160K after taxes, NYC, and living costs? Forum

[thesealocust]

non vitriolic and measured logic

<3

[Blessedassurance]

There is no state income tax in Texas. You actually have more (assuming pay is 160) after taxes to begin with, before the COL comparisons begin. For about $1200, you can live in downtown Dallas with a garage. I don't even know why people are still discussing this.

The real discussion is NYC Lockstep v. Secondary Market non-160/non-lockstep.

I don't get the you-can-live-in-Brooklyn arguments. similarly, you can live in an even cheaper location outside the secondary market's most desirable neighborhoods. You need to compare apples to apples.

[ScottRiqui]

On those financial charts above, I'm not seeing why you're subtracting interest paid from interest earned to determine which person is "worth" more. That seems to ignore the money in the investment accounts.

Wouldn't it make more sense to just find the earliest year for which both people are debt-free, and then simply compare the balances in their investment accounts?

For the first chart, at the beginning of year 12 (before the year 12 deposit), Person A will have $72,000 more than Person B (166,454+13316) - (99745+7979).

In the second chart, at the beginning of year 11 (again, before the year 11 deposit), Person A will have about $43,000 LESS than Person B (246,271 + 19,701) - (286,002 + 22,880).

ETA - I just saw the $39,731 'credit' in Person A's loan account in the second chart. Adding that into his investment account means he only has $3,179 less than Person B.

EATA - I see know why you *should* be able to compare interest earned vs. interest paid for the two people to determine the difference in their net worth, since they're both disbursing the same amount of money each year. I think it was the spreadsheet error in calculating the loan interest that made the net worth using that method different from simply comparing the two people's investment accounts once the loan was paid off.

[jitsrenzo]

At first I thought there was only 1 colossal problem with this. But looking at the numbers, there are actually 2.

1. Your numbers are completely wrong (I only looked at the first example you gave). For scenario A, you subtracted $10,000 per year FROM THE PRINCIPAL and didn't account for paying for interest.

All you did was subtract 10K from the principal, then multiply by 8% to figure out the interest payment. That's not how loans work. The interest accumulates on the ENTIRE balance, and your 10K payment mostly goes toward serving the interest that accumulated that year, which makes for a higher balance the next year, which means much higher interest than you're calculating for.

Instead of a ghetto excel spreadsheet using poor math, check out an online loan calculator. http://cgi.money.cnn.com/tools/studentl ... tloan.html

At $833 a month (or a 10K/year in loan repayment), it will take over 20 years to repay a 100,000 loan at 8% interest. The total interest payment exceeds $101K. TWENTY years. Not 10 like you were projecting.


2. 8% returns. Everyone loves to quote 8% because they heard it was the long-run average return of the S&P.

That is completely and utterly useless because (A) it ignores the concept of risk, which is key to any concept of return and (B) it's very uncertain that your annual return will average out to 8% in the next 10 years.

(A) More risk = more reward. An investment with more return means it has high risk, and does NOT make it better than a safer investment with lower returns.

The reason why it's so good to pay off loans is because it's like a "guaranteed" return. A return of 8.5% with 0 risk is a terrific investment, far better than anything you'll find in the current economic environment. In finance, there's a concept called a risk-free rate, or the interest rate of Treasuries. According to some models this rate is risk-free (because we assume the US government would never default on its debt).

You know what the 10 year Treasury rate is? 2.6%. That's a 2.6% return a year risk-free. This is complete garbage compared to paying off student loans at 8%.

It makes no sense to compare a risk-free return to a highly risky return (stock market).

If I could create a hedge fund that could achieve an expected return of 8% every year for the next 10 years with the riskiness of US Treasuries, I would be a billionaire many times over.

(B) Tied to the concept of risk, just because for over 100 years the average return is 8%, it does NOT means that you'll on average get 8% a year for the next 10 years. The stock market is highly volatile and does not neatly average out to 8% for 10 year periods.

Check out the annual returns for the past 60 years or so. http://www.forecast-chart.com/historical-sp-500.html

As you can see, if you entered at exactly 1980-9, you did well for yourself. Same thing for 1990-9 (you missed the bursting of the tech bubble). But if you had invested from 2000-2009, you'd be fucked.

Also keep in mind that a % decline is not canceled out by the same % increase. Let's say the market fell 38% (like in 2008). If it rises 38%, you're still DOWN about 15% overall.

