"Restoring" The Middle Class - Promise or Threat?

It's pretty well known that the middle class is shrinking in this country.  Usually, when politicians cite the shrinking middle class, they are implying that most people are getting poorer - possibly that the "elite" are somehow actively campaigning to drain the middle class to turn more Americans into wage slaves.  Both parties seem to use this rhetoric - Democrats use the shrinking middle class to justify additional spending on social programs.  Republicans use the shrinking middle class to justify stances on taxes and immigration.

The issue has become intensely politicized, but let's take a look at some fundamental data and we may see something really interesting going on!

Year End Planning - Make $300K with Charitable Donations

Here's another short post with a financial aspect that you may want to look into before the end of the year.  Our previous tip was to give yourself an immediate raise by adjusting your withholding - the extra money can even go toward your 401K or an IRA. 

Converting To A Roth IRA? - Part 2

This is a continuation of Part 1 with regard to Converting to Roth IRA.

Converting To A Roth IRA? - Part 1

As many of you know, in 2010 the AGI limitation for converting a traditional IRA to a Roth IRA has been removed.  For many lawyers, this means 1) a great of questioning as to whether the lawyer should be converting a traditional IRA into a Roth IRA, or 2) that the lawyer may have their first crack at actually putting any money into a Roth since the program began - due to the income limitations for contributing directly to a Roth that previously existed.

But does it make sense for you to convert to a Roth?  The question is actually best answered in the context of your total IRA and 401K situation.  I'll outline a methodology for determining whether you may want to convert to a Roth IRA below, and then address some concerns about the conversion.  This post got kind of long, so I have broken it into two Parts.

Which Is Better - Stimulus or Austerity?

Here's an interesting article comparing the ongoing responses to the fiscal crisis that started in 2008 - both the European response and the American response.  The American response has primarily been one of stimulus - the government is taking on additional debt to provide a stimulus to the public sector.  Conversely, the European response has primarily been one of austerity - cutting government workers and programs and raising taxes.  Let's take a look at the likely outcomes of these policies - and how these may impact your investments in the future.

Year-End Planning - An Immediate Raise

It's getting close to the end of the year, so I thought I would do a series of short posts with some financial aspects that you may want to look into before the end of the year.  Today's tip is a way that you may very well be able to get an immediate "raise" in your take-home pay until the end of the year. 

What Are You Thankful For?

In honor of Thanksgiving, I thought it was a good time to take a moment and think about some things I am thankful for.  This is by no means a complete list, but here are some things I am thankful for.

"Diversify" With Whole Life Insurance?

In response to my recent post about life insurance, a commenter said:

Great blog, thanks for your efforts. I'm curious if you think there is a diversification value in whole life insurance. That is, are there circumstances under which one is better off putting $500 per month into an S&P index and $500 per month towards a whole life policy as opposed to putting $1k into the S&P?

That's a good question.  Diversification can be powerful and sometimes whole life policies are marketed this way.  However, I think that they are often disingenuous in this regard.  For example, a policy might promise you a minimum 4%/year, but often what you get is not what you expect.  Also, the purported diversification is extremely costly in your example.  See below for more details.

Life Insurance - Do You Need It?

I have had a couple of people ask me about life insurance lately.  One thing that new attorneys sometimes don't realize is that once your bio and contact number go up on the firm website, you become target #1 for salespeople - after all, they "know you make a lot of money because you are a lawyer," right?  One of the areas that seems to be aggressively sold to lawyers is life insurance.  Lately, insurance salespersons are also approaching young lawyers under somewhat false pretenses by emphasizing their "certification" as a financial planner or something similar.  They say that they want to give the young lawyer a "free financial planning checkup" or something similar.  The attorney goes to a meeting with the insurance salesperson and "lo and behold!" it turns out that what the young attorney needs more than anything else (in the eyes of the salesperson) is insurance - typically life insurance.  The fat commission to the salesperson is not mentioned.

On the other hand, life insurance is not all bad - and can be something that you should have in some cases.  However, there are a whole host of confusing questions to consider.  I'll provide some answers below.

Restoring Dignity To The Law - Lawyers Part 1

In previous posts (Part 1 , Part 2) I saluted the new blog Restoring Dignity To The Law and it's mission to restore dignity to the law.  I also discussed some ideas about how to restore dignity to law students.  But what if you are already a practicing lawyer?  Here are some ideas about restoring dignity to the practice of law:

Blatant Conflict Of Interest?

JJD's post on The Jobless Juris Doctor alerted me to this ABA article which includes the quote:

David N. Yellen, dean of Loyola University Chicago School of Law and chair of the ABA subcommittee that considers what consumer information law schools should be required to report, tells the Law Bulletin that law schools need to be more transparent about job prospects.

"I believe the time has come to mandate that law schools publicly disclose more information about job outcomes," Yellen is quoted saying.

My first reaction was "Good!  At least some law schools are starting to acknowledge their responsibility! Way to go, Yellen!"

