As a Biglaw associate, a budget will help you capture as much wealth as possible, control your spending and ensure that you make the most of your time in Biglaw.
Keep in mind that this budget won’t be your specific numbers but should be helpful in generating some thinking on your part (here’s one for a SmallLaw associate).
In this hypothetical, I’ve calculated the first year associate could save $81,076 a year. That’s a pretty solid savings rate of 35.6%.
Hardcore savers could do even better, but I wanted to start with something that’s middle of the road, because I’m much more afraid of the other end of the spectrum – lawyers making a $225,000 starting salary and, yet, only saving $20,000 to $30,000 a year, all while thinking that they’re making good progress toward their financial goals.
Thanks to your late career start, a savings rate of 10% to 15% just won’t cut it. You need to do better.
We’re assuming our hypothetical first-year associate lands a job at one of the prestigious firms in New York, San Francisco, Boston, or even a place like Dallas or Houston, and that their pay is based on the Cravath scale.
If you end up with a deferred start date, we’ve covered that, too!
For purposes of this example, let’s assume she lives in New York, as it’s one of the most expensive places to live in the country.
Biglaw Associate Budget
Downloadable template for creating a Biglaw associate budget for those interested in building wealth.
| Jan | Feb | Mar | Apr | May | June | July | Aug | Sept | Oct | Nov | Dec | Total | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Income |
|||||||||||||
| Salary | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $205,000 |
| Bonus | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $22,500 | $22,500 |
| Other Income | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| Total | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $39,583 | $227,500 |
Retirement |
|||||||||||||
| 401(k) | ($1,708) | ($1,708) | ($1,708) | ($1,708) | ($1,708) | ($1,708) | ($1,708) | ($1,708) | ($1,708) | ($1,708) | ($1,708) | ($1,708) | ($20,500) |
| Roth IRA | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($6,000) | ($6,000) |
| HSA | ($304) | ($304) | ($304) | ($304) | ($304) | ($304) | ($304) | ($304) | ($304) | ($304) | ($304) | ($304) | ($3,650) |
| Total | ($2,013) | ($2,013) | ($2,013) | ($2,013) | ($2,013) | ($2,013) | ($2,013) | ($2,013) | ($2,013) | ($2,013) | ($2,013) | ($8,013) | ($30,150) |
Pre-Tax |
|||||||||||||
| Healthcare | ($530) | ($530) | ($530) | ($530) | ($530) | ($530) | ($530) | ($530) | ($530) | ($530) | ($530) | ($530) | ($6,360) |
| MTA Transit | ($127) | ($127) | ($127) | ($127) | ($127) | ($127) | ($127) | ($127) | ($127) | ($127) | ($127) | ($127) | ($1,524) |
| Total | ($657) | ($657) | ($657) | ($657) | ($657) | ($657) | ($657) | ($657) | ($657) | ($657) | ($657) | ($657) | ($7,884) |
Taxes |
|||||||||||||
| FICA | ($940) | ($940) | ($940) | ($940) | ($940) | ($940) | ($940) | ($940) | ($940) | ($940) | ($940) | ($940) | ($11,280) |
| Federal | ($3,369) | ($3,369) | ($3,369) | ($3,369) | ($3,369) | ($3,369) | ($3,369) | ($3,369) | ($3,369) | ($3,369) | ($3,369) | ($3,369) | ($40,428) |
| State | ($1,007) | ($1,007) | ($1,007) | ($1,007) | ($1,007) | ($1,007) | ($1,007) | ($1,007) | ($1,007) | ($1,007) | ($1,007) | ($1,007) | ($12,084) |
| NYC | ($624) | ($624) | ($624) | ($624) | ($624) | ($624) | ($624) | ($624) | ($624) | ($624) | ($624) | ($624) | ($7,488) |
| Total | ($5,940) | ($5,940) | ($5,940) | ($5,940) | ($5,940) | ($5,940) | ($5,940) | ($5,940) | ($5,940) | ($5,940) | ($5,940) | ($5,940) | ($71,280) |
Housing |
|||||||||||||
| Rent | ($3,000) | ($3,000) | ($3,000) | ($3,000) | ($3,000) | ($3,000) | ($3,000) | ($3,000) | ($3,000) | ($3,000) | ($3,000) | ($3,000) | ($36,000) |
| Insurance | ($20) | ($20) | ($20) | ($20) | ($20) | ($20) | ($20) | ($20) | ($20) | ($20) | ($20) | ($20) | ($240) |
| Utilities | ($125) | ($125) | ($125) | ($125) | ($125) | ($125) | ($125) | ($125) | ($125) | ($125) | ($125) | ($125) | ($1,500) |
| House Cleaning | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($1,800) |
| Internet | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($480) |
| Phone | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($40) | ($480) |
| Total | ($3,375) | ($3,375) | ($3,375) | ($3,375) | ($3,375) | ($3,375) | ($3,375) | ($3,375) | ($3,375) | ($3,375) | ($3,375) | ($3,375) | ($40,500) |
Expenses |
|||||||||||||
| Groceries | ($650) | ($650) | ($650) | ($650) | ($650) | ($650) | ($650) | ($650) | ($650) | ($650) | ($650) | ($650) | ($7,800) |
