Priorities - Biglaw junior associate

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Philip_Marlowe
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Joined: Fri Feb 13, 2015 12:08 pm

Priorities - Biglaw junior associate

Post by Philip_Marlowe » Thu Aug 24, 2017 1:48 pm

I've only posted a handful of times but I have found reading Bogleheads over the past few years to be incredibly useful in helping me learn about handling finances and, more importantly, learn to think critically about my financial goals and how to achieve them.

DW and I have been incredibly lucky the last few years. I am currently a second year associate at a biglaw firm and DW works in education. 2017 income is projected at $275k with an anticipated increase to $325k in 2018. We live in a HCOL area but have been lucky to keep our expenses (relatively) low while enjoying a high quality of life.

I actually enjoy biglaw for the most part and don't see myself leaving in the next few years. DW enjoys her job and it's stable.

We're trying to figure out our saving/investing priorities for the next year or two and find ourselves torn. The options we are debating are:
  • Pay down debt more aggressively
    (pro: more flexibility, guaranteed roi con: debt is at low interest rates and we are already paying fairly aggressively)
  • Begin taxable investing
    (pro: good long term returns, simplicity con: market at historic highs, not tax efficient, locks up cash)
  • Save for downpayment on house
    (pro: we like the area and see ourselves here longterm con: housing is INSANE here and we would likely need to spend north of $1.5M to get something we want, that kind of expense terrifies us)
  • Save for additional rental properties
    (pro: cashflow and long term appreciation, we have enjoyed the experience of being landlords so far con: possible nightmare tenants, time intensive)
Very open to thoughts and suggestions. Thanks to all!

Total Assets: $360k
Total Debts: $-293k
Net Worth: $67k

Debt:
  • Promissory Note: -128 (2.04%, due 6/2026)
  • Institutional Student loan: -16 (0%)
  • First Republic Student Loan: -149 (1.95%, due 4/2021)
Assets:
  • Cash: 30
  • Rental: 178 (at purchase price)
  • Other: 3
  • Retirement: 149

David Scubadiver
Posts: 522
Joined: Thu Mar 24, 2016 8:40 am

Re: Priorities - Biglaw junior associate

Post by David Scubadiver » Thu Aug 24, 2017 2:04 pm

Welcome to the world of big law.

Are you maximizing 401(k) and 403(b) contributions? If not, get on it.

Also, each year, make sure you each contribute $5,500 to an IRA and convert it to a Roth. All of that will ensure you have several million dollars at retirement and also prevent you from overspending.

You mention being a landlord can be time intensive. I imagine that is true. But, so can being a lawyer. Are you able to do both/will you be able to do both when work picks up and you have no control over it?
Last edited by David Scubadiver on Thu Aug 24, 2017 2:26 pm, edited 2 times in total.

Jayhawk11
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Re: Priorities - Biglaw junior associate

Post by Jayhawk11 » Thu Aug 24, 2017 2:12 pm

former biglawyer (wife is a current biglawer) here:

As a second year it is still so early that you should be pretty conservative (who knows when the next 2008 is, what your work flow is, if your partners leave). To me that is (1) maxing the 401k, (2) paying down the debt. Think about losing your job tomorrow and having to service 1.5k a month on a teacher's salary. Once that debt is gone you can really sock away cash for a downpayment or extra rental. Plus, I know it's easy to say that it won't happen to you, but almost everyone in Biglaw burns out at some point.

I also find rental properties to be not very conducive to a biglaw lifestyle. You either need to spend decent money on a good manager, or else there will be a 12:00 a.m. call where you need to simultaneously unclog a toilet and turn a document. Your time is SO valuable right now, and your billing hours and becoming indispensable is way more important than anything else, except your family.

Good luck!

terran
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Re: Priorities - Biglaw junior associate

Post by terran » Thu Aug 24, 2017 8:59 pm

With the commonalities of high student loan balances and high salaries you might find a read through https://www.whitecoatinvestor.com/ helpful.

DC3509
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Re: Priorities - Biglaw junior associate

Post by DC3509 » Thu Aug 24, 2017 9:09 pm

Read a blog called the Big Law Investor. He has many excellent tips geared towards big law associates.

The biggest priority should be paying down the debt -- make extra payments, use most of your bonus money for it, etc. As others have posted, if something happens with the big law gig, you will tremendously regret that you didn't pay it off while you could. After that is done, then you can start thinking about other types of investing.

BH_throwitaway
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Re: Priorities - Biglaw junior associate

Post by BH_throwitaway » Thu Aug 24, 2017 9:40 pm

DC3509 wrote:
Thu Aug 24, 2017 9:09 pm
Read a blog called the Big Law Investor. He has many excellent tips geared towards big law associates.

The biggest priority should be paying down the debt -- make extra payments, use most of your bonus money for it, etc. As others have posted, if something happens with the big law gig, you will tremendously regret that you didn't pay it off while you could. After that is done, then you can start thinking about other types of investing.
That is extremely risk-averse. Though, to be fair, lawyers--especially biglawyers--are risk-averse to a fault.

I'm in very similar shoes to Marlowe, and this is my priority list:

0. Fill e-fund (done)
1. Max 401k (done)
2. Max Roth IRA backdoor (done)
3. Taxable brokerage for down payment (See below A) (70% complete)
4. Taxable brokerage for investments (See below A) (0% complete)
5. FRB 5-year fixed at 1.95% (see below B) (20% complete)

A. I put all of my leftover savings and full bonus into an equal-dollar-weighted blend of VWITX and VWLTX. The blended SEC yield just about equals/barely exceeds the FRB 1.95% rate and the blended distribution yield far exceeds it. Once I reach the balance needed for ("my" half of the down payment PLUS remaining FRB balance) I will transition contributions to VFIAX.

B. I make regular payments under my 5-year repayment schedule but I am planning to pay off in advance of the 48th month to receive the incentive interest credit. If you weren't aware, FRB offers a credit of interest paid over the life of the loan up to a maximum of 2% of the initial loan balance. Also, if you read the FRB loan documents closely, they are very clear and explicit in stating that the loan is NOT a student loan. You lose a number of statutory protections as a result, however, you also presumably gain the ability to discharge in bankruptcy.

If 2008 happens and my taxable brokerage gets mauled AND I get canned, I feel MUCH more secure having 5 months expenses in e-fund (plus 1 extra month buffer due to YNAB philosophy) and having additional liquidity in the taxable brokerage account than having paid off (some|most|all) of my FRB loan but with no remaining liquidity to float me. Indeed, if 2008 happens AND I get canned AND I've already bought the home, thus losing the brokerage liquidity, I'm fairly comfortable taking the credit hit and declaring bankruptcy with most of my assets protected by exemptions (retirement accounts and homestead exemption).

cantos
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Re: Priorities - Biglaw junior associate

Post by cantos » Thu Aug 24, 2017 9:57 pm

DC3509 wrote:
Thu Aug 24, 2017 9:09 pm
The biggest priority should be paying down the debt -- make extra payments, use most of your bonus money for it, etc. As others have posted, if something happens with the big law gig, you will tremendously regret that you didn't pay it off while you could. After that is done, then you can start thinking about other types of investing.
Hit the nail on the head, this one. A 2nd year associate has frankly no idea what it means to be a lawyer, or what it takes to stick, or whether he has what it takes to stick. Can the OP generate significant billings, put in significant time and face time, get along w colleagues, manuever the politics, do good work, and still maintain happiness at home? Will children change his course (he has a DW after all)? Will he be able to either generate new business in the long term, or be a big biller and be happy with that role? Can he resist the urge to spend like his fellow Joneses? Can he handle the stress and not fall into a drinking/spending/gambling pit? We older lawyers have seen too much...

