Anonymous User wrote:Seems like employment forum is the right place, but feel free to move:
Interested in a discussion about how to pay off loans assuming biglaw salary. Pay down just minimums or try for 5K/month?
-market pay (160)
-COL = SF/SV/LA/NYC
-anticipated household income ~250k
-no kids atm
All loans fed, none private.
Not sure whether to start saving for down payment on a house, or just pay off loans as quickly as possible...
I am a little bit older (early 30's) and have made some $$$ and lost some $$$.
My advice to everyone on this subject is to pay the smallest minimum you can until you have a real cash nest egg. I'm thinking 100k+. Or more. Or way more. And that's not $ for a house or investments, that is just your cash, your get out of jail free card. Then focus on debt, saving for a house, or whatever other financial goal you have. You can always use cash to pay down debt, but once you don't have cash, you just don't have it.
Best case scenario is no debt and lots of cash.
Next best is debt but lots of cash.
Second worst case is no debt but no cash.
Worst case is lots of debt and no cash.
Just my two cents, but it is informed from my own experience as well as working with many multi-milllionaire investors in my work the last few years. Many of them have seven figures in zero interest checking accounts and have various debts as well as investments, but always keep "their zero" as high above zero as possible.
I strongly disagree with this advice. Putting as much money as possible in zero interest checking accounts so that it gets reduced by inflation while 200k of non-dischargeable debt incurs 7.5% interest is ridiculous. Cash is not great; cash is terrible, unless you are doing a lot of buying and selling of assets for some reason and need the liquidity (which you don't from what you said in your OP).
Having no debt and no cash is way better than having lots of debt and lots of cash because each year you pay interest to have the debt and the cash is worth less because of inflation. I am not saying that having enough in savings to cover living expense for 6-9 months is bad--I think it is actually a good idea. But the advice to save up over 100k in cash without paying down the debt is insane. Student loan debt is now arguably the worst type of debt to have because of the high interest rates and because you cannot get rid of it through bankruptcy. This level of debt can therefore trap you in a lifestyle that may make you miserable. Or, you might get cut from Biglaw, and have to take a lower salary while still shouldering the debt.
For most people, the BIGLAW lifestyle will not last forever. Sure, some will stay long-term, but most will leave. When they leave, they may take a large cut in pay. I am not saying that this will necessarily be you, OP, but it could be. Sure, you might be one of the 5-10% that makes partner at a big firm, or if you leave, you might go into a high-paying job in-house, or make partner at a smaller firm and still earn very good money. But even if you are very successful in law, having that debt will limit your options. You will need to pay 15k a year just to keep up with interest. Even if high-paying jobs are available to you in he long-term, you may not want them because they often dominate one's life. If you end up leaving Biglaw after a few years, as most do, being out of debt will leave you with the most career/life options.
I do not know enough about tax structures to comment on whether it is good to buy a house now and pull liquidity out of it to pay the student loans. I just wanted to way in and say that after building up an emergency fund, I think you should focus on student loans. Think of it this way: paying off student loans ahead of schedule is the same financially as getting that 7.5% interest rate on an investment. It is impossible to get a safe investment that pays 7.5%. Paying off the debt early is a guaranteed return of 7.5%. This beats any investment on the planet that I can think of. Pay off the loans.
One final suggestion is to max the 5k you can pay each year into a Roth IRA. This has fantastic tax advantages when you retire, and if you do not contribute to the IRA each year you miss the opportunity to do so. This means that you could invest 5k in year 1 in the Roth IRA and 5k in year 2, but if you pay nothing in year 1, you can still only invest 5k in year 2. If you are married, your spouse should also max out her/his Roth IRA.
Note: spelling edit.