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.