Chug away. In the mean time, pay down that debt!

ThrustVectoring
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Re: Priorities - Biglaw junior associate

Post by ThrustVectoring » Thu Aug 24, 2017 10:56 pm

At those interest rates, I'd prefer to invest in your taxable account rather than pay them down. That is, of course, after maxing out tax-protected retirement space.

The reasoning is that prepaying debt has very poor liquidity. If you have $20k in savings and $100k in debt, you can make the debt payments for a while with your savings. If you just have $80k in debt, yeah you're paying less in interest, but you must have current income or default on your loans.

And at 2%, waiting will almost gain you ground on inflation. Hell, the interest rates you're paying are lower than 10-year treasuries at the moment. Pretty much all asset allocations in liquid investments (ie, stocks/bonds/cash) will put you ahead of debt prepayment, IMO. Well, 100% stocks might be too risky, but I'd gladly pay the 100 bps spread between high-yield savings and those loans.

DC3509
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Re: Priorities - Biglaw junior associate

Post by DC3509 » Thu Aug 24, 2017 11:22 pm

ThrustVectoring wrote:
Thu Aug 24, 2017 10:56 pm
At those interest rates, I'd prefer to invest in your taxable account rather than pay them down. That is, of course, after maxing out tax-protected retirement space.

The reasoning is that prepaying debt has very poor liquidity. If you have $20k in savings and $100k in debt, you can make the debt payments for a while with your savings. If you just have $80k in debt, yeah you're paying less in interest, but you must have current income or default on your loans.

And at 2%, waiting will almost gain you ground on inflation. Hell, the interest rates you're paying are lower than 10-year treasuries at the moment. Pretty much all asset allocations in liquid investments (ie, stocks/bonds/cash) will put you ahead of debt prepayment, IMO. Well, 100% stocks might be too risky, but I'd gladly pay the 100 bps spread between high-yield savings and those loans.
I agree that for most people in most circumstances, this is true. But for young attorneys, it is not. The reality is -- for many attorneys -- if you make it to biglaw, the money you make while you are there is more than you will make the rest of your life. Yes, if it all works out in biglaw, that won't be the case. But as other attorneys have posted, making it long-term in biglaw is very difficult. The exit options almost always involve a significant pay cut. And that's if you voluntarily plan the exit options. Some lawyers wake up one morning and find out the biglaw train has stopped. Suddenly.

Another reason why this strategy likely will not work for most lawyers -- it presumes that you will save and invest the money that you make above the interest rate on the loans. But lawyers are notorious for having major lifestyle creep and if you are not paying down loans, you are probably not investing the difference. Not that it cannot be done, just that it is rare.

WanderingDoc
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Re: Priorities - Biglaw junior associate

Post by WanderingDoc » Thu Aug 24, 2017 11:38 pm

Jayhawk11 wrote:
Thu Aug 24, 2017 2:12 pm
former biglawyer (wife is a current biglawer) here:

As a second year it is still so early that you should be pretty conservative (who knows when the next 2008 is, what your work flow is, if your partners leave). To me that is (1) maxing the 401k, (2) paying down the debt. Think about losing your job tomorrow and having to service 1.5k a month on a teacher's salary. Once that debt is gone you can really sock away cash for a downpayment or extra rental. Plus, I know it's easy to say that it won't happen to you, but almost everyone in Biglaw burns out at some point.

I also find rental properties to be not very conducive to a biglaw lifestyle. You either need to spend decent money on a good manager, or else there will be a 12:00 a.m. call where you need to simultaneously unclog a toilet and turn a document. Your time is SO valuable right now, and your billing hours and becoming indispensable is way more important than anything else, except your family.

Good luck!
Disagree completely. Contributing to a 401k, paying down debt, and "being conservative" pretty much guarantees the OP that he will be working as a lawyer for many decades to come. As mentioned earlier, this has a high burnout rate and can be highly stressful. What if he doesn't want to practice law in 5 years? Well guess what, if he takes your advice and socks money in a 401k/is "conservative" he will have no choice to continue to work, even if he hates his job. Solution? Invest in more rental properties. He can easily amass a few more rentals, yielding him $4000-6000 in monthly passive income (with or without a property manager). That way in 5 years, he can work in law because he WANTS to, not because he HAS to.
One day it suddenly dawned on me that I had won the real estate lottery. | I'm not looking to get rich quickly. I'm not looking to get rich slowly. I'm looking to get rich for sure.

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bottlecap
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Re: Priorities - Biglaw junior associate

Post by bottlecap » Fri Aug 25, 2017 6:35 am

Save as much as you can and pay down debt. That part is easy.

The big thing is your career.

Find a mentor in your firm - someone that is already successful. Learn from them what it takes to be successful and advance within the firm. With any luck, in 12 or 13 years, they'll retire and you'll inherit their clients and be set.

If you don't find your mentor, think about leaving for a new firm as a third or fourth year associate. That's when you still have value but aren't viewed as too expensive.

Good luck,

JT

Sportswhiz00
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Re: Priorities - Biglaw junior associate

Post by Sportswhiz00 » Fri Aug 25, 2017 6:49 am

Was in your shoes a few years ago, similar numbers. Maxed 401k and back door roths, but didn't contribute to 403b until loans were paid off. Paid every extra cent beyond that to loans and have never regretted it even though markets have gone up - in fact I've never even thought about the lost opportunity cost. Getting rid of loans made big law more tolerable and also prevented me from doing stupid stuff with the money. That is until I bought a house as a fifth year and was back to square one...live and learn.

Agree with others that you never know when big law train will end and you don't realize how big of a pay cut every exit option is until you start actually looking and crunch numbers to see how it will impact your life. And the problem gets worse as you get get to be Senior associate - you could be looking at 50% or more of a cut even for good in house opportunities, and it's even more for govt.

David Scubadiver
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Re: Priorities - Biglaw junior associate

Post by David Scubadiver » Fri Aug 25, 2017 6:57 am

Many years ago I was a guest on CNBC's money talk show.
My question was whether to pay off my student loans or invest my money. What I remember most about the experience is 1) Getting a haircut before heading to the Studio, 2) Getting makeup applied before the broadcast, and 3) Gettig a video cassette of the broadcast.

The advice, I recall as being largely worthless. If I had to guess, I was advised to do both to cover my bases--pay down the loans but also invest. I can't say I would advise anything differently if your loans were at 8% like mine were. But, please keep in mind that anybody who tells you to pay the debt off before investing is giving you bad advice.