| Restaurants/Bars | ($500) | ($500) | ($500) | ($500) | ($500) | ($500) | ($500) | ($500) | ($500) | ($500) | ($500) | ($500) | ($6,000) |
| Travel | ($425) | ($425) | ($425) | ($425) | ($425) | ($425) | ($425) | ($425) | ($425) | ($425) | ($425) | ($425) | ($5,100) |
| Clothing | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($150) | ($1,800) |
| Household | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($1,200) |
| Gifts | ($50) | ($50) | ($50) | ($50) | ($50) | ($50) | ($50) | ($50) | ($50) | ($50) | ($50) | ($50) | ($600) |
| Netflix, etc. | ($80) | ($80) | ($80) | ($80) | ($80) | ($80) | ($80) | ($80) | ($80) | ($80) | ($80) | ($80) | ($960) |
| Gym | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($1,200) |
| Event Tickets | ($75) | ($75) | ($75) | ($75) | ($75) | ($75) | ($75) | ($75) | ($75) | ($75) | ($75) | ($75) | ($900) |
| Self-care | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($100) | ($1,200) |
| Total | ($2,230) | ($2,230) | ($2,230) | ($2,230) | ($2,230) | ($2,230) | ($2,230) | ($2,230) | ($2,230) | ($2,230) | ($2,230) | ($2,230) | ($26,760) |
Debt |
|||||||||||||
| Student Loans | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) |
| Other | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) |
| Total | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) | ($0) |
Summary |
|||||||||||||
| Income | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $17,083 | $39,583 | $227,500 |
| Expenses | $12,202 | $12,202 | $12,202 | $12,202 | $12,202 | $12,202 | $12,202 | $12,202 | $12,202 | $12,202 | $12,202 | $12,202 | $146,424 |
| Raw Savings | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $27,381 | $81,076 |
| Total Savings | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $4,881 | $27,381 | $81,076 |
Note:For the Backdoor Roth IRA, the assumption is that your bonus is paid in December and you make the contribution when you get your bonus. You can make the Backdoor Roth IRA contribution whenever you want during the year. Click on the Roth IRA link to learn more abou the Backdoor Roth IRA. The budget starts with $0 allocated toward debt payments. Add your debt and adjust as necessary. “Raw Savings” is the extra cash you have each month. “Total Savings” includes extra cash + debt repayment so that you’ll think of debt repayment as a part of your savings rate since repaying debt increases your net worth.
Income, retirement and pre-tax line items
As you can see, on the income side we’re assuming a starting salary of $225000 plus the most recent annual bonus. Those numbers match up with the current market Biglaw salaries.
The first two buckets of expenses on any budget are: (1) retirement contributions and (2) pre-tax contributions.
The budget is designed for you to max out your retirement account contributions off the top of your income without you having to think about it. Make this your default going forward in your career.
Pre-tax contributions are to things like healthcare and transit expenses. Given that you don’t have to pay taxes on these expenses, you want as many expenses to be pre-tax as possible.
Your biggest expense: Taxes
The tax bite on your salary is gigantic and that’s even after taking advantage of pre-tax contributions to retirement accounts and using pre-tax dollars to pay for health insurance premiums and a monthly subway card.
Anything you can do to minimize taxes is going to be an effective use of your time and worth planning.
The budget assumes you’re living in New York, which is subject to a city tax. Many associates in other big cities will not be subject to a city tax (but might see higher taxes). We include the city tax on its own line so you understand the cost of living in the five boroughs (read our story of moving to New Jersey).
Bottom line is that you should be aware that taxes are your single biggest expense, not because they’re evil but because any action you take which reduces a $1 of taxable income can have a big effect on building wealth.
Your second biggest expense: Housing
Housing spending is discretionary. We assume a generous $3,000 spent on a 1 bedroom apartment. If you can live on less (i.e. with roommates, as you should be doing), that’s even better. You could easily trim $1,000 from your rent by continuing to live like a law student.
For anyone serious about building real wealth, I highly recommend you continue to live like a law student for the first 3-5 years after law school.
You’ll also notice in this category I’m assuming you have a house cleaner (a luxury I think is well worth it) and that you’re only spending $40 a month on Internet and $40 a month on your phone.
