Author Topic: Case Study - Weird career oh high salary for first 5 years  (Read 1698 times)

PassMMM

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Case Study - Weird career oh high salary for first 5 years
« on: April 16, 2018, 12:59:30 PM »
Topic Title: Case Study - I'm 25, new lawyer, my career is odd in that I'm starting (before tax) at $195k, which will end up at about $350k by my 5th year (large firm, lockstep pay). I don't see a world in which I can do these hours for more than 5 years, so at that point I'l likely switch to government or in house at likely around $100k until FI/RE or some part-time situation.

My question is if this weird path warrants any significant changes to the normal MMM plan of saving as much as possible and investing in a vanguard fund. Thanks!

Life Situation: IRS filing status - single with a long time SO, probably kids within 5 years, work/live in NYC but hoping to return to Long Island to raise a future family.

Gross Salary/Wages: 195k

Individual amounts of each Pre-tax deductions 401k (have to wait a bit longer bc of my job being new), HSA (still on dad's insurance until the end of 2018 - thanks Obama), IRA (make too much, but I put $15k from summer jobs in college in a Roth before I finished law school)


Taxes: Federal, state/local, and FICA.  These should be consistent with your AGI and Life Situation.  For non-U.S. posters, we’ll have to take your word for these. Living in NYC I get about 5500/month taken out in taxes, netting me about $9100/mo

Current expenses (monthly):
Rent - $1490 (but puts me in a 15min commute)
Food - $100
Going out - $700 (restaurants, bars, events, etc)
Travel - $170 (subway metrocard + LIRR visiting family twice a month)
Dry cleaning - $30
Subscriptions - $15
Internet - $15
Utilities - $35
Phone - $65 (my portion of split family plan)
Gifts - $50
Clothes - $25
Other - $200

Total - $2900

Assets:
Roth IRA - 15k
3-year CD - 15k
2-year CD - 2.5k
Savings Account - 14k
Checking account - 8k

Liabilities: $60k private family loan over 7 years of school (mostly taken care of via scholarships)

Specific Question(s): Should the sort of backwards expected income over 10 years change my plans compared to alot of the typical MMM advice? Thank you!
« Last Edit: April 16, 2018, 02:09:00 PM by PassMMM »

jlcnuke

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #1 on: April 16, 2018, 01:34:53 PM »
My question is if this weird path warrants any significant changes to the normal MMM plan of saving as much as possible and investing in a vanguard fund. Thanks!

The answer is "nope". In fact, your situation works in your favor as long as you don't let the income cause lifestyle inflation thanks to the magic of compounding, and with your higher income early, you get a jump-start on that compounding whereas most people start small and work their way up. Save as much as possible and you'll be well on your way to FI.   You're showing expenses of $2,895/month and a take-home pay of $9,100/month (though I'm quite sure there is spending likely not accounted for or will be anyway). If you can keep your expenses that low (or close to it) and save $6k/month for 5 years you'll be well on your way to FI by the time you downshift into a lower paying position (after only 5 years you'd likely be pushing $4-500k, enough to support up to 2/3rds of your spending already, another 5-6 years and you could support your current spending levels without going to work at all).
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PassMMM

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #2 on: April 16, 2018, 02:04:22 PM »
Thanks for the reply! I definitely expect spending to go up in a few years with just general life stuff - marriage, house, etc. but I'm hoping to avoid all the "keeping up with the Jonses" nonsense - never much for $15 drinks and huge car payments anyway. Ideally, my savings will only go up since my salary will jump pretty significantly every year I manage to keep this job.

Ben Kurtz

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #3 on: April 16, 2018, 02:53:35 PM »
The typical advice applies even stronger.

Basically, you are pre-committing to a FI/RE plan far more openly and explicitly that most people do. Get in, save 75% of your income, get done, get out. Consider your jump out of BigLaw to be equivalent to a regular person quitting a full time job and dropping down to casual part time work.