However, my second reaction was - "Wait a minute.  This guy's the dean of a law school and he chairs the committee that sets the policy about what information law schools have to provide and how they will provide it to their consumers/students?  How is that not a blatant conflict of interest?"

That prompted me to do a little digging and what I found will most like stun you, horrify you, and explain why the ABA has not taken any action in this regard.  Brace yourself and see below.

Restoring Dignity To The Law - Those Entering Law School Part 2

In Part 1 we saluted the new blog Restoring Dignity To The Law and it's mission to restore dignity to the law.  We discussed some ideas about how to restore dignity to law students - and we present more below.

Restoring Dignity To The Law - Those Entering Law School

A recent new blog entitled Restoring Dignity To The Law has dedicated itself to its titular mission of seeking to restore dignity to the law.  That's a really tall order.  I am reminded of the words of Daniel Burnham, one of the designers of Chicago - "Make no small plans, for they have not the power to stir men's blood." 

Like the author of the blog, I have noticed a significant decline in the dignity of various aspects of the practice of law over the last two decades.  It's actually kind of insidious - like a crumbling decay that just gradually goes on in the background and you really don't notice how bad it has gotten until someone calls your attention to it.

I have a few thoughts about restoring dignity that I will throw out - and I'll do it in stages so that the posts don't get too long.  For this first post, I'll talk about some ways to restore dignity to those entering (or considering) law school.

PawnStars and Pawnshops

OK, I admit it, I am addicted to PawnStars.  In case people don't know, PawnStars on the History Channel is a reality show that follows the owners of an upscale pawnshop.  People bring very diverse merchandise to the shop - including fine art paintings and museum-quality civil war relics - and the owners price it and negotiate with the sellers.  The negotiations are fascinating - as are the refurbishment the owners do on many of the purchases. PawnStars got me interested in pawnshops and there are a couple things that I learned that I will discuss below.

Game On!

Wow.  The Presidential Commission on Reducing the Public Debt released its draft proposal today and it really puts a lot of options on the table.  Here's a New York Times article summarizing some aspects of the plan.  This could be the start of a very large discussion that changes the fundamental operating parameters of tax-and-spend government.  Or else it could be a flash in the pan like President Bush's bi-partisan, blue-ribbon tax panel in 2005.

Will the new proposal actually be the catalyst for serious change - or will it operate much like the Bush panel - proposing great, practical ideas that are really for the best long term interest of the country, but get summarily ignored because politicians don't want to risk telling voters that they will actually have to pay for the benefits that they are getting?  Let's take a look below.

Investment Advisors - Part 2 - Market-Beating Advice

In Part 1, we took a look at several types of investment advisors.  We concluded that if you have very little experience at investing, then it may be cost effective to go to a fee-based financial planner to get a basic education about investing - although a similar education can be had by reading books.  However, most other types of investment advisors (at least in my experience) don't deliver an increased return on a consistent basis. However, there are a couple of things that have been working well for me for the last few years to deliver above-market returns - and I'll tell you about them below.

Investment Advisors - Should You Have One?

A reader recently sent me the following question:

I've just discovered your blog and have enjoyed reading through your prior posts.  I'm curious about your thoughts on when to use an investment advisor/portfolio manager and when to go it alone.

That's a good question.  Let's take a look at the types of investment advisors and their potential services below:

Emergency Fund Example

Here's a comment that I got in response to a recent article on Emergency Funds:

So, given the reality that the average associate is using all 'extra' money to pay student loans and probably isn't saving much more than max 401(k)/IRA contributions (if that), do you advocate having a separate non-retirement brokerage account for emergency fund purposes, or is it good enough to have the ability to borrow from the 401(k)/withdraw from the IRA if needed? This isn't hypothetical; I'm a second year associate with about $50,000 in retirement savings, a few hundred in a traditional brokerage account, and never more than $2,000 in the bank. A HELOC isn't an option, as I live in NYC and rent.

That's a great comment and it raises several points to consider.  Let's take a look at them below.

The Hidden Cost of Emergency Funds

"Emergency Funds" - It seems like just about every financial advisor these days wants to tell you you are doomed (DOOMED!) if you do not have an emergency fund.  Most of them agree that an emergency fund is an amount put aside in a savings account or money market that you can quickly access in case of emergency.  How much?  Well, some say 3 months, some 6, some 8 or 9.  Also, some base the number on living expenses and others base the number on salary.

I say that emergency funds - as envisioned by the "experts" - have significant hidden costs (100K+) over the life of the average employee.  Also, there is no need for the "expert's" vision of emergency funds.  The average person can set up something that provides more value with no loss of timeliness of access.  Read on below.