There’s really no need to be paying more than that, nor do you need cable TV. Cut out the unnecessary expenses and move on.
How to limit general expenses
For food and bars, I’m assuming you can get by on $1,150 a month. Many spend much less, but, hey, NYC is expensive. You’ll probably be going out with friends to relieve some of the stress, so go ahead and have a little fun.
For the most part, you should be trying to capture all of your reimbursable expenses anyway, which will often include late night meals.
On the shopping side, the clothing allowance takes into consideration the work from home policies pervasive in Biglaw at the moment. When offices open up, you may need to adjust as needed.
For entertainment, we’ve kept things pretty minimal. You’ll mostly be working, so I doubt you’ll be able to spend much on entertainment even if you wanted to. The key here is to keep from paying for expensive monthly subscriptions for services you don’t use.
At the end of the day, this hypothetical lawyer is saving a total of $81,076 a year. That’s a great base, particularly since you’ll be saving your raises as you go along.
Even if you only spend three to five years in Biglaw, you’ll be able to rack up over $300,000 in savings in a pretty short timeframe.
What about student loans?
Many of you will notice that the budget doesn’t include student loan payments. That’s on purpose.
We want you to think of payments toward your student loans as “savings” since reducing your debt has the same effect of increasing your net worth and saving money in a bank account.
The savings generated by this budget are yours to deploy as you see fit, although if you’re looking for some ideas, we have a guide for prioritizing your dollars.
Regardless, if you have $200,000 in student loans, you should be able to pay them off in five years, assuming you use future raises and bonuses toward the loans.
Don’t forget to grab our cashback bonuses when you refinance your student loans.
If you find yourself five years out with no student loan debt (i.e. you’ve paid off $200,000) and over $150,000 in retirement accounts (remember, you’re still making those contributions in the above example), I’d say you’re doing pretty good.
I know many readers will want to do even better and of course you can do more to push the needle by increasing your savings rate.
The reality of Biglaw spending
Unfortunately, many lawyers won’t be able to save this much. They’ll leave Biglaw in three to five years with a large student loan balance and a negative net worth.
It’s pretty easy to spend every penny of your salary when you’re living in a high cost of living city like NYC. This is especially true when you’ll be watching your peers do the same.
But it’s possible to pay off your student loans and build up a considerable net worth. Ultimately, it’s up to you to decide where you want to be in five years.
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Joshua Holt is a former private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He spends 10 minutes a month on Empower keeping track of his money. He’s also maxing out tax-advantaged accounts like 529 Plans to minimize his taxable income.
I agree that a written interview is likely to be the most interesting. I am most interested in hearing about other lawyers’ financial goals. The “how” of saving money is interesting, but the “why” is fascinating, and varies so much from person to person. In my personal experience, the best way to save money is to start with a really compelling reason to do it.
PS There’s no reason women’s professional clothing needs to cost a lot. I buy almost all my clothes second-hand (or “vintage” if you prefer). My motivation is environmental, not professional, but the end result is that I save money. I buy from a variety of places, but only buy clothes that are in “excellent” or “like new” condition. Some still have the tags. I return whatever I don’t like. For things that I can’t find used, or don’t want to buy used, I wait for clearance sales.
Oops – meant to say “environmental, not financial!”
Yes! You’re right. We need to figure out the why. I’m sure some lawyers are motivated to save because they want to get out of the rat race, while others find the student loan burden crushing. I’ve talked to several that I’ve met through the site that continue to save even after their loans are gone and intend to keep practicing (sounds like me). I need to highlight those stories.
Also, thanks for chiming in about women’s professional clothing. I’m not very knowledgable there.
Couple for things,I thought ROTH IRA is ineligible after 133K ? Also about contribution to a HSA fund, Assuming the company has a high deductible insurance plan ? For MTA shouldn’t there be a use of mass transit account which saves pre-tax money upto 255 PM for a total 3060$ instead of the calculated 1368$ ? and the taxes don’t seem right for 180K income. Tried a couple of online calculators for NYC with a pay of 180K the tax burden should be more like 75K to 80K . So the numbers just seem way off ! If you haven’t seen this already, please read! seems like a more reasonable assumption than what you have here !
https://www.financialsamurai.com/how-to-make-six-figures-a-year-and-not-feel-rich-200000-income-edition/
@Roth IRA – Yes, there are income limits to making a regular contribution to a Roth IRA. If you’re above those limits (like a lot of lawyers), you need to do a Backdoor Roth IRA. There’s no income limit if you contribute through the “backdoor”. More on this in a future post but plenty of info on Google.
@HSA – Correct. You need to have a HDHP to qualify for a Health Savings Account.
@MTA – A monthly NYC subway pass is 116.50, so that’s what I used (116.50 x 12 = $1,398). You can actually exclude up to $255/month in transit expenses AND $255/month in qualified parking expenses. I just used someone who lived in the city without a car as an example.