Max out your deductible 401k, max out your HSA, and max out the backdoor Roth IRA strategy. Stick that all in an 80/20 stock/bond asset allocation (or even more aggressive) and forget about it. If you are seriously planning on having kids you should think about opening up a 529 college savings account now -- name yourself as beneficiary, you can always amend that later (or name the kid after yourself) -- just to get the NYS income tax deduction on $5,000 of yearly contributions (or whatever the limit is these days).

If you want to settle on Long Island with a ~$100,000 income as your step-down job after five years, you should plan ahead for what kind of house and down payment you'll need. That's a fairly high cost of living area; a $100,000 family income doesn't go very far in Nassau County (it goes a bit further in Suffolk). Open up a regular Vanguard account and stick $2,500 per month into an intermediate-term tax free muni fund. By the end of 5 years you'll have  a respectable down payment in there.

Word of advice: Set every last possible thing, including investments, on autopilot. You will not have the time or energy to think about "life admin" tasks when you are brutalized with some of the hours you will be made to pull in a NYC BigLaw firm.
 
You should check your tax withholding; NYS and NYC taxes are punitive, but even so you may be overwithholding a bit.

A fairly reasonable goal would be to have a net worth of $500,000 by the time you pull the rip cord on your law firm job. To do that you will have to be very careful about lifestyle inflation.
« Last Edit: April 16, 2018, 02:55:19 PM by Ben Kurtz »

PassMMM

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #4 on: April 16, 2018, 03:39:15 PM »
Thanks for some excellent advice, Ben. It's great to see some people familiar with biglaw here. I wasn't sure if any were really part of this FI/RE world. I've been meaning to get on top of opening a vanguard account, as you mentioned. I still need to figure out this whole backdoor IRA thing and how it compares to a regular 401k (my firm does not match at all). I was initially concerned about locking a high portion of my money up until 55 (or pay a penalty), but the consensus seems to be that it's worth it.

Do you have any tips for autopiloting things? I was planning on just direct depositing what's left after pretax 401k contributions into my high interest SA and then trying to set up automatic investments when I set up my vanguard. Any apps/services that are more efficient?

Side note- genuinely laughed when I read "or name the kid after yourself"

frugal_c

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #5 on: April 16, 2018, 03:53:22 PM »
I would just add to make sure you spoil your self a little bit.  <REVERSE FACE PUNCH>   Seriously, you are saving so much that the main thing is that you actually finish the 5 years.   You seem to have chosen a location close to your job and spend a healthy amount eating out, that is smart.   If you aren't already, make sure you exercise, it is easy to neglect but has a huge impact on dealing with stress and actually increases your energy levels once you are in the routine.

MDM

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #6 on: April 16, 2018, 06:42:29 PM »
I still need to figure out this whole backdoor IRA thing and how it compares to a regular 401k (my firm does not match at all). I was initially concerned about locking a high portion of my money up until 55 (or pay a penalty), but the consensus seems to be that it's worth it.
See Investment Order and links therein, and the 'Basic Terms' tab of the case study spreadsheet.

Do you parents have a High Deductible Health Plan that covers you, and that is your only medical coverage?  If so, because you are covered by one and not their dependent, you may establish your own HSA, independent from whatever your parents choose to do, and contribute the family maximum.

Padonak

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #7 on: April 16, 2018, 06:52:55 PM »
How to you manage to pay so little for rent? <1.5K per month for a place with 15 min commute to a good part of Manhattan. Is it a separate apartment or a room?

MrUpwardlyMobile

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #8 on: April 16, 2018, 07:06:13 PM »
5 years is a long time.  You’re planning on misery until you’re 30? I bring it up because you may find it difficult to keep a significant other happy when you work 6-7 days a week for 10-12 hours per day.  If you haven’t met someone, you may find it difficult to socialize...

I bring it up because NYC law practice is going to have a toll on your life.  It’s not as easily quantified as the finances.  I reiterate that 5 years is a long time in big law.  Just...keep your eyes open for an in-house role or small firm role within 3 years. 
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PassMMM

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #9 on: April 16, 2018, 07:09:49 PM »
How to you manage to pay so little for rent? <1.5K per month for a place with 15 min commute to a good part of Manhattan. Is it a separate apartment or a room?