TLDR: PAY OFF YOUR LOANS. Don't rely on shitty excel spreadsheets you cook up for yourself.

This is a mix of stupid and wrong I am too tired to sort out. See generally the personal finance thread and anybody who knows that they are talking about who has ever written or thought about this issue.

Lol. Maybe you should do more than think or write about an issue that only involves math.



The above chart shows the difference between someone who saves 10k a year and pays off his 100k loan at 10k a year, vs. someone who pays off his 100k loan at 20k a year. Assumes interest rates of 8% for both. The guy who saves 10k a year is better off than the guy putting 20k a year at his loans.



This chart shows the difference between someone who saves 17k a year and pays off his 250k loan at 40k a year, vs. someone who pays off his 250k loan at 57k a year. Assumes interest rates of 8% for both. Again, the saver comes off better (although only slightly--I think I counted an extra year here which actually means Person A is actually about $7k better off).

This doesn't even count the fact that saving in a 401k is pre-tax, which is better than using post-tax money because 10k post-tax is worth like 16k pre-tax at the high marginal tax bracket for a 160k/yr income earner.

Is there a scenario where doing this is unwise? Sure, if you're paying off credit card debt because it's (gasp) really high interest, which is what those people actually refer to when they're discussing the pros and cons of saving vs. paying off debt.

[guano]

non vitriolic and measured logic

<3

Unfortunately, I too am too lazy to go in depth on the math, but I spotted a mistake in the math within one second of looking at it.

In a cost free, risk free environment, the results for investing at X percent vs paying down a loan balance of X percent interest is identical. Any model that indicates otherwise is flawed.

The discussion should be about other issues, such as risk factors, actual/expected rates, tax implications, costs/fees, and other considerations.
In the current environment, reasonable expected returns are too low compared to student loan rates to suggest any course of action other than paying down the loans.


Edit: props to the poster above me. Hedge fund managers and professional wealth managers I've spoken to realistically suggest 6% to 10% as a realistic range for expertly managed investments/portfolios (which lay people have no access to), for the foreseeable future

[Tiago Splitter]

I don't get the you-can-live-in-Brooklyn arguments. similarly, you can live in an even cheaper location outside the secondary market's most desirable neighborhoods. You need to compare apples to apples.

The original poster seemed to think that one needs to spend $2700 on rent to work in NYC, which is obviously not true. The reason why you can't really compare Brooklyn to the secondary market outskirts is that moving to the outskirts of a secondary market like Dallas doesn't really save you that much money, because you aren't paying that much to begin with. It will save you a huge amount of money in NYC.

You can pay $1200 for a great place in Dallas or $400 for a shitty place. Similarly, you can pay $3000 in Manhattan or $1000 with roommates way out in Brooklyn. This obviously doesn't change the comparison for Dallas, where the pay is still 160k, but it makes a big difference when we're talking about:

NYC Lockstep v. Secondary Market non-160/non-lockstep.

[Anonymous User]

Ignoring the base-level post-tax income, I assume you need a car in most if not all secondary markets. I assume said car will be commensurate with status as a big law associate, and so would probably be around 500-600/mo (at least), plus down payment, plus insurance (100/month) and gas (200/month) for a total of perhaps $800/mo for the car. Sure you pay a lot less in rent, but a lot of that savings is lost by the requirement of a car.

[bk1]

I assume said car will be commensurate with status as a big law associate

Why would you assume that?

[MKC]

Apologies for the native New Yorker bias, but:

These threads are always ridiculous to me because people who value different things aren't going to get each other to see eye to eye. To some people, whatever tax break they can get so that they have a bigger 401k is really important. To some people, living in a place like NYC where there are "things to do" is important.

On top of which all of the people raving about secondary markets (and indeed, some of the people living in NYC) insist on having/basing their Well-Thought-Out-Spreadsheet calculations on a luxury condo studio in a building built last year for $2k plus, while ordering Fresh Direct and eating at a five star Yelp review artisanal Name Chef restaurant every night.

You can find a room in a nice part of Brooklyn with one or two roommates for $1000. You don't have to eat out. You will be eating a lot of Seamless anyway. You can "make" "$96k" "work." Trust me. The vast majority of New Yorkers do it on a lot less. Jesus...