Related: Maximizing Your Transportation Expense Benefits
@Taxes – I calculated $62,549, which is actually more than what Sam calculated on a $200K salary (he thought taxes should be less). I think he had a smaller tax burden because he wasn’t using someone living in NYC as an example (state + city tax). These tax numbers are pretty close to what I paid in taxes myself when I adjust upwards (since starting salaries were $160K back then). I think the numbers are about right. $75-$80K sounds too high. When you entered taxable income in the online calculator, did you remember to back out the contributions to the 401(k) and HSA? Did the calculator also take into consideration that you’ll be itemizing your deductions thanks to the hefty state and city tax bill?
Pretty crazy when you think about it, but basically every lawyer taking out average law school loans of about $140k (I think that’s the latest number) “should” be able to get out of debt in about 3 years if they land biglaw in NYC or a similar market. This seems pretty true even while maxing out retirement accounts and not living all that frugally. (e.g. 100 bucks a month for a gym when your work or apartment might have one for free, $150 on a house cleaner, a pretty high amount spent on restaurants and bars when you could probably milk a lot of that for free at work)
Now that I think about it, it’s super easy to milk a lot of big law stuff for FREE. Lunch can basically be free all summer while summer associates are in town (I know I . Tons of CLEs also where you can get free lunch. And then if you’re billing a lot, you can snag yourself the free dinners too.
But you’re right, most lawyers won’t do this. I think it’s a small minority that will have paid off all their loans within 3 years. You’ll hear a lot of excuses about why this isn’t possible (rent too high, pets, cost of living, whatever).
Yeah, I agree. The above budget isn’t super frugal. I tried to be realistic about how much lawyers in HCOL areas will spend. I always chuckle when some law student on a forum posts that they’re going to “go straight home and play video games every night” for two years and have everything paid off by then. Yes, that could happen, but it’s not very realistic in the pressure cooker that’s known as Biglaw. You’re probably better off to play the long game and build in a few vacations where you can decompress to make sure you’re still there in 3-5 years. There’s plenty of ways to keep your spending in check while also getting to live a little. Given that a law student probably makes $0, even having $10K in disposable income is a lot.
This article is so valuable. I really appreciate that you outlined a very realistic and achievable budget. I’m currently a few months into my third year in biglaw, and while my monthly budget breakdown looks very different, I’m hitting about these numbers in terms of loan payoff and retirement savings. And what’s significant is that I don’t typically “budget” in the sense like you’ve laid out above, but a few key decisions early on (inexpensive rent, deciding against cable, deciding against expensive nights out) have given me a lot more flexibility in my everyday spending and travel. Thanks for this blog–continuing to enjoy and learn.
As they say, all roads lead to Rome. Glad to hear that this budget is realistic in terms of loan payoff/retirement savings even if the line items are different for you. Those first few decisions are critical. If you set yourself up financially now – and it sounds like you are – a world of options and possibilities await you. Awesome job!
I went from biglaw to a federal clerkship in the latter half of 2016, but I continued living the same sometimes-frugal, sometimes-indulgent lifestyle in NYC while I was at the clerkship, and even had some extra expenses added in solely because of the clerkship (a monthly commuter train pass costing several hundred dollars a month). Outside of student loan payments, I ended up spending only ~$48,000 in 2016 on all expenses, including rent, two international trips (including one for a wedding, though I admittedly put down some of the money for the wedding travel in 2015 and the couple was kind enough to pay the wedding party’s airfare), attending another out of state wedding, some additional out of state travel, frequent restaurant outings, clothes shopping at roughly $150/month and so on.
$1200/month for food, including restaurants and groceries, would be quite indulgent! I spend about $680/month total without actively trying to keep costs down, though when I was at the firm, frequent reimbursed dinners for working late helped keep that number down. I don’t buy alcohol though, so that might be a big factor keeping my costs down.
$1200/month for food is definitely indulgent! Although if you’re dating in the city, I suspect you can spend that amount pretty quickly.
Thanks for posting your story and giving the readers more ammunition to know that it can be done. $48K in expenses is a great way to “free up” the rest of your money so that you can start putting it to work, as I’m sure you’ve done. When you look back at the last year, I bet you’ll remember the international travel and some of the great restaurants and you won’t miss a lot of the stuff that you didn’t buy.
Did the clerkship give you any financial benefits that weren’t available to you while you were at the firm (e.g. ability to contribute to a 401(k) and a 457(b)? I’ve always been curious how that works since you’re typically only there for a year.
No new financial benefits, alas. Other Court employees can contribute and get a match with the Thrift Savings Plan, but term clerks aren’t eligible because we’re short term employees.
