Micro Observations of a PF Shift in Mentality from a Big Law Firm

[pinkysmith]

When I read The Millionaire Next Door several years ago, I had just started working for a large law firm in New York. I vividly recall being amused by the book's description of white collar professionals who were income rich but balance sheet broke. These are people who have high annual incomes but little or oftentimes negative net worths due to over-leveraging themselves with extravagant houses, cars, clothing, accessories and the like. Thankfully this book, as well as a handful of others and PF blogs like MMM, put me on the responsible path of managing my salary and kept me from becoming another highly compensated, yet paycheck-to-paycheck, professional.

Since reading the book, I have seen stories about this phenomenon ad naseam in the media and expected it to be true of my peers at work. However, my expectations have been wrong. As I've gotten to know and befriend my colleagues, who are generally between the ages of 26-35, I have found that they are just as thrifty as I am despite not being "into" (or particularly knowledgeable about) personal finance. Almost all of them save a good percentage (30%+) of their take home incomes on top of fully funding their tax-advantaged retirement plans, wear reasonably-priced clothing and don't overspend on mortgage/rent. They don't blow tons of money on fancy cars, alcohol or going out and they genuinely appear invested in - no pun intended - and confident about their financial futures.

While my colleagues could be lying to me about the rosiness of their financial pictures, I give them the benefit of the doubt that they are not. I find it a heartening and pleasantly surprising observation. I wonder if what I have observed is indicative of a broader shift in mentality for Gen X/Gen Y professionals towards being more responsible about personal finances since the time The Millionaire Next Door was written in 1996.

[matchewed]

You do have to take into account the side effects of a couple of things, some general some not.

General -
The 2008 crash and subsequent recession. I can't think of a single sector which was not impacted by this. Everyone realized their jobs were not as secure as they thought.

Specific -
Hasn't there been an equivalent boom and bust of lawyer related degrees and therefore isn't there a glut of qualified lawyers? This would further undermine people's confidence in their job security.

And maybe just maybe there is a significant enough cultural shift in the US (I have nothing to back this up) where we start to realize that there is a tomorrow for most of us, and it is up to the individual or the family to save for that tomorrow.

[mpbaker22]

Hmm ...my office is a mixed bag.  A few examples
Woman who sits behind me (about 50) owns a car with 180K miles.  She bought it new, but has had it 10+ years.  Also has a house that was about 1.4x the annual income between her and her husband.
Guy near me (24) has rent about equal to mine ($350/month), and saves 30-40% of his income.
Girl a bit down the aisle (~29) just bought a house that cost 3-4x her annual income.  She had been living in an apartment that was over $1000/month.  She financed a new car, and always buys no clothes and accessories.

I think I can find both types of examples at any age level.

[Cromacster]

I think I can find both types of examples at any age level.

I tend to agree with this statement.

And then you have to consider the fact that if they are not into PF, while they may estimate a 30% savings rate it might be more like 5....or less.  I would imagine without actually tracking your savings rate it would be similar/opposite to eating and calories.  Where people tend to  think they eat less calories than they actually consume.

I've had high level conversations with coworkers about savings rate etc.  Most seem to follow the "10%" withdrawn directly to paycheck to savings.  There are a few that I know save much more than 10% and others that probably have it withdrawn from their paycheck, but then spend it anyway.

[Rebecca Stapler]

That is a surprising observation. I know a lot of lawyers in big law firms who owe a lot of money on their student loans, and just 5 years ago it was no different -- there was a NALP study showing that attorneys in big law didn't pay off their student loans any quicker than those at nonprofit/government jobs.

[mpbaker22]

I think I can find both types of examples at any age level.

I tend to agree with this statement.

And then you have to consider the fact that if they are not into PF, while they may estimate a 30% savings rate it might be more like 5....or less.  I would imagine without actually tracking your savings rate it would be similar/opposite to eating and calories.  Where people tend to  think they eat less calories than they actually consume.

I've had high level conversations with coworkers about savings rate etc.  Most seem to follow the "10%" withdrawn directly to paycheck to savings.  There are a few that I know save much more than 10% and others that probably have it withdrawn from their paycheck, but then spend it anyway.

