Sup Kid wrote: Big Shrimpin wrote:
alumniguy wrote:I make market salary and that leaves me with about $7k/month after taxes. My rent is $2k (which is a pretty good deal here and I don't know too many people who are paying less than I do unless they have roommates), my debt service on $150k in loans is about $2k a month - THAT IS THE MINIMUM PAYMENT - which leaves about $4k of discretionary spending. Sure I've been making more than the minimum,s but I am still at about $100k in debt after 2.5 years in biglaw
Could you elaborate on $7k/month after taxes? Isn't 160 in NYC after NYC taxes like 95-96k? So the additional 11-12k goes to insurance and stuff (that you mentioned but I didn't quote)? Yikes. Is most of that 401k?
So on 84k/year after taxes (which is like better than a vast majority of people in the world), you're paying 2k/mo for loans, 2k/mo for rent, which leaves 36k discretionary spending/year. Are you saving that? Is it not possible to live on a discretionary budget of like 20k after taxes/rent/loans? I live in DC on like 8-10k discretionary after rent (still in school), and that's PLENTY of money for me to eat lunch out almost every day and go out to dinner once a week/go to bars on weekends. I'd assume the conversion ratio for NYC:DC is like 3:2, so is 15k (ish) not realistic for discretionary expenses? Rounding up an additional 4-5k to 20k?
As an aside, you've only paid-down 50k on 150k principal in 2.5 years? Why? I can see how 25k/year (roughly, but if we're going to add a factor-in for interest capitalization, let's assume you've paid a few thousand more than that...150k at 6ish% adds about 9 to the principal for first year, 6 for second year, etc...) for 2.5 years is about 75k, but with added interest capitalization, doesn't that get you closer to like a 85-90k principal after 2.5 years? Was it not possible to throw an additional 16k/year towards it, at almost 40k repayment a year? Or if you'd limited 401k investment, even more? A rough calculation then would put the principal after 2.5 years closer to like 60-70ish.
I mean no disrespect here. I'm asking out of pure curiosity, since I'll likely be in a similar position. I did most of these calculations in my head, as I've been thinking about this sht nonstop for the past three days, so hopefully I haven't fcked up the numbers too bad.
Thank you in advance for your insights, brother.
Edit: didn't factor-in lockstep salary/bonuses...so an additional 50-60k pretax income over 3 years.
^^ This was going to be my exact post. Some clarification would be helpful (especially as to how $96k went to $84k, if it was mostly expenses or mostly retirement investments). Thanks.
Certainly can elaborate - I don't have my pay stubs in front of me though so it isn't going to be as accurate as I'd like. First, the majority of NYC firms give a salary advance prior to your start date (range is probably 5k to 15k) and once you start you pay it back - and it comes out of your after tax income. For me, I need the salary advance to live between graduation and my start date (for example, when you rent your apartment you'll need first, last and security deposit - that is some hefty change). Second, yes I do pretty much max out my 401k (in my opinion, you'd be dumb not to especially at the tax bracket you'll be in).
For the record, I went to school in Boston and lived on about $8-10k in post-housing discretionary spending. So yes, I understand how to be frugal.
OK on to the budget/repayment - yes I had approximately $84k after taxes. 48k of that was minimum loan payment and rent (my rent was actually $2100 and that doesn't include cable/internet or electricity - probably another $200 each month on average, but I won't include that in what I am paying in the above calculation). So now were down to $36k. You suggest that I live on 20k discretionary spending or $1,666.66 per month or $416 per week. I would agree that in the abstract this seems like a ton of cash. Yet, it really isn't and I couldn't do it. Although admittedly, I am NOT a budgeter - never have been and hopefully never will need to be. I simply live the way I live - I am not a penny pincher nor a spendthrift. I have a good sense of living within my means. On to the spending of the money:
1. Working in biglaw requires a business/business casual wardrobe. For me, that included a new suit (and no, not some $250 JCPenney suit because well, they look cheap and to be honest most associates wear nicer clothes and you'll want to look the look when you get to your firm), several new pairs of pants, new dress shirts, new shoes, etc... This wardrobe isn't cheap. No, I wasn't blowing my money on $1k suits, I paid $500. My shirts were all bought on clearance at Bloomingdales for about $50 each. My shoes (3 pairs) I got from discount websites at about $125 each. So there goes some of that discretionary spending. How about dry cleaning? $2 a shirt, $7 for pants. Sure you could launder and iron yourself, but when you're working until 9:30/10:00pm most nights, you'll quickly realize that you're not spending your free time in front of an ironing board. Also, your clothes expenditures, while they do decrease, you need to continually add to your wardrobe - shoes wear out, you decided you need more than just one suit, etc...
