Financial Tips for Women Lawyers Just Starting in BigLaw (Or Other Very High Paying Gigs)

26 Comments

1. This is all good advice, except that I don’t use cash for anything unless I have to–I prefer accruing miles, but it’s important to ensure you pay off your credit card every single month in full if you’re going to do that.

   Also, don’t just put all your extra into a random savings account each month; do your homework and choose a high interest savings or money market account, and as soon as you’ve paid off high interest loans and are contributing to 401K and still have money left over, either get a financial planner to make some wise investments, or if you’re a do-it-yourself person, make some wise investments. This latter part is something I didn’t do, and earning even 1.2% APR in a savings account for years I could have been investing a portion at a higher yield is something I regret (and happened because I grew up in a home with parents with very little financial literacy).

   1. Agreed on all counts. I view every dollar I spend in cash as a dollar where I’m wasting the opportunity to get credit card rewards points. You just have to make sure you only charge less to the card than you have sitting in the bank, and never think of it as a way to borrow money.

      1. +1. I do not make a biglaw salary, but I use my rewards card to buy literally everything I can (my mortgage and student loans come out of the bank account, everything else on the credit card). We don’t travel a lot, so we just have a cash back card, and the extra money at the end of the year is usually enough to fund Christmas gifts to each other and our immediate families with some extra left over for something fun.

   2. Yes I hate the “use cash” advice. Using a credit card will earn you more unless you don’t trust yourself to spend less than you can afford which is a different issue.

2. Choose a spouse very carefully. (Yes, I consider this financial advice)

   1. This. So so important. My biggest secret to success? Marrying an awesome man who supports and admires my drive, is passionate about saving for retirement, and loves being an equal co-parent.

      1. I think many of us who are single are wishing we had such luck. I, personally, find it daunting that I have no such partner, and it makes it very difficult to think about how to structure my future financially without having that second person there who can share in the planning and the saving (and, of course, the joyful and difficult parts of life, too, but that’s not what this discussion is about). And yes, of course I am glad I don’t have a partner who is a financial drain, but not having a partner at all does actually affect very much the financial and professional decisions I feel I can make.

3. If you are planning a maternity leave, plan to take it will still in Biglaw. You will net tens of thousands of dollars over taking the same leave after you’ve move into the government or a nonprofit.

   1. Eh, but you’re more likely to quit your job when you return if you’re in Big Law working crazy hours versus 40 hours a week at govt or non-profit. And quitting would erase any mat leave savings many times over. I think it’s kind of a know-yourself thing, but I think it’s a perfectly valid decision to know you can’t juggle an 80 hour/week job and a newborn and to delay parenthood until you are in a less hectic job.

   2. DITTO. I had my first baby at biglaw and made my full salary for almost a full six months of leave. I had my second baby at govt and was paid for 11 weeks (which was a lot due to having a ton of sick leave). That’s a difference of at least $50,000 when you are talking about a big law salary. I was at a family friendly white shoe firm and went back at an 80% schedule and frankly had a very easy transition. It is possible.

4. My advice would be to choose just one area to allow yourself lifestyle inflation in. Mine: I live alone. But I don’t go on vacations or drink in bars.

   1. I think rather than framing it as “what should you deprive yourself of” it’s more helpful to think of finances in terms of what you need to save and then what the leftovers (after savings) will allow you to do. I live alone, take vacations and go out to eat and drink pretty regularly, and my salary is much less than the Big Law starting salaries mentioned above. But I have no non-mortgage debt, and after paying my mortgage and fully funding my retirement I have plenty left over for all of the above activities so I don’t consider my lifestyle “inflated.” I guess some would see it that way, although others would probably see it as quite modest, and it’s certainly not inflated beyond what I can afford.

      1. You have no non-mortgage debt, which is a very different situation then a recent law school grad who (must likely) has 6 figures in debt. This advice might make sense in your case, but I don’t think it is very helpful for someone trying to pay off $200k in student loans. There best bet is to make a budget and try to throw as much money as possible at their student loans because they will likely never be in a better place for paying it off.