To clarify, he hasn't told me his savings rate, I'm just guessing.  Ironically I work in finance, and most people don't know a thing about finance.  One woman (about 45) was talking about her financial advisor and her investments - he's an expensive guy to retain and their investments all have high fees.

[ChiStache]

That's great! I'm glad your observing a shift in mentality. It makes sense with all the insecurity in the legal market.

When I started at a big firm 5 years ago, I felt tremendous pressure to inflate my lifestyle. "Normal" was a leased car, a housekeeper, kids in private schools, private clubs, golf, trips overseas, etc. I felt like I really had to keep my frugality under wraps because (as crazy as this is going to sound) people would view it as disloyal to the firm. For example, I overheard two partners talking about a particularly bright associate in my class, saying that they "got her now" because she had recently closed on her condo and got a car. Another partner told me how important it was to buy real estate because "having that mortgage payment" would drive me at work. I'm serious, this stuff really happened.

I have a dear friend who has made over 200K every year for the past 5 years and is still swamped with BOTH student loan debt AND credit card debt. He has no savings whatsoever. It's sad, but it has resulted in the most amazing paradigm shift for me. Things I used to associate with wealth, like fancy cars and country clubs, I now associate with poverty. That, more than anything, has allowed me to be happy with what I have.

[Myrmida]

I can relate to ChiStache.  When I was at the law firm as a junior to mid-level associate, I was encouraged to spend, spend, spend.  When my '92 Mercury Topaz died, I bought a shiny, new Honda Civic.  Not good enough - I should have bought a Mercedes or BMW.  When I bought my house, they were shocked that I would get a 1950s 1200 sqft bungalow (I was single, by the way - what would I want 3000 sqft for).  One partner told me they wanted associates to get married, have kids and buy a house and car because then they could never leave.  I certainly wasn't mustachian, but at least I was smart enough to live within my means, plus I was not all that enamored of the firm lifestyle.  I chose to leave the 80-hour work weeks and go in-house about 5 years ago.  While my in-house job is not 100% satisfying, at least I can generally go home in the evening and take my weekends off.

[2527]

I noticed similar things.  I moved 7 years ago to an affluent area.  Although I think people enjoy having their inflated lifestyles:  Disney, maid, expensive vacations, big houses, luxury cars, etc, I don't detect a lot of financial stress.  People seem to have their affairs in order and save and invest a reasonable slice of their income.  Maybe not MMM, but, hey, not everybody is interested in that.  Usually, if people are stressed it comes out in certain ways, and I just don't see it. 

I think a lot of pressure is on people at lower income levels whose wages have fallen behind inflation over the past twenty years, but they are living in a society whose definition of normal consumption has increased.

Also, I really don't think employers want their employees to be FI.  They want them to be living from paycheck to paycheck:  motivated and vulnerable.

[Baylor3217]

How does one rent for $350 per month?  I live in the DFW area and other than having several roommates I believe that would be impossible.

Hmm ...my office is a mixed bag.  A few examples
Woman who sits behind me (about 50) owns a car with 180K miles.  She bought it new, but has had it 10+ years.  Also has a house that was about 1.4x the annual income between her and her husband.
Guy near me (24) has rent about equal to mine ($350/month), and saves 30-40% of his income.
Girl a bit down the aisle (~29) just bought a house that cost 3-4x her annual income.  Shme had been living in an apartment that was over $1000/month.  She financed a new car, and always buys no clothes and accessories.

I think I can find both types of examples at any age level.

[pinkysmith]

I agree that the Great Recession and job insecurity probably play a heavy hand in the fiscal prudence of my peers. Not only are the associates mindful of how fortunate they are to have jobs but our bosses (the partners) don't pressure us into going above and beyond our means to "fit in" with them or our astronomically well-heeled clients. Is this to say that there aren't a couple of wealthy partners who are out of touch? No, we certainly have those in spades. But, they are thankfully sensitive to individual circumstances and don't push their lifestyles as a pre-requisite for fitting in with the group.

From the replies to my original post, it sounds like I may have just lucked out with respect to my working environment. I also wonder if the tone would change if people knew I could technically afford to live more lavishly since I do not have any student debt (paid it off earlier this year).