Just chiming in to say... MIDWEST IS BEST

Jesus Christ. This is what you hope for after seven years of post-secondary education? A place an hour from work with a couple of roommates? In the midwest, we only have roommates while we're in college, and then only if you want to. $500 a month will get you a one-bedroom in a decent part of town, $700 will get you a nice one. $1,000 each to share? That's insane. My wife and I rented a 4 bedroom house in a nice neighborhood for $1,800 a month, and it was built in 2000.

And those "things to do" you mentioned? It sounds like you can't do them very often anyway because everything costs so goddamn much. A jack and coke is never more that $5, beers run ~$2-3, and if you give a shit you can find them for half that at happy hour. I don't know why anyone would want to live in that crowded plague petri dish you call a city. Everything about it sounds miserable. Unless, you know, you have a billion dollars and can just piss money away at random. Even then, you still live in a city that smells like garbage every time it breaks 60 degrees because the filth of millions of people is piled up on the sidewalk. Yeah.... you can keep all that shit.

/rant

[MKC]

Ignoring the base-level post-tax income, I assume you need a car in most if not all secondary markets. I assume said car will be commensurate with status as a big law associate, and so would probably be around 500-600/mo (at least), plus down payment, plus insurance (100/month) and gas (200/month) for a total of perhaps $800/mo for the car. Sure you pay a lot less in rent, but a lot of that savings is lost by the requirement of a car.

Yeah, but when you're in a car you don't have to ride in a subway with god knows who. Never once have I had to sit by a homeless guy in my truck.

ETA:

In addition, 3 million New Yorkers reportedly left the city because they realized the phrase "Only in New York" is actually just a defense mechanism used to convince themselves that seeing a naked man take a shit on a park bench is somehow endearing, or part of some shared cultural experience.

[haiking]

Ignoring the base-level post-tax income, I assume you need a car in most if not all secondary markets. I assume said car will be commensurate with status as a big law associate, and so would probably be around 500-600/mo (at least), plus down payment, plus insurance (100/month) and gas (200/month) for a total of perhaps $800/mo for the car. Sure you pay a lot less in rent, but a lot of that savings is lost by the requirement of a car.

Absolutely not. NYC is not the only city with comprehensive public transportation.

There is no real need for an expensive car. If you decided to spend that much money, it wasn't because you needed to. Gas should not be 200/month unless you are driving either a truck or over 1000 miles a month. Unless you live 15+ miles from work, that is not likely. If you are traveling long distances outside of work repeatedly, you were going to need a car in any case, or eat the equivalent in transport costs. If you are living 15 miles from work, you don't need to live that far away to avoid rents in most secondaries, even some of the larger ones.

[Blessedassurance]

Ignoring the base-level post-tax income, I assume you need a car in most if not all secondary markets. I assume said car will be commensurate with status as a big law associate, and so would probably be around 500-600/mo (at least), plus down payment, plus insurance (100/month) and gas (200/month) for a total of perhaps $800/mo for the car. Sure you pay a lot less in rent, but a lot of that savings is lost by the requirement of a car.

you obviously know nothing about car payments.

Ignoring your ridiculous numbers, you're repeating a variation of the problem I highlighted earlier. When people talk about MFH, you suggest living like a monk out in Brooklyn. When people talk about secondary markets you suggest a commensurate-with-your-status-as-a-biglaw-associate premise to support whatever figures you make up.

[guano]

I don't get the you-can-live-in-Brooklyn arguments. similarly, you can live in an even cheaper location outside the secondary market's most desirable neighborhoods. You need to compare apples to apples.

The original poster seemed to think that one needs to spend $2700 on rent to work in NYC, which is obviously not true. The reason why you can't really compare Brooklyn to the secondary market outskirts is that moving to the outskirts of a secondary market like Dallas doesn't really save you that much money, because you aren't paying that much to begin with. It will save you a huge amount of money in NYC.

You can pay $1200 for a great place in the I Dallas or $400 for a shitty place. Similarly, you can pay $3000 in Manhattan or $1000 with roommates way out in Brooklyn. This obviously doesn't change the comparison for Dallas, where the pay is still 160k, but it makes a big difference when we're talking about:

The parts of Brooklyn where you'd want to live are not that much cheaper. Where your office is located should also factor in . Downtown office? Brooklyn and don't think twice. Midtown on the other hand, means manhattan living

[Anonymous User]

I don't get the you-can-live-in-Brooklyn arguments. similarly, you can live in an even cheaper location outside the secondary market's most desirable neighborhoods. You need to compare apples to apples.