Time is your friend and the earlier you are in the market to allow for doubling of your capital multiple times, the better. This is what you are after. Believe me when I tell you this: NOBODY ever got rich paying off student loans. The road to wealth is through investing not prepayment.

Of course if your goal is to be debt free and less wealthy, ignore this advice.

Someone said they never think about the opportunity lost by paying down their debt. That is great advice for one that has blown that opportunity. You don't have to blow it. You can take advantage of it and enjoy the fruits of a long term invested portfolio.

Leemiller
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Re: Priorities - Biglaw junior associate

Post by Leemiller » Fri Aug 25, 2017 7:28 am

bottlecap wrote:
Fri Aug 25, 2017 6:35 am
Save as much as you can and pay down debt. That part is easy.

The big thing is your career.

Find a mentor in your firm - someone that is already successful. Learn from them what it takes to be successful and advance within the firm. With any luck, in 12 or 13 years, they'll retire and you'll inherit their clients and be set.

If you don't find your mentor, think about leaving for a new firm as a third or fourth year associate. That's when you still have value but aren't viewed as too expensive.

Good luck,

JT
I don't know of any biglaw firm where this approach would work. I've only seen retiring partners hand over business to other partners. To really be set you need to bring in clients. I've seen two associates manage to pull that off, and they are both still no longer in biglaw. In each case they may be better off but it's hard to say.

Jayhawk11
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Re: Priorities - Biglaw junior associate

Post by Jayhawk11 » Fri Aug 25, 2017 7:33 am

Disagree completely. Contributing to a 401k, paying down debt, and "being conservative" pretty much guarantees the OP that he will be working as a lawyer for many decades to come. As mentioned earlier, this has a high burnout rate and can be highly stressful. What if he doesn't want to practice law in 5 years? Well guess what, if he takes your advice and socks money in a 401k/is "conservative" he will have no choice to continue to work, even if he hates his job. Solution? Invest in more rental properties. He can easily amass a few more rentals, yielding him $4000-6000 in monthly passive income (with or without a property manager). That way in 5 years, he can work in law because he WANTS to, not because he HAS to.

If his goal is to retire in ten years... well that's a whole different ball of wax. OP has given no indication that he doesn't want to continue a legal career for many decades, we're just all being realistic that Biglaw doesn't last that long for 98% of associates. You're conflating his current job (super high stress) with a legal career that can have great variations. I work for BigFed now... and it's a pretty chill gig.

Plus, there are a lot of ways he could invest aggressively that aren't rental properties, which, for the reasons pointed out above are very hard for a biglaw associate to manage. He could put his next bonus into crypto, for example.

Chadnudj
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Re: Priorities - Biglaw junior associate

Post by Chadnudj » Fri Aug 25, 2017 7:43 am

I don't think there is a right answer to this, really, but I lean towards saving excess money rather than paying off the student loan debt.

Right now, you can afford the student loan payments, and you even mention paying some excess. This is great. For now, and perhaps you'll make partner and pay off the loans on the regular payment schedule without a hitch. If you could guarantee that, at a 2% or lower loan rate, you absolutely should invest.

On the alternative, any large variety of things could happen -- your firm could crater (look up Dewey & LeBouef if you think this is impossible), there could be massive layoffs, an economic collapse (generally or in the industry you primarily represent), your department could shutter or lose key partners, etc. If you knew that would happen, you'd probably pay off the loans more quickly.

So, given that dilemma, and your low interest rates on your student loans -- save the money, invest it (I'd recommend something more conservative than 100% stock though, and maybe more conservative than whatever you're doing in your 401k), and most importantly DO NOT TOUCH IT OR ALLOW IT TO BE USED FOR ANYTHING OTHER THAN BEING EARMARKED TO PAY OFF THE LOANS IF SOMETHING SHOULD CHANGE IN YOUR EMPLOYMENT STATUS.

So that would mean saving up enough in those investments to pay off the student loans (maybe even with a 10-20% buffer above that amount, in case of a market downturn/perfect storm scenario), and then only using any amount ABOVE that as down payment, additional rental units, general taxable investing, etc.

If you lose your job, you'll need runway/time to find a new job -- that runway is shorter in many ways if you don't have liquid funds to access.
Now, admittedly, if you pay off your loans, you'll have lower monthly obligations on your income/better cashflow, but a dollar of savings/investing that is accessible for any purpose is a lot more useful/provides a longer time runway than putting that dollar toward paying down the student loans (which will only reduce your monthly payment going forward by that dollar spread across the term of your loans at the interest rate). Saving the money/investing it gives you (a) liquidity for multiple purposes, (b) flexibility, and (c) the upside of potential larger returns. That's why I'd lean that way (although paying off the loans isn't WRONG, it's just less optimal in my opinion).

Leemiller
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Re: Priorities - Biglaw junior associate

Post by Leemiller » Fri Aug 25, 2017 7:47 am

First, you can't afford a 1.5m house. You really can't afford it with kids. The big issue being that I'm assuming your income is most of the household income and it can be hard to transition out of biglaw, even taking a big pay cut to go to the govt or in-house.

If your student loans are split into smaller loans and paying them off will lower your monthly expenses, that is a good thing. You really don't want to keep student loans for the next decade or two and still have them while you are supposed to be saving for your kids college.

I'm surprised at the love for rental properties. In my market, returns are terrible and the property is very expensive.

I would prioritize:

1- big emergency fund in taxable (we had well over 100k in cash in the crisis and it was awesome)
2 - max retirement
3 - pay off some debt to lower payments just in case & because you will be 40 feeling ridiculous for having so much debt
4 - save for a downpayment

Lots of people save a long time or start out in a condo or townhouse. Don't buy a fancy car and you'll be ahead of the game.

Also, think long term. Start networking now. I just jumped to a great in-house position and it was through networking.

FedGuy
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Re: Priorities - Biglaw junior associate

Post by FedGuy » Fri Aug 25, 2017 8:17 am

cantos wrote:
Thu Aug 24, 2017 9:57 pm
A 2nd year associate has frankly no idea what it means to be a lawyer, or what it takes to stick, or whether he has what it takes to stick.
I completely agree with this. So much of what happens during your early to mid-level associate years is completely outside of your control, and you really have no idea what to expect. Partners come and go, clients stop sending your firm business, the practice area you spent years learning suddenly becomes unmarketable due to a change in law or business climate. As a second year, you probably have no idea how much juvenile politics and in-fighting goes on among partners, and things can go south for you very quickly if the partners you do most of your work for end up on the losing side of whatever petty turf battle they've been fighting for the last six years. The point is: you have no job security. No matter how much you like it, how good you are at it, and how stable things seem right now, you can't expect to be there in two years.

My advice: max out your 401(k), max out your backdoor Roth IRA, max out other investments like Health Savings Accounts and so on, and start paying down that debt. Try to avoid lifestyle creep and watch your loan balances shrink from month to month. By the time your loans are knocked out, you might very much appreciate having that burden off your shoulders. If things are still going well for you in Biglaw then, then channel the money you were using to pay off the loans into investments.