[Malloy]

"Things I used to associate with wealth, like fancy cars and country clubs, I now associate with poverty."

I love this!  I have noticed that I do the same thing.  People always wonder how high earners can end up with so little to show for it, and things like 25k golf club initiation fees and $600/month car payments are sometimes part of the whole unmustachian picture.  I am completely fascinated by the spending habits of the wildly unmustachian, which is why the wall of shame and comedy is my favorite subforum.

I also think that the pressure to look the part in a law firm is there, but it's not unusual for there to be some partners who make a lot of money, but they have managed to cultivate a cheap **stard mystique. For example, they would proudly wear 8-10 year old J.C. Penney shirts next to a guy in a $300 custom one.  Maybe the secret is to be a little curmudgeonly and to have cheapness be part of a general legal persona.

[CorpRaider]

Yeah, the second greatest economic collapse and period in our nation's history is going to have a lasting an meaningful impact.

[HomeSweetOz]

I work in a biglaw firm and have seen both cases.

Case 1: Colleague is a mid-level associate, and colleague's spouse makes a higher salary. Colleague saves all of his/her paycheck, and they live off of colleague's spouse's paycheck. Pre-tax, that means they save at least $200k per year.

Case 2:
- Another colleague is a junior associate who went to a top 5 law school, and like most law grads, has over $100k in debt. This colleague just bought a brand new 80 inch TV.
- Legal assistant recently had a new daughter. Before the birth, she and her similarly salaried bf bought a new house and a brand new BMW SUV.

[chesebert]

I would hardly qualify the midlevel blowing through >$200k a year as a shift in mentality. So they spent an insane amount but they could have spent an even more insane amount? If I were them, I would save 90%+ (that's like $50k a year) and be done in 3-5 years (both could have retired by now).

I work in a biglaw firm and have seen both cases.

Case 1: Colleague is a mid-level associate, and colleague's spouse makes a higher salary. Colleague saves all of his/her paycheck, and they live off of colleague's spouse's paycheck. Pre-tax, that means they save at least $200k per year.

Case 2:
- Another colleague is a junior associate who went to a top 5 law school, and like most law grads, has over $100k in debt. This colleague just bought a brand new 80 inch TV.
- Legal assistant recently had a new daughter. Before the birth, she and her similarly salaried bf bought a new house and a brand new BMW SUV.

[dragoncar]

I suspect practice area might matter.  I work in an office filled with former engineers and I certainly don't see them spending a lot of money.  Nevertheless, I am baffled at how much your colleagues seem to know about your spending.  Nobody here knows my housing details (size, etc.) or the car I drive (nobody here drives to work... Mostly bikers and public transit).  At most they know what I order at lunch on the occasion we go out to eat together, and that I wear clothes (nobody has a clue about fashion).

[Undecided]

I would hardly qualify the midlevel blowing through >$200k a year as a shift in mentality. So they spent an insane amount but they could have spent an even more insane amount? If I were them, I would save 90%+ (that's like $50k a year) and be done in 3-5 years (both could have retired by now).

I work in a biglaw firm and have seen both cases.

Case 1: Colleague is a mid-level associate, and colleague's spouse makes a higher salary. Colleague saves all of his/her paycheck, and they live off of colleague's spouse's paycheck. Pre-tax, that means they save at least $200k per year.

Case 2:
- Another colleague is a junior associate who went to a top 5 law school, and like most law grads, has over $100k in debt. This colleague just bought a brand new 80 inch TV.
- Legal assistant recently had a new daughter. Before the birth, she and her similarly salaried bf bought a new house and a brand new BMW SUV.

Having known plenty of two-lawyer couples that spent both paychecks, regardless of whether the mid-level associate and spouse are spending a lot of money, it could still be some anecdotal evidence of a shift. And realistically, when a couple is making a few hundred thousand dollars per year right out of school and over half a million soon thereafter, they can reach a relatively high level of sustainable spending in what is a relatively short period of time, so if a few more years means having $50,000 more in yearly spending, or the capital to start a business and live through the startup phase, or whatever, that's not so crazy (assuming neither of them hates their work).