TIPS Are Not Good Inflation Hedges

TIPS - Treasury Inflation-Protected Securities - are a fairly recent type of government bond that provides the owner with interest at a rate formed by adding two factors (1) a fixed rate, and (2) an adjustable rate based on inflation.  The concept is that the total interest paid on the TIPS goes up when inflation goes up, so the TIPS are sold as inflation hedges.  The benefit to the seller (US Government) is that they can typically sell TIPS to the public at a lower price than regular bonds because the buyers figure that the payment will go up when inflation goes up and so are satisfied with a lower initial interest rate.  TIPS have become very popular, but most people don't seem to understand that they are not really getting what they think that they are buying - and that other options would most likely be better.  Below, we will discuss the downside of TIPS and what people might want to consider doing instead.

Taxing the "Rich"

In previous posts, I described our federal taxes as taxing the "hardest workers more".  It seems that some people disagree and prefer to characterize the increasing federal income tax rates as higher taxes on the "rich".  However, that's not right by a long shot.  It seems like there is a fundamental misunderstanding of both what constitutes "rich" and how the tax code works to tax income from people that are "rich."  As I will show below, the federal income tax really hits hardest on those with high salary incomes (the hardest workers) rather than the rich (those with high assets).

Is Earning A LLM Worth It?

I have occasionally been asked by law students whether they should go for an LLM.  Earning the LLM is quite expensive and there have been a number of posts lately (ATL, WSJ, Law) debating its relative merit.  If you are a law student considering an LLM - or a foreign student considering an LLM, please read below.

Love and Taxes - Part 4 - Upcoming Tax Changes

This is the final part of a 4-part series on taxes for lawyers considering getting married.  We discovered that for two lawyers getting married, filing as married-joint vs. married-seperate does not provide much in the way of impact (Part 1), but that declining to get married so that they can continue to file as single saves them about $9,300/year - and could save them $60,000 if they are willing to delay the wedding 5 years (Part 2).  We also found in Part 3 that having a child does not impact their taxes much - it only lowers their taxes about $1,000/year - but that switching from filing as single to filing as married-joint costs them an additional $10,000+/year in taxes - if both spouses continue to work.  On the other hand, if one spouse stops working, the total tax liability for the couple will be $10,000+ less than it would have been if the worker was filing as single.

In this Part, we will take a look at the potential impact of some of the proposed tax raises - and see if they help the young lawyer and her spouse live the American dream.

Love and Taxes - Part 3 - What About The Baby?

In Part 1 of this series, we met a young lawyer who is concerned about the tax implications of marrying her boyfriend.  Although we found in Part 1 that there is not much difference between them filing as married-joint as opposed to married-separate, we discovered in Part 2 that there is a very significant difference in taxes owed if they each file as single instead of as married - $9,300/year.  Further, if they delayed the wedding for a few years, they could save $60,000 on their taxes.

In her original e-mail, the young attorney mentioned that she was thinking about filing as single until she had her first child - and then switching to married-joint.  Below we will take a look at what impact having a child has on her taxes.

Love and Taxes - Part 2 - Filing Married vs. Single As A Lawyer

In Part 1 of this series, we met a young lawyer who is thinking of marrying her boyfriend, but is concerned about taxes. In Part 1, we compared filing as married-joint with filing as married-separate and found that there is really not much difference, but married-separate may be slightly worse.  However, what if the young couple decides to delay getting married?  Would you be surprised to find out that by delaying their wedding they could spare themselves paying $60,000 in taxes?  (Yeah, you read that right - $60,000!).  Read on below.

Love and Taxes - Part 1

Ahhh ... Young love - and taxes?  We all acknowledge our responsibility to chip in and pay for our society - although there is a lot of disagreement about who pays how much and what gets bought with the tax dollars.  In terms of personal finance, taxes are especially important as a practicing attorney because you pay so darn much of your income in taxes.  Additionally, tax considerations can impact your other life decisions as a lawyer - like whether or not to get married - like the young lawyers in this recent e-mail that was sent to me:

Law School Deans Discuss State Of Legal Education - ChicagoLawyer

I just happened to read an absolutely excellent article in the September issue of Chicago Lawyer entitled "Law School Deans Discuss The State Of Today's Legal Education."  The article is a panel discussion among the Deans of John Marshall Law School (Tier 4), Chicago Kent Law School (#80), University of Chicago Law School (#5), DePaul University Law School (#98), and Loyola Law School (#78).  Now, Chicago Lawyer is geared toward practicing attorneys rather than prospective law students, so the Deans have an opportunity to tone down their marketing (not off, but down).  By seeing how the Deans talk about the issues among themselves, you can really learn a lot about how they view themselves and how they relate to students - let's take a look at some insightful sections below.

Law, Detroit, and the Gold Rush

In a comment in response to my recent post about how a law professor can feel un-rich while still making more than $250K/year, one commenter suggested that the legal industry in America is like the Detroit auto industry 30 years ago.  By this I took it to mean that the legal industry has been operating generally free of competition for decades and has grown slack, complacent, over-paid, and used to making their product their way - and in for a great fall over the next couple of decades.