I rent a 3BR/2Ba with 2 friends from law school and chose to take the smallest room for reduced rent. I'm right by a Q stop UES. Place is nice enough, not a luxury doorman building or anything.

PassMMM

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #10 on: April 16, 2018, 07:12:29 PM »
5 years is a long time.  You’re planning on misery until you’re 30? I bring it up because you may find it difficult to keep a significant other happy when you work 6-7 days a week for 10-12 hours per day.  If you haven’t met someone, you may find it difficult to socialize...

I bring it up because NYC law practice is going to have a toll on your life.  It’s not as easily quantified as the finances.  I reiterate that 5 years is a long time in big law.  Just...keep your eyes open for an in-house role or small firm role within 3 years.

Definitely a good point that I've thought about. The way I see it, I ought to stay at least 3 because that's when I begin to become marketable for laterals or really good government or in house opportunities. Honestly, the hours are a lot and it's only been 6 months, but it's been pretty manageable so far. Of course, if it ends up being 3 years, that would put me on a very different trajectory as far as FI/RE, but I haven't ruled it out.

PassMMM

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #11 on: April 16, 2018, 07:15:02 PM »
I still need to figure out this whole backdoor IRA thing and how it compares to a regular 401k (my firm does not match at all). I was initially concerned about locking a high portion of my money up until 55 (or pay a penalty), but the consensus seems to be that it's worth it.
See Investment Order and links therein, and the 'Basic Terms' tab of the case study spreadsheet.

Do you parents have a High Deductible Health Plan that covers you, and that is your only medical coverage?  If so, because you are covered by one and not their dependent, you may establish your own HSA, independent from whatever your parents choose to do, and contribute the family maximum.

My father was a state employee and I'm covered under his insurance until the end of the year I turn 26. I'm not sure what implications that has, so I've decided to just hold off on any health contributions until that point since it's less than a year away anyway.

MDM

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #12 on: April 16, 2018, 09:11:04 PM »
I still need to figure out this whole backdoor IRA thing and how it compares to a regular 401k (my firm does not match at all). I was initially concerned about locking a high portion of my money up until 55 (or pay a penalty), but the consensus seems to be that it's worth it.
See Investment Order and links therein, and the 'Basic Terms' tab of the case study spreadsheet.

Do you parents have a High Deductible Health Plan that covers you, and that is your only medical coverage?  If so, because you are covered by one and not their dependent, you may establish your own HSA, independent from whatever your parents choose to do, and contribute the family maximum.

My father was a state employee and I'm covered under his insurance until the end of the year I turn 26. I'm not sure what implications that has, so I've decided to just hold off on any health contributions until that point since it's less than a year away anyway.
The implication is that if his insurance is an HDHP you can use the situation to your advantage now.

Ben Kurtz

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #13 on: April 17, 2018, 09:09:34 AM »
Do you have any tips for autopiloting things? I was planning on just direct depositing what's left after pretax 401k contributions into my high interest SA and then trying to set up automatic investments when I set up my vanguard. Any apps/services that are more efficient?

Once you've set up your Vanguard account you can just use their search bar to get you to the right page to set up automatic transactions. Enter your bank account details and you are done, just like setting up AutoPay on a credit card. Same for the NY529 college savings plan and most other bills and investment accounts.

There are various apps like Mint which you can use to aggregate your financial data and track your spending and other such things. Other folks here are more into that than I am; you can read through some of the threads here and get a sense for what is out there.

ysette9

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #14 on: April 23, 2018, 01:40:40 PM »
I can’t believe anyone hasn’t called you out on the $700/ month “going out” spending. That adds up pretty quickly and is money that could be put to work buying your freedom. Otherwise your spending and savings are doing really well. Can you work on getting that down? It is true that life gets complex and spending goes up when you add in things like spouse, kids, mortgage, etc. Right now is your golden moment to invest as much as you possibly can and live as frugally you can for as long as possible.