That’s too bad, but sort of what I expected. Thanks for updating with your experience. It would have been great if you had access to the TSP for a year.
Great post! I’m a biglaw associate who maxed out my retirement savings AND paid off my students loans in two years. Even though most of my colleagues are taking on even more debt (e.g., luxury cars, expensive homes), I continue to live well below my means, grind, and invest.
Health care insurance costs are a bit of a wild card. Your estimate is likely on point for a first year associate who is single, but tack on about another 10k if the associate is married with child(ren).
Yeah, health insurance costs are a wildcard. In my experience, they also very widely from firm to firm. I know that not all firms give you access to an HDHP (and of course it’s not always the right plan for everyone to be on an HDHP).
You should be commended for maxing out retirement accounts and knocking out your student loans in two years. How big were your loans? What motivated you to get it done so quickly?
Thanks for the post!
Healthcare seems quite low though on this estimate? Otherwise, this seems about spot on for what me and my wife are aiming for. I also suspect the MTA will be raising monthly Metrocard fares but it won’t be too much more (~$10?).
I am going to assume that this will be around what we use for our student loan repayment and savings plan once I start practicing in the fall of 2017.
Some would say low, others would say high. I have a friend who pays $100/mo for his HDHP (single, no kids). It really depends on what your firm offers you. You could ask your firm (or someone who’s already there) and just plug in the number and adjust accordingly. Come to think of it, I should have made this spreadsheet downloadable.
Congratulations on finishing law school and finally getting started working. It’s a long road. One of my favorite summers was studying for the bar exam. You spend the morning listening to lectures, study a little in the afternoon and that have each evening (and weekends) free to hang out with friends. We had so much fun grilling hamburgers and hanging out in the evenings.
there are firms where 2K a YEAR is “high” for medical? where the hell are these firms? I’m paying 850 monthly for family coverage (what Oxford calls, two or more people) at a v20.
Monthly healthcare premiums are one of the biggest discrepancies between firms. Readers are surprised all the time to learn that they are paying way more than their peers for similar medical coverage.
I am seriously confused. A few years ago, people were saying 130 k and higher law school debt would take years and years to pay back even on a big law salary. Has the 180 k leap changed things so much especially when you consider the fact that costs are rising? Why did people say that back then?
That’s absolutely right. People do take years and years to pay back their student loans. I know junior partners that still owe tens of thousands of dollars on their student loans. I hope that’s not the case for readers of this site. If you want to knock out your loans and build real wealth, you can do it.
I’m currently an undergrad. My parents told me to chose between an expensive undergrad and graduate with around 100 k or higher in debt from law school or they offered to pay for my law school if I went to a cheap undergrad. I chose the latter because I was under the impression that paying off with debt even on a big law salary would be a challenge. After reading this site, I’m confused as to whether I should have chosen the former because it sounds really easy to pay sticker price with a 180 k salary. However, people tell me graduating without law school debt is a huge huge advantage and that going into grad school debt for an undergraduate degree is completely ridiculous. Do you think I made the right choice? I would be grateful for any advice as I would like to understand the legal market a bit better.
I’m considering transferring, but that would mean I would have to take on 90-100 for law school debt
Biglaw jobs are very difficult to land. You can’t go to law school with the expectation that you’ll be making $180,000 when you graduate. Even if you’re qualified, there’s a lot of luck involved, so I wouldn’t make a decision about taking on $100K in law school debt based on an assumption that you’ll land a job in Biglaw. If you don’t even up in Biglaw, the next most common starting salary is $60,000.
If someone can refinance their loans for around 3% over the longest term like 20 years and have the lowest possible minimum payment, wouldn’t it make more sense to put any money left over after making the minimum payment into the market? Assuming even a 6% average annual return of the S&P, less inflation, investing anything above the minimum payment seems like the best way to build wealth because you’ll easily make more in the market over the long term that the interest on your loans cost you in that time.
I’ve been playing around with this helpful calculator I found to figure out my own loan payment vs. investing plan. https://studentloanhero.com/calculators/student-loan-payoff-vs-invest-calculator/
Yeah, that’s one way to approach it. Nothing wrong with that. It all depends on how comfortable you feel about debt. If it doesn’t keep you up at night, you’re right that mathematically you’ll do better over time by investing the difference. That said, I’ve yet to meet any super-wealthy people that still have student loan debt, so you’ll pay it off eventually.
The other common pitfall is that it’s really easy to say that you’re going to invest the difference but in reality, you don’t quite do that.
If you pay down $1 of debt, your net worth increases by $1. On the other hand, if you’re supposed to invest that $1, it’s easy to accidentally spend it, or otherwise find a different use for it rather than investing it according to the plan.