That got me thinking - I can see the parallels in that both the legal industry and the auto industry are not doing well, but there are a lot of differences between the industries, too.  As I thought more about the cost structures, the products and how they are sold through dealerships, and several other factors, the analogy started to work for me less and less.  So I asked myself - what would be a better analogy to the state of the legal industry at this time, especially from the point of view of those thinking about going to law school?  Here's what I came up with:

Not Rich at $250K - It's How You Live, Not What You Make

There has been a lot of talk lately about a recent post from a University of Chicago professor wherein the Professor mentioned that he made more than $250K, but did not feel "rich".  Here's Above The Law's take on it - as well as the take from Sweet Hot Justice and the ABA.  Some commentators have been critical of the Professor, but let's take a look at his situation as a way for young associates and those considering law school to gain insight into what their life will be like if they are lucky enough to win the law school lottery and earn top dollar.  I previously talked about why 145K/year does not go as far as new law grads think it will, but now we can get an example of what life is like for a lawyer more than 10 years out of law school.

The Bubble In Bonds Part 3 - Other "Bond-Like" Instruments

This is Part 3 of a 3-part series about bonds.  In Part 1 of this series, we discussed that while bonds are generally believed to be "safe", they some bonds may actually lose 40%+ of their value in a rising in a rising interest rate environment - and from our current historically low interest rates, interest rates have no where to go but up.  In Part 2 we discussed some ways to invest more safely in bonds so that when interest rates rise and the current bond bubble bursts, you are not faced with worse losses than in the 2008-2009 stock market decline.  In Part 3 we will talk about some bond-like investments that you might consider in addition to or instead of bonds.

The Bubble In Bonds Part 2 - How To Invest More Safely

This is Part 2 of a 3-part series about bonds.  In Part 1 of this series, we discussed that while bonds are generally believed to be "safe", they some bonds may actually lose 40%+ of their value in a rising in a rising interest rate environment - and from our current historically low interest rates, interest rates have no where to go but up.  In Part 2 we will discuss some ways to invest more safely in bonds so that when interest rates rise and the current bond bubble bursts, you are not faced with worse losses than in the 2008-2009 stock market decline.

The Bubble in Bonds Part 1 - Appreciating Risk In Bonds

We know all about the bubble in stocks in 2000 and the more recent housing bubble, but many people don't seem to recognize that we are in a huge bond bubble right now.  However, a few people seem to be catching on - see this post and this article.  The bubble in bonds can be really dangerous because many people seem to associate "bonds" with "safety" and fail to appreciate that there is a huge difference in risk between bonds - even bonds issued by the same issuer just having different maturities.  In this series, we will discuss 1) some ways people fail to appreciate risk, 2) how to invest more safely in bonds, and 3) other bond-like instruments to consider that may be safer than bonds.  Part 1 of this series starts below.

Social Security Part 2 - Comparison To The Market

This is Part 2 of a 2-part series on Social Security.  In Part 1, we took a look at how the harder you work, the less you get on a percentage basis from Social Security.  In Part 2, we will take a look how your "return" on your Social Security "investment" compares with what you could get in the market.

Social Security Part 1 - Work Less, Get More!

Let's say you are a very hard worker and you manage to earn $106,800 this year (which happens to be the limit for Social Security) you pay 6.2% of your income in Social Security tax ($6,621.60).  On the other hand, someone else works part time (leaving them with plenty of free, enjoyable time) and only earns $9,132 for the year.  They also pay Social Security tax of 6.2% on their income which is $566.18.  Let's assume that both individuals work at the same amount, adjusted for inflation, during the 35 years of their working lives.  Did you know that when it comes time for retirement, the lesser-working person will receive Social Security payments of around $8,218.8/year - about 14.5 times the amount they paid each year in tax - and the harder-working person will receive payments of about $30,672/year - only about 4.6 times the amount that they paid each year in tax?  To put it another way, the lesser-working person gets more than three times the amount of benefit from each dollar of Social Security taxes they pay than the harder working person does!

This is Part 1 of a 2-part series on Social Security.  In Part 1, we will take a look at how the harder you work, the less you get from Social Security.  In Part 2, we will take a look how your "return" on your Social Security "investment" compares with what you could get in the market.

Get The Benefit Of Law School Without The Loans

Let's assume that you are an undergrad student majoring in psychology - which a lot of pre-law students actually major in.  You look up the employment numbers for people entering the labor market with a psychology undergrad degree and are horrified to learn that the average starting salary is $32,358 for psychology majors. You realize that the salary is not enough to afford a middle-class lifestyle and start looking around for what you can do to raise it.  Often, students in that situation start thinking about going to law school.  However, as we have previously noted, 6 out of 10 students that go to law school don't get the job that they want.  Fortunately, there are a lot of other options you can consider - options that it seems are being overlooked by a lot of students today and could put you in an even better position than going to law school!  Below we will discuss some ways to get out of your trap by getting the financial benefit of Law School without taking on the loans.