I can't speak about the rental property situation. When I was in Biglaw, I could barely manage to find the time to buy my own groceries, so I have no idea how you manage to find the time for that. I hope that continues, but I'm not sure I'd count on it.

stan1
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Re: Priorities - Biglaw junior associate

Post by stan1 » Fri Aug 25, 2017 8:45 am

This is all about your willingness to take risk. You need to know yourself. What would you do if your career path ended and similar biglaw job wasn't available? Would you be more likely to seek a government attorney job or would you want to move into a commissioned sales position where you might make even more?

DC3509
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Re: Priorities - Biglaw junior associate

Post by DC3509 » Fri Aug 25, 2017 8:59 am

This is a fascinating thread.

I understand the people who have responded and said don't pay down the debt yet, prepayment gets you nowhere, etc. But it's interesting that everyone who has responded and who has worked or is working in BigLaw has given you the same investment -- pay down the debt first. There is something about working in Biglaw, I think, which makes you realize that while it's great from a financial perspective, the gravy train could end at any moment for reasons completely beyond your control, and then you would just have a ton of loans to payback and a dramatically smaller paycheck.

People outside biglaw likely do not realize this, though I am not saying anything revolutionary to biglaw veterans -- In most careers, you can expect a gradual pay increase throughout your career. The exact opposite is true in biglaw. You start off very high, and then go higher and higher in years 2-7, at which you either make partner or of counsel, or you are shown the door and with it a drastic paycut. The reality is that after year 4/5, unless you have a rare niche, most other biglaw firms will not hire you because you are too old in their eyes. The number of folks who survive the tournament are very small, so if you playing the percentages, you are better off planning for the latter option and paying off the debt now. There are very few careers that have this trajectory.

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bottlecap
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Re: Priorities - Biglaw junior associate

Post by bottlecap » Fri Aug 25, 2017 9:02 am

Leemiller wrote:
Fri Aug 25, 2017 7:28 am
bottlecap wrote:
Fri Aug 25, 2017 6:35 am
Save as much as you can and pay down debt. That part is easy.

The big thing is your career.

Find a mentor in your firm - someone that is already successful. Learn from them what it takes to be successful and advance within the firm. With any luck, in 12 or 13 years, they'll retire and you'll inherit their clients and be set.

If you don't find your mentor, think about leaving for a new firm as a third or fourth year associate. That's when you still have value but aren't viewed as too expensive.

Good luck,

JT
I don't know of any biglaw firm where this approach would work. I've only seen retiring partners hand over business to other partners. To really be set you need to bring in clients. I've seen two associates manage to pull that off, and they are both still no longer in biglaw. In each case they may be better off but it's hard to say.
I've seen it work. But perhaps I was not with as many firms as you.

JT

Valuethinker
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Re: Priorities - Biglaw junior associate

Post by Valuethinker » Fri Aug 25, 2017 9:39 am

Philip_Marlowe wrote:
Thu Aug 24, 2017 1:48 pm
I've only posted a handful of times but I have found reading Bogleheads over the past few years to be incredibly useful in helping me learn about handling finances and, more importantly, learn to think critically about my financial goals and how to achieve them.

DW and I have been incredibly lucky the last few years. I am currently a second year associate at a biglaw firm and DW works in education. 2017 income is projected at $275k with an anticipated increase to $325k in 2018. We live in a HCOL area but have been lucky to keep our expenses (relatively) low while enjoying a high quality of life.

I actually enjoy biglaw for the most part and don't see myself leaving in the next few years. DW enjoys her job and it's stable.

We're trying to figure out our saving/investing priorities for the next year or two and find ourselves torn. The options we are debating are:
  • Pay down debt more aggressively
    (pro: more flexibility, guaranteed roi con: debt is at low interest rates and we are already paying fairly aggressively)
  • Begin taxable investing
    (pro: good long term returns, simplicity con: market at historic highs, not tax efficient, locks up cash)
  • Save for downpayment on house
    (pro: we like the area and see ourselves here longterm con: housing is INSANE here and we would likely need to spend north of $1.5M to get something we want, that kind of expense terrifies us)
  • Save for additional rental properties
    (pro: cashflow and long term appreciation, we have enjoyed the experience of being landlords so far con: possible nightmare tenants, time intensive)
Very open to thoughts and suggestions. Thanks to all!

Total Assets: $360k
Total Debts: $-293k
Net Worth: $67k

Debt:
  • Promissory Note: -128 (2.04%, due 6/2026)
  • Institutional Student loan: -16 (0%)
  • First Republic Student Loan: -149 (1.95%, due 4/2021)
Assets:
  • Cash: 30
  • Rental: 178 (at purchase price)
  • Other: 3
  • Retirement: 149
The first thing is to be careful of killer-blonde dames named Carmen Sternberg ;-).

On your current debt interest rates, I would not accelerate retirement of debt. You are repaying fast, you say, and it's cheap money.

It's a hard call on the rest, because you have too many uncertainties.

Max out tax deferred accounts. That's pretty clear.

Build up a cash reserve in ibonds. Sort of a baseline 12 months expenditure if you had to sharply curtail your standard of living e.g. if your law firm went bust or you lost your job. ibonds can be a useful part of this. Remember to include maintenance payments on your student loans in that situation.

I like the idea of a portfolio of rental properties. As another poster points out, by no other route will you be in a position in 10-15 years where you could kick back and stop. However it's also pretty risky-- tying yourself to one area, housing market and risks of tenants, bad buildings etc.

You will need c. 300k for that home. Yes that's terrifying. But those of us who live in HCOL areas (LA, NYC, Boston, Washington DC, London UK etc.) live with that. Other than a brief period in the dot com boom, I have never managed to make housing equity less than half my net worth.

So in this order:

- tax efficient accounts maximized (think you do that already?) for both partners
- cash reserve in ibonds (a long term investment that, as I understand it, can in time serve as a cash reserve)
- cash reserve for further property purchase-- personal or rental (TBD which)
- long term investment in taxable accounts
- debt retirements

You are probably looking to build up $300k of cash (and $150k as a minimum) and that will take 2-3 years?

If we enter a bear market in stocks or houses, you might then bring forward your housing/ taxable account investing decision.

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Re: Priorities - Biglaw junior associate

Post by Chadnudj » Fri Aug 25, 2017 10:23 am

DC3509 wrote:
Fri Aug 25, 2017 8:59 am
This is a fascinating thread.

I understand the people who have responded and said don't pay down the debt yet, prepayment gets you nowhere, etc. But it's interesting that everyone who has responded and who has worked or is working in BigLaw has given you the same investment -- pay down the debt first. There is something about working in Biglaw, I think, which makes you realize that while it's great from a financial perspective, the gravy train could end at any moment for reasons completely beyond your control, and then you would just have a ton of loans to payback and a dramatically smaller paycheck.