The original poster seemed to think that one needs to spend $2700 on rent to work in NYC, which is obviously not true. The reason why you can't really compare Brooklyn to the secondary market outskirts is that moving to the outskirts of a secondary market like Dallas doesn't really save you that much money, because you aren't paying that much to begin with. It will save you a huge amount of money in NYC.

You can pay $1200 for a great place in the I Dallas or $400 for a shitty place. Similarly, you can pay $3000 in Manhattan or $1000 with roommates way out in Brooklyn. This obviously doesn't change the comparison for Dallas, where the pay is still 160k, but it makes a big difference when we're talking about:

The parts of Brooklyn where you'd want to live are not that much cheaper. Where your office is located should also factor in . Downtown office? Brooklyn and don't think twice. Midtown on the other hand, means manhattan living

This conversation is completely relative to the lifestyle of the person. I live in Manhattan now with 2 roommates in a 3 bedroom apartment (each fits a queen size bed and a desk) with a separate kitchen, and a living room big enough to fit a couch, two recliners and a TV. We each pay around $1445 a month with utilities. I also live in an area Manhattan where I can go outside and walk to 30 bars in a matter of 5 minutes or grab a sandwich at my choice of 4 delis on my street. I don't ever have to worry about driving/car payments/gas/insurance and the public transportation in Manhattan is great (granted an unlimited Metro is about 140$ a month, so factor that into your cost if you want). This doesn't appeal to some people and while I'm willing to trade off living alone and a large backyard for my opportunity to live in an area like this, it doesn't matter for some people. But I can assure you, you can still live rather comfortably on a first year associate paycheck in Manhattan if you take some time to look for apartments.

[Humbert Humbert]

I don't get the you-can-live-in-Brooklyn arguments. similarly, you can live in an even cheaper location outside the secondary market's most desirable neighborhoods. You need to compare apples to apples.

The original poster seemed to think that one needs to spend $2700 on rent to work in NYC, which is obviously not true. The reason why you can't really compare Brooklyn to the secondary market outskirts is that moving to the outskirts of a secondary market like Dallas doesn't really save you that much money, because you aren't paying that much to begin with. It will save you a huge amount of money in NYC.

You can pay $1200 for a great place in the I Dallas or $400 for a shitty place. Similarly, you can pay $3000 in Manhattan or $1000 with roommates way out in Brooklyn. This obviously doesn't change the comparison for Dallas, where the pay is still 160k, but it makes a big difference when we're talking about:

The parts of Brooklyn where you'd want to live are not that much cheaper. Where your office is located should also factor in . Downtown office? Brooklyn and don't think twice. Midtown on the other hand, means manhattan living

This conversation is completely relative to the lifestyle of the person. I live in Manhattan now with 2 roommates in a 3 bedroom apartment (each fits a queen size bed and a desk) with a separate kitchen, and a living room big enough to fit a couch, two recliners and a TV. We each pay around $1445 a month with utilities. I also live in an area Manhattan where I can go outside and walk to 30 bars in a matter of 5 minutes or grab a sandwich at my choice of 4 delis on my street. I don't ever have to worry about driving/car payments/gas/insurance and the public transportation in Manhattan is great (granted an unlimited Metro is about 140$ a month, so factor that into your cost if you want). This doesn't appeal to some people and while I'm willing to trade off living alone and a large backyard for my opportunity to live in an area like this, it doesn't matter for some people. But I can assure you, you can still live rather comfortably on a first year associate paycheck in Manhattan if you take some time to look for apartments.

+1. This notion that living in Manhattan means $2500+ rent/month and $20 sandwiches is absurd. Anyone who has lived in New York knows that you can live comfortably (and have a great time) on a much less extravagant budget.

[IAFG]

I love how people in these threads always have real estate genies in a lamp.

[84651846190]

A few observations after reading this thread:

1) lol @ making plans about where you should live based on how much partners make in the area
2) lol @ buying a home without knowing for sure that you want to live in an area for at least 4-5 years
3) lol @ living with roommates as a working adult in your late 20s/30s

[sumner]

K-JD 2L here- I was reading through the thread and noticed people were accounting for 5k a year into an IRA. Just for my own education, is that really necessary? does a 26 year-old need to be dumping 5k into his IRA per year?

[Tiago Splitter]

K-JD 2L here- i was reading through the thread and noticed people were accounting for 5k a year into an IRA. just for my own education, is that really necessary? does a 26 year-old need to be dumping 5k into his IRA per year?