A New Mental Image For Law School

In my recent post "Greed and Horse Gambling" I compared 1) how some people who have a gambling problem are unable to reasonably evaluate the odds of winning and lose large sums of money based on the erroneous belief that the odds will somehow be different for them than for everyone else, with 2) how some potential law students make similar unreasonable decisions to go to law school.  I was just answering some comments in the article and I noticed that Google's Adwords advertising apparently matched the words in the article with this disturbing graphic (edited to remove company name):

Wow.  It struck home with me because before I read the caption I assumed that the person in the ad was a lawyer - probably based on the suit and tie and that he appears unhappy (has anyone else noticed that if you see an ad with a person in a suit and tie and they are unhappy, it always seems to be a lawyer?)

My second thought was that the graphic could very easily be applied to law school.  The students that are going to law school certainly don't think that they will lose everything by making a bad decision.  "Somehow" that $200K in tuition and expenses will get paid for - even though 6 in 10 students don't get the job that they want - and "somehow" they will still be able to have a great life with the millstone of huge debt hanging around their neck.  Unfortunately, in fact, gambling addiction hurts a lot more when you gamble on going to law school because the student loans are NOT dischargeable in bankruptcy!  If you lost it at the casino, you could discharge it in bankruptcy in most places - not so with student loans.

See that graphic, potential law students?  For the majority of you (60%), that's you.  Actually, because you won't be able to discharge the loans in bankruptcy, you will wish you had it as good as the guy in the picture.  Please, please be very careful when considering whether to go to law school.  It's the worst time in decades to go right now.

Greed and Horse Gambling

There's an interesting post over at The People's Therapist (via AboveTheLaw) entitled "The Cart and The Horse" that presents a different take on the question that we have recently been addressing about going to law school here and here.  The author worked in big law for multiple years and then decided to become a therapist focusing on lawyers.

The author notes an aspect that I have seen recurring with greater frequency more recently - that students go to law school without knowing and appreciating what they are getting in to.  I think that the author is dead on on some points, but maybe a little off on others.

When Is It Reasonable To Go To Law School? Part 2

In Part 1 of this inquiry, we set forth a determination methodology for figuring out whether it was reasonable to go to law school.  In summary, assuming that you are not independently wealthy, and you definitely know what the practice of law is like and you want to practice law, then perform two calculations depending on your nature. If you are more about personal fulfillment, then determine the minimum amount of income that you need and the amount the 50th percentile makes after law school.  If the post-law school amount exceeds your requirement for your projected working life (including potential family expenses and after loan payments and taxes) then you are free to go.  On the other hand, if you are more about maximizing your personal utility, then determine over your working life the amount you would make at your backup plan vs. the amount the 50th percentile makes after law school (including loan payments and taxes) and go with whatever is greater.

In Part 2, we will take a look at some variables that might influence our calculation one way or another such as; rank of law school, whether you go a scholarship, undergrad degree and more.

When Is It Reasonable To Go To Law School? Part 1

On the blog "But I Did Everything Right Or So I Thought", Angel recently posted an article entitled "Who Should Go To Law School?".  In the post, several criteria are set out and if the potential law student satisfies the criteria, then the author is " on board with you going to law school and I'll dance at your graduation."  The criterion are generally very sensible, but I have some structural differences with regard to the consideration and a somewhat different take on the criteria.  Read below for my take on whether you should go to law school!

The Lost Generation?

In response to the recent series of posts with regard to supply and demand (Part 1, Part 2, Part 3, Part 4), Coder E asked whether law students that were squeezed out today due to supply and demand would be part of a "Lost Generation" that will never get a job, or would they be re-considered if and when more lawyers are needed.  Once again Coder E has posed a great question - but a question that includes several competing concerns.  We will address the "Lost Generation" issue below.

Supply and Demand - Responding to Comments

The recent posts about supply and demand and its impact on the ability of law students to get a job at a law firm seem to have garnered some interest.  You can read the posts here: Part 1, Part 2, Part 3, Part 4.  Below I will respond to some of the questions that people have raised.

What Supply and Demand Mean for Law Students - Part 4

In this part, we continue our investigation of supply and demand in the legal profession and its impact on the hiring odds for law students  - Part 1 is here. Part 2 is here. Part 3 is here. In this part I we will investigate the timing of a decision to go to law school in light of current market conditions and compare it to other recent market experiences.
 

What Supply and Demand Means for Law Students - Part 3

In this part, we continue our investigation of supply and demand in the legal profession and its impact on the hiring odds for law students  - Part 1 is here. Part 2 is here. In this part I will contrast the current supply-and-demand impacted hiring odds with the previous situation in 2003 when the pendulum was in the opposite direction.

What Supply and Demand Means for Law Students - Part 2

In this part, we continue our investigation of supply and demand in the legal profession and its impact on the hiring odds for law students  - Part 1 can be found here. In this part, I will detail some of my personal observations from over a decade of recruiting law students.

What Supply and Demand Means For Law Students - Part 1

It seems as if one reason that law school still remains attractive to potential law students today is that they really don't understand supply and demand - and what it means for their careers.  But then, how could they?  They have not had much experience with supply and demand and its impact.  Their experience has been to try to get into a great school, but if they fail, then they can typically still get into a decent school.  They still end up having a good experience, but maybe not the best.  I think that some students subconsciously apply this methodology to their decision to go to law school.  They think that they will try to get into a top firm, but if they are unsuccessful, then some lower paid firm will certainly offer them an opportunity.