People outside biglaw likely do not realize this, though I am not saying anything revolutionary to biglaw veterans -- In most careers, you can expect a gradual pay increase throughout your career. The exact opposite is true in biglaw. You start off very high, and then go higher and higher in years 2-7, at which you either make partner or of counsel, or you are shown the door and with it a drastic paycut. The reality is that after year 4/5, unless you have a rare niche, most other biglaw firms will not hire you because you are too old in their eyes. The number of folks who survive the tournament are very small, so if you playing the percentages, you are better off planning for the latter option and paying off the debt now. There are very few careers that have this trajectory.
For the record, I am a former BigLaw associate (now on plaintiffs' side in a much smaller in size firm that goes up against BigLaw all the time), and I would advocate saving/investing the money, albeit with the idea that those savings/investments are earmarked for paying off the student loan debt should upheaval happen (per my comment above)....but you're right, the BigLaw game is far, FAR less predictable than you can possibly imagine (and I say that having lost my first position at a BigLaw firm after 4 years, and wishing I had lived far more frugally/saved far more/paid down more debt).

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Re: Priorities - Biglaw junior associate

Post by David Scubadiver » Fri Aug 25, 2017 11:00 am

I didn't think it particularly relevant, but I've been in big law for more than two decades, and when I started my student loan debt was equal to my first year income. I did not much like having the cloud of debt over my head, but I also did not like the idea of holding off on investing because of the power of compound returns that I did not wish to miss out on.

Yes, of course it was possible that I would have lost my job in 7 years and been forced into a lower income position. But, the way I figured it the money invested would then be there if I should need it, unlike what would happen if I paid off the debt.

Scenario 1: $200,000 debt and $200,000 investments = net worth of zero.
Scenario 2: $0 debt and $0 investments = net worth of zero.

If you lose your job, in Scenario 1 you can live off your investments for several years.
In Scenario 2, you are out on the street picking through garbage.

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Re: Priorities - Biglaw junior associate

Post by TheAncientOne » Fri Aug 25, 2017 11:32 am

Marlowe and his wife have managed to save $149K in retirement accounts plus they own a rental property while still in their twenties or early thirties. Their student loans are substantial but at very low interest rates. The First Republic loan is already being paid down at a rapid rate.

The one shortcoming is that they only have $30K in liquid assets. Rather than chasing after every last tax deferred opportunity, I'd stick to maxing out their 401Ks and put the remaining cash into a boring low cost index fund. They need to jack up their cash above where they are now. Rather, if they have sufficient cash surplus, put 1500-2000/month or whatever into an S&P 500 index fund. At their income level, I'd want to get up to 100-150K in liquid assets within 2-3 years before searching for more tax deferred opportunities or real estate investments.

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Re: Priorities - Biglaw junior associate

Post by David Scubadiver » Fri Aug 25, 2017 12:07 pm

It doesn't have to be tax deferred...they won't qualify for the traditional IRA but they can contribute and convert to a Roth, and if an emergency pops up they can withdraw from the Roth, perhaps without penalty depending upon how long the money is invested, no?

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Re: Priorities - Biglaw junior associate

Post by BolderBoy » Fri Aug 25, 2017 12:51 pm

In order of priority:

1) max out all retirement plan options to the extent possible. This comes first above all else.

2-X) your choice, but I'd hammer away at debt next.
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Re: Priorities - Biglaw junior associate

Post by jodydavis » Fri Aug 25, 2017 1:34 pm

Former biglaw associate here. It is interesting to see how divided the opinion is. I also agree that you should give more weight to the opinions of the lawyers, as the unique aspects of biglaw (very low likelihood of partnership, up or out structure, high burnout, etc.) make it somewhat unlike other careers, in that you have to plan for the possibility (in fact, probability, based on the raw numbers) of a significant pay cut in the future.

That said, and FWIW, I think it doesn't much matter whether you choose option 1 (pay down debt) or option 2 (taxable investing), so long as you keep your expenses low and funnel the same amount of money into either option. That is, the key is to save aggressively and avoid lifestyle creep. Whether you take the extra money and put it into option 1 or 2 matters less, since either way, you will have preserved your flexibility in case of job loss or burnout.

As between the two options, option 2 may give you a bit more flexibility. If you burn out and want to change to a less well-paying career, you can take the savings and use it to pay off the debt. If you encounter another 2008 and get laid off, you have cash to hopefully weather the storm. If you decide that you love biglaw, are likely to make partner, and your salary increases, you can take some of that money to buy a house. While option 1 may provide more peace of mind (and it's the option I pursued), it's less flexible. Another reason to prefer option 1 is if you have concerns about your ability to avoid lifestyle creep, in which case paying off the debt exercises a form of discipline.

Not sure I'd recommend option 4 (buy more rental properties), unless your spouse is happy to be primarily responsible for managing the properties, since as a biglaw associate, it's hard for me to imagine you being able to spend any material time managing them. (Plus, it reduces your liquidity/flexibility).

Good luck!
J.D.

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Re: Priorities - Biglaw junior associate

Post by Cash » Sat Aug 26, 2017 7:22 am

I'm also a former biglaw associate. I'm in the camp with those who advise you to max out all tax-advantaged, then put the rest toward debt reduction. As a second year, you don't know whether you will be able to stay at the firm or want to/have to leave to go to government, in-house, etc. Paying off the debt buys you flexibility to take a lower-paying government or in-house gig later. But it's not like you'll be destitute. You will still be able to save for retirement even in the "lower" paying jobs...assuming you don't have to service the debt.

I'm also not sure why you're buying rental properties.

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Re: Priorities - Biglaw junior associate

Post by TomatoTomahto » Sat Aug 26, 2017 8:19 am

DC3509 wrote:
Fri Aug 25, 2017 8:59 am
This is a fascinating thread.

I understand the people who have responded and said don't pay down the debt yet, prepayment gets you nowhere, etc. But it's interesting that everyone who has responded and who has worked or is working in BigLaw has given you the same investment -- pay down the debt first. There is something about working in Biglaw, I think, which makes you realize that while it's great from a financial perspective, the gravy train could end at any moment for reasons completely beyond your control, and then you would just have a ton of loans to payback and a dramatically smaller paycheck.

People outside biglaw likely do not realize this, though I am not saying anything revolutionary to biglaw veterans -- In most careers, you can expect a gradual pay increase throughout your career. The exact opposite is true in biglaw. You start off very high, and then go higher and higher in years 2-7, at which you either make partner or of counsel, or you are shown the door and with it a drastic paycut. The reality is that after year 4/5, unless you have a rare niche, most other biglaw firms will not hire you because you are too old in their eyes. The number of folks who survive the tournament are very small, so if you playing the percentages, you are better off planning for the latter option and paying off the debt now. There are very few careers that have this trajectory.
Thank you for this summary. I have little personal involvement, so hadn't realized. Reading about biglaw on BH had me scratching my head. This explains a lot.

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Re: Priorities - Biglaw junior associate

Post by DC3509 » Sun Aug 27, 2017 10:14 am

David Scubadiver wrote:
Fri Aug 25, 2017 11:00 am
I didn't think it particularly relevant, but I've been in big law for more than two decades, and when I started my student loan debt was equal to my first year income. I did not much like having the cloud of debt over my head, but I also did not like the idea of holding off on investing because of the power of compound returns that I did not wish to miss out on.