Here’s a different scenario but the same psychological issues:
https://www.biglawinvestor.com/pay-down-auto-loan-or-invest/
Thank you, Josh! Valid points, and thanks for the link to the auto loan article. I’m going through that process right now and am leaning toward financing all of it if I can snag a 1.24% rate for 72 months (yay for credit unions!)
I agree the biggest thing is that the money not going toward the loan has to be invested or it doesn’t work. I plan to do an auto deposit each month into my investment account since I would have done an auto deposit to the loan servicer anyway ha so it won’t be missed.
Your site is amazing and I’ve raved to all my Big Law friends about it — I just started at Gibson Dunn in Dallas after two years of clerking and you have done wonders to make me feel so empowered and knowledgeable about how to maximize this time in my life financially while also enjoying myself and being realistic about how long it will last ha. I learned all about the back door Roth and am doing that this year and would do an HSA if my firm offered a HDHP which they don’t.
Thank you a ton – I’m looking forward to refinancing my loans in February with your page on all the companies with cash back offers. Thanks for all you do, you’ve easily been more helpful than anyone in my school’s career office ever was, but I don’t have to tell you that law school specializes in teaching everything but what you need to know! Ha.
It seems that we’re running out of space to reply! I think the nested comments only go so far on our site. Anyway, just wanted to thank you for the nice comment which I shared with the team. Our motivation for the site isn’t any different than it was in 2016 when I started – namely to empower you to get a jumpstart on the financial aspects of your career so that you can have optionality (and hopefully some mental peace) going forward. You got this!
I thought that everyone from T-14 law school landed a biglaw job in today’s market. Are people exaggerating as to how much the legal market has recovered? Also, what do you think of this article on entering the legal world? https://www.bostonglobe.com/business/2016/07/19/put-down-that-law-school-application-before-too-late/chslL71LbM195tjvWbbWpL/story.html
Absolutely amazing! I plan to do this!
Any advice about how to make intelligent financial decisions during your 2L summer in Big Law?
Also, the link to the spreadsheet does not work (on Safari or Google Chrome). Any help?
Thanks for sending the email. The link should be working now. If anyone is having trouble, just send me an email.
This is impossible for a first year associate with a child under 2. Insurance costs more, expenses are a lot more, daycare is through the roof, etc.
agreed. the insurance numbers are frankly a sick joke.
Sadly, your firm is charging you more than your peers are paying. I understand as I was there too once. When I switched firms I got a $260/mo pay bump just for getting access to an HDHP (single, no kids).
Well, the budget isn’t based on a first-year associate with child. You’ll have to adjust the numbers accordingly. I don’t see how that makes it “impossible” – yes, insurance and daycare costs more but I’m not sure I agree that “expenses are a lot more.” In this budget you’re spending $500 a month on restaurants/bars (in addition to a grocery expense), which I imagine is harder to do if you have a kid under 2. Regardless, there’s still $68,000 of wiggle room here. You’re not really suggesting that a kid costs that much, right?
Insurance for family = $650/month
Daycare = $2000-2500/month
Nanny care bc you’re a 1st year associate and daycares don’t stay open late enough = $20-35/hr
Diapers, formula, wipes =$100–150/month (conservative estimate…much more if you have a kid with allergies or prone to rashes requiring certain brand name items)
Electric and gas is much higher since you have to keep the temp at a steady 68-75 for safety purposes, you’re washing clothes and bedsheets constantly, and you’re home more often (lights on more)
I’d love to know where to get a reliable cell phone on a single phone plan for $40/month
Toiletries = much more bc laundry detergent, Clorox wipes, feminine hygiene products!
Maybe you’re not spending $500/month on restaurants and bars, but it’s laughable to suggest there’s $68K wiggle room with a kid
Sharon, you’re speaking my language.
On the flipside, most biglaw associates with kids also have either a two income family, or a spouse who is a homemaker that offsets daycare / nanny costs.
But I hear you. My wife works, and the costs of daycare, nanny, indispensable housekeeping help and transportation resulting from her job completely account for her after tax income (academia…). It’s only worth it for the resume building, honestly.
And like you my Healthcare costs don’t resemble this template – even the HDHP offered at my firm (which I don’t see as the prudent choice for us given the expenses associated with childbirth and pediatric medicine, and we’d like to have more kids and a wider network for such things), costs considerably more than the model, and I’m paying more like 900/mo. As the author pointed out in comments, this is apparently an area where there is significant diversity between firms – and oddly not advertised much, or it would be a bigger part of Salary Wars with announcements timed for every graduating summer class of elite 1Ls.
I would love to see an updated model for couples with one or two kids, and the baseline assumption of 0 income from spouse, so that, essentially, any reader can use their spouse’s income less taxes, spouse expenses, and pretax benefits to come up with a number that is entirely savings.