I think that the potential law student's prior experience also may be a reason why potential law students are so resistant to listening to the advice of recent grads - quite simply, the experience of the recent grads with the job market does not square with the experience of the law students with regard to school admission.  We will take a deeper look at this below.  Also, although I was going to try to focus on shorter posts, it seems like when I find I have something to say, I like to state it completely.  Consequently, I am going to break this discussion into three parts.

Do Clerkships Make Financial Sense? Part 3

In Part 1 of this series we discussed the cost to the student of completing the clerkship and found it to be an estimate of $95K.  In Part 2 we discussed one of the typical reasons cited for undertaking a clerkship - that it "will make you a better lawyer" - and we found that the comparison was flawed.  That typically people were comparing themselves before the clerkship to themselves after the clerkship - and they really should have been comparing themselves after the clerkship to themselves after having completed a year at a law firm.  In this post we will address the remaining reasons for performing a clerkship that are typically cited.

Do Clerkships Make Financial Sense? Part 2

In the first part of this series, we discussed the cost to the law student of performing a clerkship.  We determined a ballpack estimate that the clerkship will cost the law student about $95K.  Now let's take a look at the typical reasons to complete a clerkship that law schools tell students - and whether they are warranted in practice.

Do Clerkships Make Financial Sense? Part 1

Law Schools typically push graduating students to undertake clerkships, but do clerkships really make financial sense for the law student?  The law student that undertakes a clerkship will spend one to two years working for a judge, often writing or revising the judge's opinions or performing other research work.  Law schools fixate on the "prestige" of the clerkship and the "valuable experience."  However, it is often only top students that are accepted into clerkships - the same students that would be taking the (admittedly few) jobs available at the top of the salary range.  We will take a look at the pros and cons of clerkships below.

The 4 Ways That New Associates Can Free Up The Most Cash To Pay Down Loans

Around this time every year, a new crop of associates starts at law firms around the country.  This year's crop is much smaller in the past and has had to fight a lot harder to get in.  Also, the recent layoffs have forced associates to confront the possibility that their employment may be eliminated quickly at any time - and that a new job in another law firm may not be available.  This new reality has made the new associates a lot more conservative in their financial consumption choices on average - which is probably good for their long term futures.  However, here are the five areas where associates could still free up a bundle of cash that could go toward loan payments.  More after the break.

Pogo Goes To Law School

As reported at AboveTheLaw and originally reported in the Newark Star-Ledger, there is a great recent article entitled "Irate law school grads say they were misled about job prospects."  Now, I won't go so far as to call law school a scam, but the article does have a good point that prospective law students are not able to clearly evaluate the law school opportunity prior to attending (and usually graduating) from law school.  Also, it seems clear that the law schools are not being as transparent as they could be with regard to hiring information - even accounting for variations due to the recent economic crisis.

Buying Vs. Renting - Followup

In our recent four-part series (Part 1, Part 2, Part 3, Part 4) we discussed calculating the total cost of buying vs. renting in order to determine which was the better financial decision.

I have had several great comments and suggestions both on the site and via e-mail.  These comments focused on 1) clarifying the tax deductibility of real estate taxes and mortgage interest, 2) including rental increases, and 3) identifying the ultimate online calculator for the buying vs. renting comparison.  We will discuss these further below:

Appreciation and the Total Cost of Buying vs. Renting - Part 4 of 4

This is Part 4 of our 4-part series in toward establishing a methodology for determining whether renting or owning is more financially advantageous.  Part 1 can be found here.  Part 2 can be found here.  Part 3 can be found here.  In Part 4, we will be discussing Appreciation and Transaction Costs and working though some specific examples of calculating the cost of renting vs. owning.  Part 4 starts below:

Equity and Financing Costs - Buying vs. Renting - Part 3 of 4

This is Part 3 of our 4-part series in toward establishing a methodology for determining whether renting or owning is more financially advantageous.  Part 1 can be found here.  Part 2 can be found here.  In Part 3, we will be discussing the Equity and Financing costs associated with owning a house.  Part 3 starts below:

Ownership Costs - Buying vs. Renting - Part 2 of 4

This is Part 2 of our 4-part series in toward establishing a methodology for determining whether renting or owning is more financially advantageous.  Part 1 can be found here.  In Part 2, we will be discussing the Ownership costs associated with owning a house.  Part 2 starts below:

The Varied Housing Market - Buying vs. Renting - Part 1 of 4

In a recent comment, an associate posed the following quandry:

I think many associates erroneously think that renting a place to live is always throwing money away, while buying a house is always good, not understanding that they're investing (or "investing") on borrowed money in an asset that may not appreciate it at all.