Yes, of course it was possible that I would have lost my job in 7 years and been forced into a lower income position. But, the way I figured it the money invested would then be there if I should need it, unlike what would happen if I paid off the debt.

Scenario 1: $200,000 debt and $200,000 investments = net worth of zero.
Scenario 2: $0 debt and $0 investments = net worth of zero.

If you lose your job, in Scenario 1 you can live off your investments for several years.
In Scenario 2, you are out on the street picking through garbage.
I don't think any of us who advocated paying down the debt also pressed such a black and white approach. My suggestion would be: (1) Establish emergency fund -- depending on salary and how secure you feel this could be as much as $50-75K; (2) Max out 401K, backdoor Roth, and HSA. The question really is after all of that is done, what do you do? I think at that point a reasonable strategy is to pay down the debt. Another option -- and one I have used myself -- is to invest through your regular paycheck, but then earmark X% of your bonus every year for the loans. Through using the bonus in this way, my debt is almost gone.

The problem that I see in ignoring the debt is -- yes, if you lose your job and have $200K of investments, that would be a nice cushion. But if you have to take a government job with no bonus or in-house gig with a very modest bonus, paying off the huge debt will be very hard. And if you have a proper emergency fund/retirement accounts, you won't be picking up garbage in any event.

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Re: Priorities - Biglaw junior associate

Post by ruralavalon » Sun Aug 27, 2017 10:45 am

I have no biglaw experience.

Concentrate first on professional development and doing well at your job.

Plan your finances "as if" you will be gone in 4-5 years. Keep your expenses down. Fill an emergency fund, make the maximum annual employee contributions to your 401k, backdoor Roth IRA, HSA, and then everything else on the debts. If you leave in 4-5 years the debt will be gone.

If still there in 4-5 years, your finances will be in good shape.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Priorities - Biglaw junior associate

Post by David Scubadiver » Mon Aug 28, 2017 8:17 am

DC3509 wrote:
Sun Aug 27, 2017 10:14 am
David Scubadiver wrote:
Fri Aug 25, 2017 11:00 am
I didn't think it particularly relevant, but I've been in big law for more than two decades, and when I started my student loan debt was equal to my first year income. I did not much like having the cloud of debt over my head, but I also did not like the idea of holding off on investing because of the power of compound returns that I did not wish to miss out on.

Yes, of course it was possible that I would have lost my job in 7 years and been forced into a lower income position. But, the way I figured it the money invested would then be there if I should need it, unlike what would happen if I paid off the debt.

Scenario 1: $200,000 debt and $200,000 investments = net worth of zero.
Scenario 2: $0 debt and $0 investments = net worth of zero.

If you lose your job, in Scenario 1 you can live off your investments for several years.
In Scenario 2, you are out on the street picking through garbage.
I don't think any of us who advocated paying down the debt also pressed such a black and white approach. My suggestion would be: (1) Establish emergency fund -- depending on salary and how secure you feel this could be as much as $50-75K; (2) Max out 401K, backdoor Roth, and HSA. The question really is after all of that is done, what do you do? I think at that point a reasonable strategy is to pay down the debt. Another option -- and one I have used myself -- is to invest through your regular paycheck, but then earmark X% of your bonus every year for the loans. Through using the bonus in this way, my debt is almost gone.

The problem that I see in ignoring the debt is -- yes, if you lose your job and have $200K of investments, that would be a nice cushion. But if you have to take a government job with no bonus or in-house gig with a very modest bonus, paying off the huge debt will be very hard. And if you have a proper emergency fund/retirement accounts, you won't be picking up garbage in any event.
The problem you see is not a problem, because if he takes a government job and has $200k in investments, he can choose to pay off the loans from his investments.

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Re: Priorities - Biglaw junior associate

Post by deltaneutral83 » Mon Aug 28, 2017 9:16 am

TomatoTomahto wrote:
Sat Aug 26, 2017 8:19 am
DC3509 wrote:
Fri Aug 25, 2017 8:59 am
This is a fascinating thread.

I understand the people who have responded and said don't pay down the debt yet, prepayment gets you nowhere, etc. But it's interesting that everyone who has responded and who has worked or is working in BigLaw has given you the same investment -- pay down the debt first.

People outside biglaw likely do not realize this, though I am not saying anything revolutionary to biglaw veterans --
Thank you for this summary. I have little personal involvement, so hadn't realized. Reading about biglaw on BH had me scratching my head. This explains a lot.
I don't think there's an industry out there where things couldn't end on a moments notice for a systemic or personal reason. I will say I'd be much more comfortable with medical school debt than law debt. But ultimately, paying down debt (even though it's 2%) will give you far more choices in 24 months than you have now. Burnout in such a short time frame is probably rare in that world, but you definitely don't want to burnout before the debt is paid off, just basic economics and psychology there. I have no idea about how this works in these types of employment but I also wouldn't want my bosses to know I had $300k debt in that world, they'd know the bank owns me and that they are my life boat to satisfy that obligation. On a less significant note, the market is also at an all time high, I don't advise market timing, but the market pulling back 10-15% could cause psychological issues. I would also unload the rental property unless there's some reason not to, seems like it's a tight fit on top of no free time.

DC3509
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Re: Priorities - Biglaw junior associate

Post by DC3509 » Mon Aug 28, 2017 9:49 am

David Scubadiver wrote:
Mon Aug 28, 2017 8:17 am
DC3509 wrote:
Sun Aug 27, 2017 10:14 am
David Scubadiver wrote:
Fri Aug 25, 2017 11:00 am
I didn't think it particularly relevant, but I've been in big law for more than two decades, and when I started my student loan debt was equal to my first year income. I did not much like having the cloud of debt over my head, but I also did not like the idea of holding off on investing because of the power of compound returns that I did not wish to miss out on.

Yes, of course it was possible that I would have lost my job in 7 years and been forced into a lower income position. But, the way I figured it the money invested would then be there if I should need it, unlike what would happen if I paid off the debt.

Scenario 1: $200,000 debt and $200,000 investments = net worth of zero.
Scenario 2: $0 debt and $0 investments = net worth of zero.

If you lose your job, in Scenario 1 you can live off your investments for several years.
In Scenario 2, you are out on the street picking through garbage.
I don't think any of us who advocated paying down the debt also pressed such a black and white approach. My suggestion would be: (1) Establish emergency fund -- depending on salary and how secure you feel this could be as much as $50-75K; (2) Max out 401K, backdoor Roth, and HSA. The question really is after all of that is done, what do you do? I think at that point a reasonable strategy is to pay down the debt. Another option -- and one I have used myself -- is to invest through your regular paycheck, but then earmark X% of your bonus every year for the loans. Through using the bonus in this way, my debt is almost gone.