         Also, I would suggest saving more than just a maxed out 401k and a (back-door) IRA. For most of us, that will not be nearly enough to live the lifestyle we want in retirement. (Again, this advice applies to people making over 6 figures, who don’t want to change their situation in retirement)

         1. Well, my salary is about 1/3 of the Big Law first year salary and not everyone in Big Law has $200k of debt. I did have student loan debt (not $200k, but an amount close to my annual salary) that I paid off while still taking some vacations and going out to eat. I think you can live a pretty frugal lifestyle without giving up everything you enjoy. Should you buy a BMW or spend $10k on a vacation while you still have student loan debt? No. But you can take vacations and go to bars while still paying down debt and saving for retirement responsibly.

            1. I’m in the UK, so different student loan situation, but I don’t make anything near BigLaw – so I spend just over half of my take home pay on rent and bills (gas, electric, council tax, internet – no TV, Netflix only occasionally)

5. Build an emergency fund early, maybe even before making extra payments to your student loans. A lot of associates are asked to leave after 2 or 3 years. Although you often get a few months notice, it will be less scary if you also know that you already have money in the bank.

   1. And to be even more fear-mongery…it’s becoming increasingly common for associates to be asked to leave after failing the bar exam twice. You usually take the bar exam for the first time before you even begin work, so your second (and in some cases final) attempt may be after you’ve been working for <6 months. Two people I know were let go in the first year of employment after failing to pass the bar on the second attempt. You need an emergency fund from day 1.

6. This is all great advice and so important. The only thing I’d add or expand on in terms of watching out for the golden handcuffs is to be careful not to upgrade your lifestyle with every pay raise. I worked on Wall Street for over a decade and kept my lifestyle relatively low key which enabled me to save enough to ultimately launch and fund my own business http://www.senzatempofashion.com.

   If I hadn’t taken the subway, made my own coffee and kept the same apartment rather than trading up to a fancier one with every pay raise I wouldn’t have had seed money.

7. Living way below your means is such great advice. I’ve been a lawyer for 10 years, and my husband and I still live in my husband’s small house with just one main bathroom and window AC units. It’s totally fine! We avoid high property taxes and enjoy eating out and taking nice vacations. We don’t fight over money, and we like to fantasize about our early retirement. It’s great! Whenever I have a bad day at work, it is very comforting to know that I don’t have to work for another 20 years.

   It is amazing how much a home ends up costing over a lifetime. People will tell you that with the mortgage deduction, it’s smart to buy a nice house. It will appreciate in value over the years, blah, blah. All of those old assumptions are no longer true as the past mortgage crisis demonstrated. In the end, you really only save about 1/3 of that interest via deductions anyway. The mortgage interest deduction is not a credit. So, 2/3 of the money spent on interest is literally thrown away. Think realistically, too, if you are possibly going to move in the next five years, which is probably the case for a young associate, you will probably lose money by owning a property. Plus, you can save on high property taxes in a high tax state by not buying an expensive house. Then, there is the cost of furnishing, cooling, heating, and maintaining the house, which all increase as the size goes up. It just ends up costing so much more than you ever planned.

   You don’t have to buy lots of expensive stuff to show off. People will know you are a lawyer and think you are still rich anyway.

   1. Totally agree. People spend money on stupid things. I am financially secure and now a law professor. I still brew my coffee at home and bring in my own lunch most days rather than buying. My students, who all complain about no money, buy coffees here at the university at $4.50 a pop and all their meals here (with a single meal costing anywhere from$12-20). They must spend hundreds of dollars more than me a week, and then complain that they do not want to spend money on their books for school and complain about all their debt. They’d have several thousand dollars less debt if they lived like me. When I was making awesome money at BigLaw, I shared a super tiny apartment with my now-husband. People would laugh at us for living below our means, but it was pretty awesome when I paid off $130,000 in student loans in less than 3 years. We still lived below our means after that to the extent that we were able to pay cash for our house when we finally left NYC.

8. after maxing out your 401K, pay off your loans. period. in my first two years in biglaw i put all my bonuses into my loans and paid $4k a month on them immediately after receiving my paycheck. the debt went away quickly. i did not think of myself as having a high-paying job until the loan payments went away.

   1. Also agree. My husband paid off $100K in his private loan debts in less than 3 years at a big firm. We still went on vacations and got married and went out to eat. He was very focused on it though.

