Overvaluing a Law Degree

Matt over at The Law School Tuition Bubble does a good job with research and analysis.  In a recent post entitled "Another Day, Another Study Overvaluing A Law Degree" he reviews a publication entitled "The College Payoff" from Georgetown University's Center on Education and Workforce.  Georgetown suggests that with a law degree your lifetime earnings will be 4,032,000 - far in excess of the lifetime earnings of those with a bachelor's degree (2,268,000) and an associate's degree (1,727,000).

Best and Worst States To Make A Living

MoneyRates has a pair of interesting articles - the 10 best states to make a living - and - the 10 worst states to make a living. To calculate the lists, they took into account the following and then calculated an adjusted-average income for each state:

• Average state wages
• State unemployment rate
• State tax rate
• State cost of living

Guess which state is the best to make a living?

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.

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. 

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.

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:

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.

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:

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:

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.

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.

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.

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.