The problem that I see in ignoring the debt is -- yes, if you lose your job and have $200K of investments, that would be a nice cushion. But if you have to take a government job with no bonus or in-house gig with a very modest bonus, paying off the huge debt will be very hard. And if you have a proper emergency fund/retirement accounts, you won't be picking up garbage in any event.
The problem you see is not a problem, because if he takes a government job and has $200k in investments, he can choose to pay off the loans from his investments.
This assumes that you will lose his law firm job on Day 1, and have a government job lined up on Day 2. The more likely situation is some sort of lag where you have to depend on/draw down your investments in the meantime, while making major lifestyle adjustments on the fly. This isn't easy to do, especially if you are used to a certain lifestyle. You will probably have a lot less than the $200K to pay down the debt at the end, and even if you took a big chunk of that to pay off the loans, you will still likely have a relatively high debt load (more than $50K) and no easy way (i.e. hefty annual bonuses) to pay it back.

But to each his own. I have zero regrets about expediting paying down the debt while also investing some of the leftover. I thought it was a balanced approach.

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Re: Priorities - Biglaw junior associate

Post by NoVa Lurker » Mon Aug 28, 2017 9:57 am

Former biglaw associate here. I went in-house eight years ago. My wife teaches (economics). Without giving you any specific advice, I will just tell you my story, having faced the same decisions as you are now.

I had six-figure student loan debt, which I finished paying off when I got my bonus as a third-year associate. I kept expenses low and dedicated every dollar to paying down that debt. I still remembering submitting the pay-off transfer.

For me, with hindsight, it was definitely the right decision to pay down debt, because the market TANKED like crazy when I was a mid-level associate. My firm had (well-publicized) massive layoffs. I was not laid off, but many of my friends were, and my clients were heavily affected by the financial crisis. My near-future partnership prospects went from high to low during the course of a year in which I billed 2700 hours - I was not happy.

With no debt (and also about $400k in taxable investments plus fully-funded retirement accounts, at that point), I was able to take an in-house position with a huge pay cut, but with great people and very family-friendly hours, in a location that worked well for my wife's career.

Apart from the timing of the financial crisis, paying down my subsidized loans (consolidated under 2%) might have seemed like a waste. I know many of my colleagues invested in equity funds and only made the minimum required payments on their student loans. They are all doing fine now, but I know they had some stress in 2008-10 that I avoided.

I still miss the law firm work in many ways, but I would never go back. After eight years in-house, I make more than double my initial salary, on an inflation-adjusted basis. It's still way less than I would have made even as an "of counsel" at my law firm, but my wife and I have no financial worries, two kids with a third kid on the way, and plenty of free time to enjoy our lives. We also have a million-dollar home in a great school district with no mortgage. Paid it off last year - as you can see, I am still very debt-averse!

Best of luck.

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Re: Priorities - Biglaw junior associate

Post by LarryAllen » Mon Aug 28, 2017 10:06 am

Find out how to develop YOU. Build YOUR BRAND. Figure out how to bring in clients. This takes time but start working on the base now! That is what will give you the ability to decide where you work in the future and what you will earn. If you do not develop yourself, build referral sources, get comfortable asking for business (read sales books which I know lawyers don't like to consider) you will end up as a back-room guy making $250k and thinking you hit it big... until your partners leave and your job ends. You need to control your destiny so work on yourself. Your income can go up significantly when you learn to bring in business. Your income could literally double in a year or two once you start having a pipeline of business. Some lawyers have their own websites, own blog, own advertising, own phone numbers, etc... and just brand it with firm logo. Create your niche. Create your brand! That way if you leave that firm just slap a new logo on the website. I am serious. Though you are young in the business it is never too early to start building your brand. Obviously confirm with the powers that be that don't mind you having your own website. Good luck to you.

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Re: Priorities - Biglaw junior associate

Post by RainStreet » Mon Aug 28, 2017 1:41 pm

Lots of interesting replies in this thread. To add one more perspective, I'm a former biglaw associate, too. I paid off my student loans as fast as I could (after maxing out my 401(k)), and the psychological benefit of doing so far exceed any financial gain I might have had had I done something different with that money. I left the firm after four years-- as soon as the loans were fully paid-- and took a lower-paying but more satisfying job elsewhere. Granted, my loans were at a higher interest rate than yours, but I wouldn't have felt comfortable leaving the firm without first paying off the loans. But of course, your mileage may vary.

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Re: Priorities - Biglaw junior associate

Post by themesrob » Mon Aug 28, 2017 5:39 pm

DC3509 wrote:
Fri Aug 25, 2017 8:59 am
This is a fascinating thread.

I understand the people who have responded and said don't pay down the debt yet, prepayment gets you nowhere, etc. But it's interesting that everyone who has responded and who has worked or is working in BigLaw has given you the same investment -- pay down the debt first. There is something about working in Biglaw, I think, which makes you realize that while it's great from a financial perspective, the gravy train could end at any moment for reasons completely beyond your control, and then you would just have a ton of loans to payback and a dramatically smaller paycheck.

People outside biglaw likely do not realize this, though I am not saying anything revolutionary to biglaw veterans -- In most careers, you can expect a gradual pay increase throughout your career. The exact opposite is true in biglaw. You start off very high, and then go higher and higher in years 2-7, at which you either make partner or of counsel, or you are shown the door and with it a drastic paycut. The reality is that after year 4/5, unless you have a rare niche, most other biglaw firms will not hire you because you are too old in their eyes. The number of folks who survive the tournament are very small, so if you playing the percentages, you are better off planning for the latter option and paying off the debt now. There are very few careers that have this trajectory.
This is exactly right.

I'm former biglaw (now at a boutique post-clerkship), and my wife is still biglaw. This debate was a constant topic of conversation at my firm, provoked by its unique 401k structure which essentially imposed financial penalties on associates who did not max out their 401k contribution. The partners were absolutely baffled that the associates hated this system. In a way, I understood their confusion, since they had "won the game" and did not really remember (or were never in) the position in which many associates found themselves a few years ago ($200k of debt at 8+%, but the probability of only 4-5 years of biglaw earnings before they would be forced to make moves). Regardless of whatever is mathematically correct (and I think that's arguable anyway), in this line of work, the psychological effect of shedding the loans -- in terms of allowing you to think clearly about your career and what you want out of your work life -- far outweighs any marginal value of some extra $$ in your 401k, IMHO.

My priorities in the first couple years would be:
0) living well below my means
1a) paying off debt
1b) putting some emergency funds aside to give yourself 3-4 months of runway should things go south
2) maxing out 401k
3) taxable investing

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Re: Priorities - Biglaw junior associate

Post by rrppve » Mon Aug 28, 2017 8:27 pm

Not a big law person, but have known a lot. Have also dealt with highly variable and unpredictable earnings for the last 15 years.
To me pre-paying debt that is priced at 2% is just a poor financial decision. If it worries you that much, at least invest in CDs to cover the required payments and have returns in excess of 2%.
If you fall off the career track, your liquidity position will matter enormously in the short run. Pre-paying your extremely low interest debt will dramatically decrease your liquidity and likely reduce your overall net worth due to the reasonable expectation that investing the amounts above the minimum payments is likely to return in excess of 2%. Fund your emergency fund, tax deferred accounts, back door Roth, and then build your taxable fund. In addition, if things go ok, you can use your taxable account towards a house if that's the way you decide to go.