I am so grateful that I saved when I started out my career and I look back and only wish that I could have known about FIRE then to give me the impetus to save even more. Your situation is a bit inverse from most people in that to expect to earn more initially now and less later; this means it is that much more important to save as much you can now.
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elliha

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #15 on: April 25, 2018, 04:36:19 AM »
I can’t believe anyone hasn’t called you out on the $700/ month “going out” spending. That adds up pretty quickly and is money that could be put to work buying your freedom. Otherwise your spending and savings are doing really well. Can you work on getting that down? It is true that life gets complex and spending goes up when you add in things like spouse, kids, mortgage, etc. Right now is your golden moment to invest as much as you possibly can and live as frugally you can for as long as possible.

It is high but he also works very long hours and it might be what makes his world manageable at the moment. I think that if he uses his money wisely and eats decent food compared to fast food I think it is more understandable and he clearly can afford to eat out a lot. I am sure he can cut down some and not experience negative consequences but given how much he already saves this is perhaps not priority number 1. With that said, 100 dollars less in this field is probably doable without even noticing that much.

Ben Kurtz

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #16 on: April 25, 2018, 05:07:14 AM »
I can’t believe anyone hasn’t called you out on the $700/ month “going out” spending. That adds up pretty quickly and is money that could be put to work buying your freedom. Otherwise your spending and savings are doing really well. Can you work on getting that down? It is true that life gets complex and spending goes up when you add in things like spouse, kids, mortgage, etc. Right now is your golden moment to invest as much as you possibly can and live as frugally you can for as long as possible.

It is high but he also works very long hours and it might be what makes his world manageable at the moment. I think that if he uses his money wisely and eats decent food compared to fast food I think it is more understandable and he clearly can afford to eat out a lot. I am sure he can cut down some and not experience negative consequences but given how much he already saves this is perhaps not priority number 1. With that said, 100 dollars less in this field is probably doable without even noticing that much.

I'll second that. Working in a high-octane setting myself, I know that BigLaw associates tend to get extraordinarily little down time with family and friends. Many of the OP's friends and associates will not be on board the frugality train, and with little time to make new friends he'll basically exclude himself from  all socialization if he does not compromise and go out and overspend from time to time at the fancy restaurants and nightclubs in the big city. There is inevitably room for improvement (now that spring is in the air try to take the lead and organize a hike in a forest park that can easily be reached by MetroNorth, rather than a boozy brunch on a rare free Sunday), but given the earning and saving capacity that such a job brings, it is far more important to the OP's long-term financial health to do what it takes to serve the full five years in that position, rather than to squeeze the last $500 per month of savings out of his budget but burn out 18 months early due to stress and social isolation.

This reasoning can quickly become a license to do all sorts of frivolous things if it is not very carefully hemmed in. The key is moderation. With this kind of salary and lifestyle the best approach is to plan out a household budget that has an automatic 50%+ savings rate and then a small well-defined pot of "silly money" which can be spent each month on non-frugal pointless things. Not exactly in the ethos of the blog, and not a permanent way of life that I advocate (hedonic treadmill and all that), but an acceptable way to make the super-high-earning years bearable.

Once the rip cord is pulled there will have to be bit of a reset, where these sorts of habits are re-evaluated and changed in light of increased free time but decreased earnings.
« Last Edit: April 25, 2018, 05:09:40 AM by Ben Kurtz »

bandalbumsong

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #17 on: April 25, 2018, 05:55:59 AM »
My advice is to build sustainable systems to live healthily, even if it costs a little more money. The ability to eke out an extra six months in BigLaw may mean an extra $100k, so it's worth it to stick it out as long as you can. Eating well and frequent exercise help make it so that four years in you don't feel like your job is physically killing you.