2. What about your apartment? For me, that required purchasing furniture. Sure, I could have searched craigslist for cheap furniture (I did get my bed frame for $200 bucks off there, plus a $35 cab ride) but I simply decided that I am no longer a college student. At some point I would think you're done with the futon and folding tables. For me, that was when I started my career. So conservatively lets say you spend $3k on new furniture (bed, book shelves, couch, television, dining table, chairs, etc.) For me, I've purchased a few nice items and lot of Ikea stuff. My goal is to replace the Ikea stuff by purchasing one nice piece of furniture a year. Last year it was a nice couch/sectional that was about $2500. This year, I am not sure...
3. Food/Entertainment: I eat out everyday for lunch. Yes, I could make my own lunch, but see ironing shirt issue above (I don't like making lunch and don't want to spend the time grocery shopping and preparing). So, I spend about $10 a day on lunch (although to be fair, my firm has a number of free lunch days were you have team meetings, CLEs, etc... so in all actuality, it probably averaged out to about 4 days of buying lunch a year). Weekday dinner - when not eating at the firm on the client, is about $15 for me. Again, I don't cook. Going out to dinner with friends, easily $50-$100 a pop. Going to bars is also expensive. Dating is expensive. NYC if just freaking expensive. People who don't live here just don't understand. Movie tickets $15. Museum tickets $10-$20. Broadway shows $50-$150. I'm not doing this stuff every night, but it adds up. Newspaper subscriptions, etc.
4. Vacations/Travel: I presume that you'll be going on vacations. I used all 4 weeks of vacations at my firm and pretty much every other associate does as well. Vacations are expensive. Skiing vacations $1k-$2k for a week. Trips home at the holidays to see family ($750 - $1.5k) for a week. Getting the picture? Sure, I don't HAVE to spend so much on vacations, but when you're overworked you'll likely want to go somewhere nice.
5. Other incidentals: wedding gifts, birthday and christmas gifts, etc. Again, when I was in college, I never bought these gifts because everyone knew I didn't have any money. Once you start making $160k, the "I'm poor" line seems to ring a little bit hollow. So you're going to spending money on this, for me, it was probably $1k total.
So yea, 20k discretionary seems like a lot, but here it isn't getting you anything. I have no idea how much I actually spent - probably more like 25-30k. At the end of my first year I paid off about $20k extra in loans and still had about $10k in my checking account. After my second year (I maxed out my 401k that year) I paid down closer to $30k of my loans and still have about $10k in my checking and about $10k in a rainy day savings account. If you ask me, I think I am being pretty aggressive on the early pay down compared to the few other junior associates I've talked to.
Also, salary increases/bonuses. Stub year, I got 5k, 1st year I got 7.5k, 2nd year I got 10k. Also, got 10 k salary bump my second year, 15k more my third year (my current year). This isn't 50-60k pretax, it is 30k pretax, or about 15k after tax. I do have a spring bonus coming of $10k, which I'm using to pay down more debt.
So $40k a year in debt paydown is REALLY, REALLY aggressive. I couldn't have done it. I'm not saying it isn't possible (but I would be skeptical), but in my opinion it isn't realistic. As a third year (likely $205k gross), I think $40 is a likely possibility, but certainly not as a first year making $167.5k.