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Re: Priorities - Biglaw junior associate

Post by arsenalfan » Mon Aug 28, 2017 8:35 pm

You seem to be pretty content folks with a humble lifestyle.
Kill the debt. Then you will be free to do as you please.
Sure, taxable or rentals may be a nice alternative...but you'll need both to perform at a net greater than your debt interest rate.
Make hay while the sun shines.
If stocks or real estate were a bargain right now, then I'd say maybe split the difference and invest in both of those and prepay debt.
But stocks are crazy high and you live in HCOL.
Fired? Tired after 5years of big law? Kids and want a simpler/different lifestyle? No debt around your neck = priceless. Move wherever you want, do whatever you want, decelerate professionally however you want.

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Re: Priorities - Biglaw junior associate

Post by EddyB » Mon Aug 28, 2017 9:20 pm

rrppve wrote:
Mon Aug 28, 2017 8:27 pm
Not a big law person, but have known a lot. Have also dealt with highly variable and unpredictable earnings for the last 15 years.
To me pre-paying debt that is priced at 2% is just a poor financial decision. If it worries you that much, at least invest in CDs to cover the required payments and have returns in excess of 2%.
If you fall off the career track, your liquidity position will matter enormously in the short run. Pre-paying your extremely low interest debt will dramatically decrease your liquidity and likely reduce your overall net worth due to the reasonable expectation that investing the amounts above the minimum payments is likely to return in excess of 2%. Fund your emergency fund, tax deferred accounts, back door Roth, and then build your taxable fund. In addition, if things go ok, you can use your taxable account towards a house if that's the way you decide to go.
Just chiming in to give this a "+1" from someone who has been in "big law" for a long time. The OP's student loan rates are so modest that although the uncertainties others have raised are real, I wouldn't prepay the loans in his or her shoes. I'd make my allocation heavier in bonds than it would otherwise be, but continue to invest.

Most big law firms seems to have figured out that they should offer a 401(k) plan that supports the "mega backdoor Roth IRA," and I would suggest checking whether that's available at your firm.

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Re: Priorities - Biglaw junior associate

Post by 2stepsbehind » Tue Aug 29, 2017 11:35 pm

If the market tanks over the next couple of years, you are going to wish you had played it safe and paid down your debt. I knew way too many senior associates when I was a summer and junior associate who said they didn't pay down their debts because the rate was so low only to regret it. Max out your tax advantaged vehicles, put a healthy amount in taxable, but still work on reducing the albatross.

Unlike another poster, in my experience BigLaw firms don't tend to allow you to mega backdoor, but if your firm does, then by all means take advantage.

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Re: Priorities - Biglaw junior associate

Post by Leemiller » Wed Aug 30, 2017 7:10 am

I'd just point out that it is much more tempting to buy more house when you have a sizable amount sitting in taxable vs you've used the money to pay down debt. Often the pressure can come from a non-biglaw spouse.

David Scubadiver
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Re: Priorities - Biglaw junior associate

Post by David Scubadiver » Wed Aug 30, 2017 8:12 am

DC3509 wrote:
Mon Aug 28, 2017 9:49 am
David Scubadiver wrote:
Mon Aug 28, 2017 8:17 am
DC3509 wrote:
Sun Aug 27, 2017 10:14 am
David Scubadiver wrote:
Fri Aug 25, 2017 11:00 am
I didn't think it particularly relevant, but I've been in big law for more than two decades, and when I started my student loan debt was equal to my first year income. I did not much like having the cloud of debt over my head, but I also did not like the idea of holding off on investing because of the power of compound returns that I did not wish to miss out on.

Yes, of course it was possible that I would have lost my job in 7 years and been forced into a lower income position. But, the way I figured it the money invested would then be there if I should need it, unlike what would happen if I paid off the debt.

Scenario 1: $200,000 debt and $200,000 investments = net worth of zero.
Scenario 2: $0 debt and $0 investments = net worth of zero.

If you lose your job, in Scenario 1 you can live off your investments for several years.
In Scenario 2, you are out on the street picking through garbage.
I don't think any of us who advocated paying down the debt also pressed such a black and white approach. My suggestion would be: (1) Establish emergency fund -- depending on salary and how secure you feel this could be as much as $50-75K; (2) Max out 401K, backdoor Roth, and HSA. The question really is after all of that is done, what do you do? I think at that point a reasonable strategy is to pay down the debt. Another option -- and one I have used myself -- is to invest through your regular paycheck, but then earmark X% of your bonus every year for the loans. Through using the bonus in this way, my debt is almost gone.

The problem that I see in ignoring the debt is -- yes, if you lose your job and have $200K of investments, that would be a nice cushion. But if you have to take a government job with no bonus or in-house gig with a very modest bonus, paying off the huge debt will be very hard. And if you have a proper emergency fund/retirement accounts, you won't be picking up garbage in any event.
The problem you see is not a problem, because if he takes a government job and has $200k in investments, he can choose to pay off the loans from his investments.
This assumes that you will lose his law firm job on Day 1, and have a government job lined up on Day 2. The more likely situation is some sort of lag where you have to depend on/draw down your investments in the meantime, while making major lifestyle adjustments on the fly. This isn't easy to do, especially if you are used to a certain lifestyle. You will probably have a lot less than the $200K to pay down the debt at the end, and even if you took a big chunk of that to pay off the loans, you will still likely have a relatively high debt load (more than $50K) and no easy way (i.e. hefty annual bonuses) to pay it back.

But to each his own. I have zero regrets about expediting paying down the debt while also investing some of the leftover. I thought it was a balanced approach.
I was simply addressing the statement you made, emphasized above, concerning having a $200,000 cushion. In my opinion, you are far more likely to be better off invested early, than not. If I have to depend on/draw down my investments while I am looking for my government job, you made the point for me -- It is better to have the investments to draw upon then to be debt free and have nothing to draw upon.

Most people in big law don't get "fired" without a long lead time, or decent severance. Heck, when I was told I was going to be fired, I was given an entire year's notice. That isn't the case for everybody, but 3 months seems fairly common.

David Scubadiver
Posts: 522
Joined: Thu Mar 24, 2016 8:40 am

Re: Priorities - Biglaw junior associate

Post by David Scubadiver » Wed Aug 30, 2017 8:19 am

2stepsbehind wrote:
Tue Aug 29, 2017 11:35 pm
If the market tanks over the next couple of years, you are going to wish you had played it safe and paid down your debt. I knew way too many senior associates when I was a summer and junior associate who said they didn't pay down their debts because the rate was so low only to regret it. Max out your tax advantaged vehicles, put a healthy amount in taxable, but still work on reducing the albatross.

Unlike another poster, in my experience BigLaw firms don't tend to allow you to mega backdoor, but if your firm does, then by all means take advantage.
They may have regretted it when the market was tanking, but if they left their money in the market they are doing okay. Sure, the market may tank at the time you separate from employment, but the one thing I can tell it is that having a $200,000 invested in a 401(k) that drops to $100,000 is not a big deal when you are young. At that point, you have $100,000 invested in a cheap market that his hopefully ripe for recovery. Compared to your debt free colleague who has $0 invested, you are going to be better off financially in the long run because you have $100,000 poised to grow where they are just starting to invest in that market.

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