This is a question that I get asked a lot.  Although at first it seems like a simple question, there are actually several issues wrapped up in the comparison of renting vs. buying.  We will unpack and examine these issues and develop a formula for making a direct financial comparison in this 4-part series (it is just too big for one post).  In Part 1, I will review that the housing market varies widely geographically and that any determination of ownership vs. renting really relies on your local factors.  Part 1 starts below:

Efficient Charitable Donations Can Earn You $300K For Retirement

In this recent post about the book Debt Is Slavery, we touched on the author's proclaimation that 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 advocated "putting stuff back into circulation" by selling it or donating it and taking the write-off on your taxes.  This aspect may also be particularly relevant right now as people being preparing their taxes.

However, I have noticed that people, especially some lawyers, just don't want to let things go or donate them because they feel like they are not getting a good "deal" on the exchange.  For example, they don't think that recouping 33% (or 28% or 35%) of the fair market value by donating the item is a "fair price" or that is does not match the emotional value that they assign to the item. 

Although the decision to donate or sell an item seems like a straightforward transaction, there are actually some financial aspects that might not be immediately apparent, but can be valuable to consider. These aspects could actually have a financial impact worth several multiples of the fair market value.  More on this below.

"Closed" Mutual Fund vs. "Closed End" Mutual Fund

One thing that I see a lot is that there are certain investment products that are marketed (and are consequently well-known) and that there are other investment products that are not marketed, or are marketed much less (and consequently are not very well-known at all.)  Unfortunately, in many situations the less-marketed investment product may actually be the better choice for some investors.  First, a note - this is not investment advice, just educational advice.

In this regard, I have had at least 3 lawyers in the past month confuse a "Closed Mutual Fund" with a "Closed-End Mutual Fund."  That's unfortunate because closed-end mutual funds can often provide an investor with substantially better returns - as we will discuss more below.

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.

Going Solo: 4 Things To Keep In Mind

In this earlier post, we discussed Solo Practice University (SPU) and whether taking some of their classes might be helpful for a newly-minted JD looking to go solo.  Since the article was posted, we have had a number of solos commenting and I have reached out to a few attorneys that I know who are in solo practice.  I have attempted to distill their wisdom into four broad categories that I describe after the jump.  I hope that this will be of interest to those considering solo practice!

Books and Lawyers - Rich Dad, Poor Dad

In this earlier post, I discussed the bestselling book "The Millionaire Next Door" and what it might be able to teach lawyers.  "The Millionaire Next Door" was one of the first personal finance books that really helped me improve and shape my financial thinking.  Robert Kiyosaki's "Rich Dad, Poor Dad" (RDPD) was another.  As I will discuss further below, this post should in no way be construed as a blanket recommendation for all of Kiyosaki's products, but RDPD does have a few valuable lessons for lawyers.

Solo Practice - Even With SPU's Help, It's Still A Long Shot

We recently saw the founding of Solo Practice University (SPU) - their intent is to provide training for solo practitioners.  There have been a number of posts back and forth between SPU and a number of bloggers (first, second) that are recent grads with regard to whether SPU is providing a beneficial service or is creating a false impression of viability of the career of a solo practitioner.  Additionally, the blog of the founder of SPU has hosted a lively discussion.

Is solo practice a viable, realistic option for a new law grad?  We will examine this question below.

The Beginning - Prospective Law Students: Part 2

In Part 1, I discussed how the gradual rise in tuition, stagnation in salaries, and decreasing number of legal jobs have fundamentally changed the value proposition for attending law school over the last 10 years.  Attending law school has morphed from a reasonable investment in a student's furture to playing Russian Roulette with the future - lose and you will be be stuck with hundreds of thousands of dollars in debt that can not be discharged in bankruptcy - your financial life will be effectively "dead."

With this in mind, a few months ago I found myself in a conversation with several prospective law students.  Their eyes were bright!  They knew all about this whole law school thing and just how it was going to go once they started practice!  Read more about our discussion below.

The Beginning - Prospective Law Students: Part 1

Here at The Legal Dollar I want to give financial advice for anyone working in or considering the legal field - from prospective law students pondering the financial rammifications of law school all the way to retired attorneys endlessly re-telling their most cherished war stories.

My goal is not to let any one age or period of a lawyer's life overwhelm the content of the blog so that lawyers of all ages can find something that is useful to them.  That being said, there are a few periods of a lawyer's life that just cry out for more attention and coverage because the decisions made at that time are so drastically life-altering.  One of those times is when a prospective law student is deciding whether to go to law school.  This time is especially important to discuss because the prospective law students typically don't have that much life experience and they are bombarded with very concerted advertising compaigns that distort the truth of the opportunity.

I don't want the "deciding whether to go to law school" time frame to dominate The Legal Dollar, but it is certainly a legitimate topic for discussion - and it also provided the final kick-in-the-pants to get me writing this blog.  I'll tell you a little about my posterior-booting and some advice for those considering law school after the jump.