This would factor in a lower tax bracket for married filers, new salary numbers (now 190 base), and tax code changes (eg. 401k now at 18500, Ira now 5500, lower marginal rate, every renter in a big city taking standard deduction, which is bigger due to SALT limitation, no personal exemptions, bigger child exemption, and dependent child credit).
I think the sample budget on those lines would find that the aims of this site are more accomplishable than they were when this was published, even with the oppressive cost of daycare (for BLI, if you’re wondering, this is upwards of 2500/mo in NYC).
Uh, your wife is not paying childcare out of * her* salary. Raising a kid is not * her* job. Both of you are paying for the cost of raising a family, and it’s to suggest that *her* salary goes straight to childcare because *she* chooses to work.
Don’t have kids. Best way to save a ton a live a happy life of freedom!! I’m in my mid 40s and not having children was the best decision I ever made. Financially and otherwise. More and more studies are revealing the truth about kids and happiness. When candidly self-reporting, most people report being much happier without children – particularly before the kids are out of the house. After that it’s closer to being similar.
Thanks for this very helpful post! Any advice or recommendations for good tools/apps for managing a budget like this and personal finance generally?
I’ve referenced this post countless times over the last couple of years, and I’ve built my own spreadsheet off of your template. Thank you! I think a lot of biglaw folks would benefit from an updated 2019 version for a second tier market (i.e. Atlanta, Houston, Dallas, Minneapolis, Denver, Phoenix, Portland, etc.).
Great stuff as usual.
This makes it clear that one can easily achieve FIRE (especially if single or DINK) in ten years if one does not have student loan debt.
I’ll share a little bit of my story. Except for one year in my third year of practice, I was always with a small firm or solo. My income averaged approx $50k/year (Atlanta) for the first ten years of my career and about $80k/year for the next ten. No student loan debt.
I had no idea about FIRE (financial independence retire early in the very unlikely event you don’t know) until one year ago, so while I’ve always been good with money, my savings rate was in the 10-30% for virtually all of that time. But I started index fund investing and maxing out my Roth IRA very early on. After 20 years of practice (the last 15 solo) I learned about the FIRE movement and suddenly realized that with the equity in my home, I could retire if I was frugal and smart about it. So I did. Immediately. I’ve billed about 100 hours in the last nine months.
I had/have about $300k in investment/retirement accounts and cash and another $300k or so in home equity. I’m about to sell my home, invest the equity funds diversely (bonds, REITs and maybe CDs and treasuries) and move to a low cost of living but fun area. Probably overseas (I spent the summer in Lyon and am about to spend a month in Thailand).
Based on extensive FIREcalc simulations, I have a 98% of not running out of funds before I die, even with a budget of $48k/year. HOWEVER, my situation is a bit unique in that I am fortunate enough to have wonderful parents who years ago bought a last to die insurance policy for me, of which I am the sole beneficiary. So there is about a 95% chance that I will receive a large sum of money within the next 15 years (parents are 83 and 75). I will also become eligible to begin receiving Social Security at about that same time.
So my situation is sort of like knowing my latest date of death; I just need enough funds to get me through the next 15 years or so (BUT I am now responsible for paying every increasing substantial annual premiums on the policy from this point forward. The amount differs based on many unknowable factors but will be between $10,000-$15,000/year max).
BUT, I also ran simulations WITHOUT taking into account the life insurance proceeds and I could still continue on my FIRE journey without working again if I kept my annual spending in the $30k/year range. That is much more than enough to live a very nice lifestyle somewhere like Bangkok, Costa Rica, Portugal, Columbia, Mexico, etc. Or even low cost of living US cities.
The healthcare and health insurance concerns are WAY overblown. I’m paying $140/mo for an ACA subsidized plan that is awesome!
In sum, if you want to get out of the rat race in under a decade and you’re making decent money and don’t have a ton of student loans it can be done!! The best piece of advice I can give is DON’T HAVE CHILDREN and DON’T GET MARRIED (because you’re likely to get divorced and that’s usually the worst thing that will happen to your finances:).
This budget is VERY frugal. Rent in NYC starts at 3,500. Then the Equinox subscription is 250 a month, not 100. My phone bills are around 100, cause I am paying off my phone.
150 is not a generous budget for clothes. That’s below the regular price of decent shoes. A proper suit for a man costs upwards of 1000.
You haven’t included monthly grooming expenses, such as hairdresser/wellness/dermatology appointments.
I am not being a brat, just saying how most people I know in NYC live. Maybe it will be useful for someone.
Maybe you should change the people you know. The budget hasn’t been updated in awhile but it’s still pretty generous. You don’t have to live the way you are describing and if you choose to do so (nothing wrong with that) just know that you’re prioritizing those things over the other things money could buy you. Spend a little more time around this site and we can cut your expenses significantly.
