loans do no accumulate any interest.  This leads to an interesting strategy that may be helpful in your situation.  Keep reading to find out!

"Best Jobs In America" Data on Lawyer Salaries

Recently, CNNMoney did a report on careers that they identified as "The Best Jobs In America."  Number 18 on the list was "Lawyer."   The report provides useful data with regard to the median and "top" lawyer salaries for "experienced" attorneys.  In determining "experienced," it looks like they exclude all first year lawyers, exclude a certain percentage of years lawyers 2-7 years out, and then include all lawyer salaries for those at least 7 years out.

What's the bottom line?  Click to find out.

The Changing Cost Of Law School And The Impact On New Lawyers

I sometimes hear older lawyers talking about how they "worked their way through law school" by working at a fairly low-paying job, like working as a waiter or part time in a library.  More specifically, these older lawyers were able to make enough to pay for law school and their living expenses just by working those fairly low-paying jobs - and typically by working less than full time during the school year (although they would typically find another low-paying job to work at full time during the summer.)  The way in which these lawyers talk about their experience implies that they think that working your way through law school at a similar job is still a viable option today.  Mentally they realize that law school is more expensive now, but they also know that the minimum wage has gone up too.  Thus, they somehow think that law school costs the same relative to minimum wage today as it did back when they went to school - that is, that minimum wage has increased at the same rate as the cost of law school.

For these lawyers, when they hear about students who have taken out $200,000 in loans, they sometimes shake their heads and ask "why didn't they just work more hours during law school?"  or something along the lines of "I guess if they didn't want to work during law school, then they are going to have to pay for it now."

This is a massive disconnect and it serves to illustrate the vast differences in the experiences of these older lawyers in going to law school and being a young lawyer as opposed to those who are going to law school today.

Below, we try to get a vision of what going to law school looked like financially in the 1950s and how it compares to the experience of today.  This should be useful to give law students and young lawyers insight into the preconceived notions that senior partners have about law school - and to serve as a resource that young lawyers can send to senior counsel who are not comprehending the difference - or refuse to relinquish their assumption that the accumulation of loans is somehow a sign of laziness or lack of drive.

Buying A Law Degree At The Height Of The Bubble

The past few years have brought us the Tech Stock bubble that crashed the stock market and the housing bubble that almost crashed our entire economic system.  We are still recovering from the housing bubble and are likely to be doing so for the next several years.  Unfortunately, the same principles that led to the tech bubble and the housing bubble are currently at work in the field of law - and may cause the value of your law degree to "crash."  Analysis and what you can do about it after the fold.

A 529 Plan With A 300% Return

Caught your attention, didn't it!  The best part is that it is true.  More info below the fold-

Paying for Law School 1: How Much Does Law School Really Cost?

How much law school really costs is often not clear to potential law students.  In fact, most potential law students underestimate the cost of law school by tens of thousands of dollars.  However, the cost of law school and paying back the loans is a major financial aspect for most new lawyers.  Prospective law students need to have a clearer understanding of their true cost.  Let's take a look at some actual numbers and find out where people are making their mistakes.

How Much Will You Make As a Lawyer? Part 4

In Part 1 we noted how a potential law student may by misled about their career prospects by law school materials.  In Part 2 we noted the more realistic NALP numbers.  In Part 3 we discussed why even the NALP numbers may be a little high.

Here, in Part 4, we discuss a student who recognizes that the highly-compensated jobs represent 23% of law school graduates.  Thus, the law student figures that if she can be in the top 23% in terms of GPA, then a highly-compensated job will be hers!  However, the law student may still be in for a disappointment.

How Much Will You Make As a Lawyer? Part 3

In Part 1 of this series we took a look at average starting salary numbers as reported by law schools, and how they might create a misleading impression as to the average starting salary that a law student might expect upon graduation.

In Part 2, we reviewed the NALP curve of actual starting salary information for around 23 thousand lawyers that graduated in 2008.  We found that contrary to many law student's expectations of an average starting salary of around $135K, the actual average starting salary was only $72K.

Here, in Part 3, we will explore some reasons why an average starting salary of $72K may still be unrealistically high.

How Much Will You Make As a Lawyer? Part 2

In Part 1 of this series, we took a look at what Law Schools were actually reporting as their average starting salaries.  Further, we took a closer look at one Law School's "sales" material and reviewed what impressions it might engender in a reader, and why those impressions might not be accurate.

In Part 2, we take a look at starting salary information as reported by NALP, the National Association for Law Placement - salary information that paints a very different picture from that shown in law school sales material.

How Much Will You Make As a Lawyer? Part 1

Since we are going to examine personal finance for lawyers, and lawyers start as law students, it makes sense to take a look at what going to law school means as a personal finance decison.

If you are thinking of going to law school, you know that you will most likely have to spend huge money (in some cases upward of $200K these days) to get your law degree.  If you are paying the bill yourself, then it would be height of insanity not to consider what you will be making once you get into practice - you are going to have to pay for those loans somehow!

Welcome to The Legal Dollar

Welcome to the first post of The Legal Dollar (TLD). TLD is designed to discuss personal finance issues relating to lawyers and the practice of law and to provide lawyers and law students with some financial tips.