Three Social Security Benefits That Senior Counsel Could Be Using

Here are some relatively unknown (but potentially nice) benefits that Senior Counsel (65-66 years old) can use.  Why should you care if you are younger than 65?  Well, maybe if you bring it to the attention of someone over 65 and they use it to put money in their pocket, maybe they will be grateful.  Maybe you can get a dinner or a referral out of it - at least some good will!  After all, you could be putting several thousand dollars in the pocket of a senior counsel.

As described more thoroughly in this article, senior counsel over full retirment age (65-66) can take advantage of a few unusual strategies to put money in their pocket right now from Social Security.  I actually brought this to the attention of a couple of senior counsel and they are taking advantage of it right now.  We will discuss some of the specific suggestions below.

Considering Inflation On "Equal" Investments

In response to my recent post entitled 5 Reasons Why Extra Cash Should Go To Retirement ASAP, one insightful commenter had this to say:

I think that to be fair, you need to take inflation into account when you assume rates of return and amounts of investment.  In terms of real dollars, saving $2000 at age 25 is very different from saving $2000 at age 50.

And 8% in real returns strikes me as pretty unrealistic.

These are certainly legitimate comments!  Let's take a look at the impact of inflation and what return we might expect.

5 Reasons Why Extra Cash Should Go To Retirement ASAP

In a recent post, an associate posed the following question:

 -- My fellow associates have a vague idea that they 'should' be saving for retirement, but don't understand why waiting just five years is so detrimental. I've tried explaining the power of compounding to a few, but to little avail.

First, let me acknowledge that it is really tough to get a good legal job these days -  and even if you go get a good legal job, you often have a crushing amount of debt and your expenses may not leave you with much (if any) free cash for investing.  However, for the sake of this post, we will assume that by some rare good fortune, an associate has gotten a good job and has a little extra money above the associate's subsistence needs.  Consequently, the associate is faced with the choice of whether to buy toys now (which gives pleasure today) or save/invest the extra for the rather nebulous goal of "retirement."  However, retirement seems so far away that it is difficult to even conceive of it.  Also, the associate thinks that they will be making more money later, so it will be even easier to save for retirement later - so why deny themselves today?  Besides, they deserve it! 

I can't control the choices that the associate will make, but I want to be sure that the associate fully understands the consequences of their action (or inaction) - and how investing for retirement right away will actually turn out to be the cheapest, easiest, and least painful way to have enough for retirement.

Taking Loans vs. Cashing Out Roth IRA To Pay For Law School

In response to a recent post, I received the following comment:

What is the wisdom in paying for law school using money in a ROTH IRA as opposed to taking the money out in loans? I saved a lot in my teens and 20's for the money that's now in my ROTH, and I can't help but wonder if it would be a good idea to use it now (tax-free as a "qualified educational expense") to pay for law school instead of burdening myself with new loans.

Frankly, my first thought was "Geez.  Must be nice!"  My second thought was to give a tip of the hat to someone dilligent and frugal enough to save up a Roth IRA while in their teens and 20s.  Thinking about it a little more, most students that return to law school after their 20s may very well have some retirement assets set aside in a Roth, so we will take a look after the jump at some considerations and potential dangers involved in this decision.

Conquering The Psychological Aspect Of Loan Repayment

When many law students and new associates consider their loans, they often make inaccurate assumptions.  One assumption that we previously mentioned here is that they often underestimate just how large their loans will be.  Another assumption that is often wrong is how long it will take them to pay off their loans.  For example, in this previous article, we set out a hypothetical financial snapshot of a new associate earing top dollar and illustrated that the associate may have much less available for loan repayment then may be initially estimated from their salary.  However, in practice I have seen that the psychological aspect of loan repayment is often just as important in determining whether the associate is going to be able to pay off their loans on schedule.  Unfortunately, the psychological aspect is often ignored or not appreciated by the new associate until they are a year or more into their repayment plan.  Below we will discuss some of the psychological aspects of loan repayment and how you can use them to maximize your chances of being able to pay off your loans on your schedule.

Some Financial Suggestions To Help New Associates

In my recent post Why $145K Is Often Not Enough To Max Your 401k, I tried to outline the typical expenses (based on cost of living information from Bankrate and my experiences and interviews with associates) of an associate living an average professional lifestyle while making top dollar - and to show some general parameters of how quickly the associate's compensation was eaten up by taxes, living expenses, and loan payments.  My goal was not to suggest that it was impossible for the associate to pay off their loans and max their 401k, but to give potential associates some hard numbers that might temper their expectations about how far their salaries will actually go.  In other words, even associates making top dollar are going to have to live reasonably frugally if they want to pay off their loans and max their 401k - they are not going to be able to afford $145K of toys.

Fortunately, a few associates that are more frugal than most stepped up and gave some great suggestions about how new attorneys can economize and plan their financial reality in order to make paying off their loans a reality.  I like the idea that someone might read their suggestions and use them to their own advantage.  Below I will summarize their suggestions, as well as some of my own.  Also, if you have any great suggestions, please share them in the comments or e-mail me.