Are you asking whether you should be putting money into an IRA instead of paying down loans? Or are you asking whether you should be saving at all?

If it's the first question, there are arguments going both ways and either is justified. If it's the second, yes, saving is good. IRAs just give you tax advantages not available in traditional savings accounts.

[sumner]

K-JD 2L here- i was reading through the thread and noticed people were accounting for 5k a year into an IRA. just for my own education, is that really necessary? does a 26 year-old need to be dumping 5k into his IRA per year?

Are you asking whether you should be putting money into an IRA instead of paying down loans? Or are you asking whether you should be saving at all?

If it's the first question, there are arguments going both ways and either is justified. If it's the second, yes, saving is good. IRAs just give you tax advantages not available in traditional savings accounts.

yeah this is independent of any debt questions. I know I'm one of the few 23 year olds with an IRA I just wasn't planning on putting that much money in it per year at this point in my life. I figured it would be more prudent to put that money in a savings account for a down payment or a wedding.

It just seemed like a lot so I was wondering if that was the norm.

[09042014]

A few observations after reading this thread:

1) lol @ making plans about where you should live based on how much partners make in the area
2) lol @ buying a home without knowing for sure that you want to live in an area for at least 4-5 years
3) lol @ living with roommates as a working adult in your late 20s/30s

And even if you somehow don't care that you have roommates, it's not like Texas doesn't have two-three bedroom apartments. And guess what, they are bigger, nicer, and cheaper.


People do forget to factor in the cost of a car for secondary markets. But cars have conveniences in secondary markets, and taxis cost money too.

[Tiago Splitter]

K-JD 2L here- i was reading through the thread and noticed people were accounting for 5k a year into an IRA. just for my own education, is that really necessary? does a 26 year-old need to be dumping 5k into his IRA per year?

Are you asking whether you should be putting money into an IRA instead of paying down loans? Or are you asking whether you should be saving at all?

If it's the first question, there are arguments going both ways and either is justified. If it's the second, yes, saving is good. IRAs just give you tax advantages not available in traditional savings accounts.

yeah this is independent of any debt questions. I know I'm one of the few 23 year olds with an IRA I just wasn't planning on putting that much money in it per year at this point in my life. I figured it would be more prudent to put that money in a savings account for a down payment or a wedding.

It just seemed like a lot so I was wondering if that was the norm.

Your contributions to a Roth come out tax and penalty free and come out first, so it basically is a savings account. Even better, you can avoid tax and penalty on up to 10k of earnings if using them for a first time home purchase. Plus the annual limit of $5500 a year really isn't very much if you are making Biglaw money.

[Amity]

I always thought having a 401k was a good thing. I was surprised when a friend said that she was not going to participate in her firm’s a 401K plan. She knew people who lost money in one of these plans. I have a difficult time believing that losing money is often the case… if people usually lost money with a 401k they would not be popular nor touted as an employer benefit. So what’s up with that? Are those on this thread opting in or out of their firm’s 401k? And why…

[Anonymous User]

I always thought having a 401k was a good thing. I was surprised when a friend said that she was not going to participate in her firm’s a 401K plan. She knew people who lost money in one of these plans. I have a difficult time believing that losing money is often the case… if people usually lost money with a 401k they would not be popular nor touted as an employer benefit. So what’s up with that? Are those on this thread opting in or out of their firm’s 401k? And why…

I really recommend you take a basic personal finance class through your university or employer ASAP. A 401k can lose money because usually the amounts in the accounts are invested in things that carry some level of risk. The recommended way of doing this is carrying more portfolio risk when you are young and then transitioning into a lower risk portfolio as you age. That way you have the ability to generate higher returns and build on them over a number of tax-advantaged years and, assuming you aren't planning on retiring at 40, you can ride out the ups and downs of the market.

Basically, it is possible to "lose" on a short term basis but unlikely you will come out negative long-term with a decently managed portfolio.

[09042014]

I always thought having a 401k was a good thing. I was surprised when a friend said that she was not going to participate in her firm’s a 401K plan. She knew people who lost money in one of these plans. I have a difficult time believing that losing money is often the case… if people usually lost money with a 401k they would not be popular nor touted as an employer benefit. So what’s up with that? Are those on this thread opting in or out of their firm’s 401k? And why…

1) Go learn what a 401k is

2) Firms have shitty 401k plans because they don't contribute.