One example that comes to mind: there are food delivery services out here (Boston-area) where you can get 11-12 lunches/dinners worth of organic, vegetable-heavy, healthy, pre-made dishes delivered to you for ~$95/week. If you'd normally spend $200 on similarly healthy groceries, that's around a $200 premium per month, or $12k over a five year career. But you will get that meal prep time back and have less cognitive overhead going into personal life that can instead go into billables. You can always go back to mostly home-cooked meals when you off-ramp to in-house or government, but while in the grind the wearing down of time comes faster than the wearing down due to money.

ysette9

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #18 on: April 25, 2018, 09:56:41 AM »
Living A FI is a wonderful blog I love to go back to, though he doesn’t post much anymore. In his series of posts about his career he talks about how in his first years on the job he was spending money going out for drinks and whatnot with coworkers. He eventually cut that way back as he found it increased his stress by essentially prolonging the workday and cost his à toi of money that he could instead save. He also found he felt better physically and mentally when he cut way back on the alcohol consumption. OP’s situation could well be different, but it is a good thing to keep in mind that this spending and those activities may not be a net positive, or at least should be scrutinized to make sure it is money well spent.

https://livingafi.com/2014/06/13/the-job-experience-tech-support-year-1/
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PassMMM

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #19 on: April 25, 2018, 04:53:40 PM »
I can’t believe anyone hasn’t called you out on the $700/ month “going out” spending. That adds up pretty quickly and is money that could be put to work buying your freedom. Otherwise your spending and savings are doing really well. Can you work on getting that down? It is true that life gets complex and spending goes up when you add in things like spouse, kids, mortgage, etc. Right now is your golden moment to invest as much as you possibly can and live as frugally you can for as long as possible.

It is high but he also works very long hours and it might be what makes his world manageable at the moment. I think that if he uses his money wisely and eats decent food compared to fast food I think it is more understandable and he clearly can afford to eat out a lot. I am sure he can cut down some and not experience negative consequences but given how much he already saves this is perhaps not priority number 1. With that said, 100 dollars less in this field is probably doable without even noticing that much.

I'll second that. Working in a high-octane setting myself, I know that BigLaw associates tend to get extraordinarily little down time with family and friends. Many of the OP's friends and associates will not be on board the frugality train, and with little time to make new friends he'll basically exclude himself from  all socialization if he does not compromise and go out and overspend from time to time at the fancy restaurants and nightclubs in the big city. There is inevitably room for improvement (now that spring is in the air try to take the lead and organize a hike in a forest park that can easily be reached by MetroNorth, rather than a boozy brunch on a rare free Sunday), but given the earning and saving capacity that such a job brings, it is far more important to the OP's long-term financial health to do what it takes to serve the full five years in that position, rather than to squeeze the last $500 per month of savings out of his budget but burn out 18 months early due to stress and social isolation.

This reasoning can quickly become a license to do all sorts of frivolous things if it is not very carefully hemmed in. The key is moderation. With this kind of salary and lifestyle the best approach is to plan out a household budget that has an automatic 50%+ savings rate and then a small well-defined pot of "silly money" which can be spent each month on non-frugal pointless things. Not exactly in the ethos of the blog, and not a permanent way of life that I advocate (hedonic treadmill and all that), but an acceptable way to make the super-high-earning years bearable.

Once the rip cord is pulled there will have to be bit of a reset, where these sorts of habits are re-evaluated and changed in light of increased free time but decreased earnings.

These are all valid points. I definitely try to stay mindful with little things - ordering a $6 beer instead of a $20 cocktail, but NYC bars are outrageous in price. The 700 also includes my weekend meals for the most part, since I generally don't go food shopping. Still, there's clearly room for improvement. Thanks for commenting.

sui generis

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Re: Case Study - Weird career oh high salary for first 5 years
« Reply #20 on: April 25, 2018, 05:02:22 PM »
Hello from a fellow BigLaw Associate.  So you're a first year, about 9 months in?  How are you liking it so far?  I assume 5 years seems reasonable at present?  9 months in I was super miserable and might not have thought 5 years was do-able.  I adjusted and it was better for a while.  So hopefully you can pull it off. 

But, if you don't, downshifting earlier to in-house/gov etc. where the pay is lower but you might appreciate/enjoy life more NOW more while you wait a couple years longer to FIRE might still be a better decision.  In the end, my advice would be to keep an open mind.  Life can change so much in a year, much less 5.  Maybe model both scenarios concurrently (the one you have, then leaving BigLaw at 3 years and working longer) so you can keep your attitude flexible and stay open to interesting opportunities that may come along. 
« Last Edit: April 25, 2018, 05:06:11 PM by sui generis »