   2. Yes. This. As I mentioned above, I paid off $130,000 in under 3 years by doing this. I was very focused. It did not mean that we never ate out but we were very careful on what we spent money on. The debt felt like a millstone around my neck; I considered myself poor until it was removed. So we did not pay on things that add up quickly like cable TV subscriptions, especially when we were both at work all the time and never home. (We did finally succumb after 9/11 when free to air TV reception was affected by the loss of the big TV antenna on top of the WTC.) I did not keep upgrading my cell phone, we stayed in the tiny apartment, which also happened to be rent stabilized – score. We did go on vacation (overseas vacations, no less) but always looked for deals. And all of that travel for work helped because we always did what we could to maximize (and use) frequent flyer miles, hotel points, etc. We had an awesome trip to Turkey, for example, that was basically free due to FFMs and hotel points. We did have some nice meals out, of course, but we tempered them with lots of low cost stuff. It is not exactly difficult to live a low-cost lifestyle in NYC if you want to. You can walk places for free (and stay fit in the process), do free stuff like bike riding or rollerblading on a nice day, etc. And of course there are the free dinners when you work late.

9. funny this should come up. I am a surgeon but there are similar issues for new attending doctors ( ie finished med school and residency and starting to work at her first job).
   I recently received a question on facebook about this topic. Here was my long response. It may be helpful to some.

   Congrats on starting new job! I am glad you have taken the time to learn about personal finance since there are many along the way who will “help” by separating you from your money. There are 5 keys to securing your financial future.
   1. Don’t upgrade your lifestyle (yet). If you are making more than you have before, the temptation is to not penny pinch since now you can afford it. It is called “lifestyle inflation” and it is very difficult to recover from ?.
   2. Insurance. Make sure you are adequately covered. This includes health, disability, life and malpractice. You didn’t say if you were a independent contractor but I am assuming since you mentioned the SEP IRA. Cover yourself and your family for health insurance from the marketplace if not offered by your employer. Life insurance is insurance, not an investment. Get term life insurance. Do not get whole life insurance. Disability insurance is a must have. Currently your greatest revenue generator is you! If you become disabled and can’t work, you will lose your financial security is you are not covered. I also did a livestream on disability insurance covering what you should look for in a policy.
   3. Create a plan for retirement. Looks like you started working on this one already. If you are an independent contractor, you can set up a SEP IRA which is a self employed individual retirement account. You can save up to 25% of your net compensation. max is 54k. But you should also consider if you want to do a backdoor ROTH and convert that money. Also consider creating a solo 401K. It is pretty straightforward and not much different until your account is >250k
   4. Create a plan for paying off debt. Choose the snowball or avalanche method to pay off your debts. I am an advocate of paying off debt while saving and investing. You can always make more money but you can’t make up time.
   5. Create a plan for investing and saving. Pay yourself first. Maybe I should have listed this one as #1. Personal finance is personal so you need to determine how much cash you want to keep around for emergencies. Can be anywhere from 1k to 3-6 mos of expenses. Just depends on what you are comfortable with. But the key is to automate the savings. Have money taken out of your account monthly or by paycheck and move it to a separate account. If you do this from the beginning, you won’t notice the difference in your paycheck and the savings account will grow quickly. After you have maxed out all of your tax advantaged space, you can set up a taxable account to continue to invest. You can also consider alternative investments at that time if you have any extra money. I hope this was helpful as a starting point to setting up a secure financial system.

10. The biggest thing most women just starting out their first real job don’t think about is they have a very short time frame before their life changes significantly (starting a family). Not everyone does, but most do. Those that do, have to decide to keep working the same demanding schedule (thus sacrifice family/motherhood time), switch careers for better schedule (sacrifice some growth and money), or quit all together (sacrifice all growth and all money). Considering high income women obtain a post grad degree – they don’t start working until mid-twenties. Child bearing age starts to taper off in mid-thirties. So, we have 10 years to get it together and cannot afford to make mistakes. Agree with above posts on – pay off all non-mortgage debt pronto, max out the 401(k), roth IRAs, HSAs, and maybe even start a taxable investing account. Limit lifestyle inflation to make that possible.

    Vanguard came out with a study a couple of years ago that compares women and men in terms of investing. The study found that women are better savers (they save more consistently and save a bigger %) and are better investors (they generate better returns), but their balances are woefully smaller than men. For the exact reason I described earlier (some has to do with pay inequality which still exists on a smaller scale). But the bigger reason is women choose to make less or nothing at all because of starting a family.

    Good post and thanks for bringing this to light. This needs to be taught in college!

11. One piece of advice I give to Big Law associate/young partner moms is to tell them (if their student loans are paid off) to put one year’s bonus into a 529 when they have an infant and they’ll never have to worry about paying for college.

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