Ugh, sorry I posted my response as a new comment below. In any event, I appreciate your point.
I am sure many people would agree with you. We may be getting into a philosophical discussion here, but my personal view is that money is for spending. It’s good to be reasonable with money, but you need to make sure you don’t forget to enjoy your life while you’re at it. To live the way I consider comfortable, I personally try to increase my income rather than decrease my expenses. Your post is directed at people in BigLaw with a shot of making a million a year in 10-15 years.
The point of my comment was that people need to keep in mind how expensive NYC really is. Let’s take rent as an example (pre-Covid). If you want to live alone, 2,500 would probably get you a tiny beaten up walk up in Alphabet City, no laundry, with a roach/mice problem. It’s just the reality in the city. It’s great for a starter apartment, but I personally couldn’t wait to get out of it. If you’re making 180k, you can afford a decent place. But otherwise, yeah, you can do without Equinox and an iPhone. You have a point there.
What a load of nonsense. If by NYC you mean Manhattan, then yeah, maybe. However, there are very good neighborhoods in the outer boroughs where nice 1 BR apartments can be had for ~$1500. Your commute may be in the 45 minute range, but for people like me, that is not such a big deal (time flies reading on the train).
I’m not sure what neighborhoods you are referring to Brooklynite. I just started as a first year at a big law firm and am paying $3,000 to live in Brooklyn and commute 30mins. Many of my friends from law school who are also working big law in NY, are living in Manhattan paying $3,500ish as the OP wrote. Also can confirm, that Equinox is $250, not $100. The budget is not realistic.
The budget is $3,000 for rent – what you say you’re paying – and yet it’s still not realistic?
As to your comment about many of your friends living in Manhattan paying $3,500, the point of the budget has been (and always will be) that those are choices that people make. I have no issue with those choices. But don’t expect to build wealth if you want to spend money. Seems intuitive to me.
this is great, I start my career Monday and have set up a similar budget… knowing and naming where every single dollar you earn goes is a very important lesson I learned while starting my pre law school career ( I was a paralegal) and trying to pay down debt. I don’t expect to live like my peers and I’m fine skipping out on luxuries now to ensure I’m out of debt with money saved to start the business my husband and I want to start in 5-7 years time.
Sounds like you’re well on your way. Be sure to max out those retirement accounts. It may seem tempting to hoard cash for the business you want to start but the tax benefits of the retirement accounts are too great to pass up!
Hi – quick question, as I was never much of a “math guy.” But, shouldn’t there be a section that takes away the pre-tax retirement contributions? For example, 401(k) contributions are “pre-tax” and reduce taxable income on that year. Shouldn’t the tax amounts be based on your income after these contributions, therefore making the disposable income higher than it appears here?
The tax amounts are based on the income being reduced by the pre-tax contributions unless you’re saying there’s an error in the calculations (to be fair, these are old calculations, the tax code has changed and we should probably update the calculations here).
These are super realistic and helpful! I’m a first-year associate in NYC and am trying to aggressively pay off my student debt. Currently paying around $5300 to my loans every month and my expenses are more or less the same as what you laid out above. Only thing is I really have no cash left for extra investments. Would you have an updated spreadsheet for 2021 salary + taxes?
@toomuchdebt – We updated the budget and spreadsheet last week for 2021. Let us know what you think and how we could make it better.
Very helpful, thanks! But I’m confused– why is the bonus listed as $22k? First and second years get $12k and $16k…
The $12K and $16K numbers are only the bonuses announced so far this year. There will also be the end-of-year bonus, which will almost certainly be at least $15,000 for 1st-year associates (so I probably should have used $27,000 as the best guess for a 1st-year bonus this year). I used $22,500 because that was the amount paid out last year.
https://www.biglawinvestor.com/biglaw-salary-scale/
Hi Joshua, the Google Doc format is great (thank you) but it would be great if the taxes were formula-driven rather than hard-coded figures. The December bonus figure appears to be untaxed for example as a consequence.
Thanks for the feedback. The December bonus figure has been confusing a lot of people (mea culpa). The monthly taxes were calculated based on the total salary (i.e. regular + bonus), so are accurate in total but not on a monthly basis. In reality, you would pay less taxes each month Jan – Nov and more taxes in December as you noted.
I’m going to take a crack at making the taxes formula-driven, although it may be a challenge because obviously your state and city affect the outcome.
Isn’t the 401(k) contribution limit for 2021 $19,500, as opposed to $20,500 in the spreadsheet?
Correct, it’s $19,500 for 2021 but will be $20,500 next year.
It looks like this budget accounts for updated salaries, but not 2023 taxes or contribution limits. Do you have or are you working on a version of this that will account for those?