Personal Finance 101 for Young Lawyers

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BulletTooth

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Re: Personal Finance 101 for Young Lawyers

Postby BulletTooth » Fri Oct 12, 2018 1:06 am

AVBucks4239 wrote:
]I'm not stupid - I understand all of that. Obviously nobody can predict the market. But a) this is a profession in which people are laid off en masse whenever there is a downturn and therefore b) you may need that $$ sooner than you think. Liquidating stocks in a downturn is like catching a falling knife, and is definitely worse than parking some assets in other investments just in case. Also there is something to be said for holding some $$ to invest in the market when there is a downturn.


Just coming back to this. Market is down 5.3% in the past two days. If you're not in, you buying in now? Or do you think it will get worse, and you may be able to buy in cheaper? But what if it goes right back up -- did you miss your chance? Still going to be on the sideline?

And if you're in, are you going to sell to hedge your losses? Or maybe it will go back up tomorrow, and you should stay in to get your money back?

The active management strategy is just comically stupid when not applied in hindsight.


“To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.” Warren Buffett.

It's impossible to predict whether the market will keep going down or rebound. You should just keep buying stock at a consistent rate, definitely don't sell (if you can avoid it), and, if anything, start buying more as the market declines (within your means).

legallybrunette93

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Re: Personal Finance 101 for Young Lawyers

Postby legallybrunette93 » Mon Oct 15, 2018 7:41 am

A few times in this forum or other forums, in response to someone saying that they refinanced their loans shortly after graduation someone asks why they did that so soon or so quickly. As a new biglaw associate, what are the drawbacks to immediately refinancing with SoFi or First American?

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Re: Personal Finance 101 for Young Lawyers

Postby SplitMyPants » Mon Oct 15, 2018 12:19 pm

legallybrunette93 wrote:A few times in this forum or other forums, in response to someone saying that they refinanced their loans shortly after graduation someone asks why they did that so soon or so quickly. As a new biglaw associate, what are the drawbacks to immediately refinancing with SoFi or First American?


nothing. rates are only going to go up. I did the first republic 7 year, and given how low their rates are relative to my future mortgage rate that I'll be able to get, I regret not doing the 15. lock that shit down now. the fed has raised rates 8 times the past three years and, ITE, it seems that your rates will only be rising.

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Re: Personal Finance 101 for Young Lawyers

Postby boredtodeath » Tue Oct 16, 2018 12:09 pm

SplitMyPants wrote:
legallybrunette93 wrote:A few times in this forum or other forums, in response to someone saying that they refinanced their loans shortly after graduation someone asks why they did that so soon or so quickly. As a new biglaw associate, what are the drawbacks to immediately refinancing with SoFi or First American?


nothing. rates are only going to go up. I did the first republic 7 year, and given how low their rates are relative to my future mortgage rate that I'll be able to get, I regret not doing the 15. lock that shit down now. the fed has raised rates 8 times the past three years and, ITE, it seems that your rates will only be rising.


The reason people ITT have cautioned against refinancing so soon is that many, many people end up hating biglaw to the point where they want to leave much, much sooner than they had originally anticipated. This is dependent on your loan balance and future plans, but refinancing early could severely limit your career options down the road.

From a pure interest rate perspective, you're correct. But you aren't considering loan balance, potential loan forgiveness and the individual's future career interests.

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Re: Personal Finance 101 for Young Lawyers

Postby Anonymous User » Tue Oct 16, 2018 3:17 pm

boredtodeath wrote:
SplitMyPants wrote:
legallybrunette93 wrote:A few times in this forum or other forums, in response to someone saying that they refinanced their loans shortly after graduation someone asks why they did that so soon or so quickly. As a new biglaw associate, what are the drawbacks to immediately refinancing with SoFi or First American?


nothing. rates are only going to go up. I did the first republic 7 year, and given how low their rates are relative to my future mortgage rate that I'll be able to get, I regret not doing the 15. lock that shit down now. the fed has raised rates 8 times the past three years and, ITE, it seems that your rates will only be rising.


The reason people ITT have cautioned against refinancing so soon is that many, many people end up hating biglaw to the point where they want to leave much, much sooner than they had originally anticipated. This is dependent on your loan balance and future plans, but refinancing early could severely limit your career options down the road.

From a pure interest rate perspective, you're correct. But you aren't considering loan balance, potential loan forgiveness and the individual's future career interests.


fair. although i'd say banking on loan forgiveness is about as prudent as banking on not hating big law so much that you walk away from $200k+ comp for 5ish years. that said, i already know some people that have lateraled to small law after one year...

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Re: Personal Finance 101 for Young Lawyers

Postby SplitMyPants » Tue Oct 16, 2018 3:18 pm

Anonymous User wrote:
boredtodeath wrote:
SplitMyPants wrote:
legallybrunette93 wrote:A few times in this forum or other forums, in response to someone saying that they refinanced their loans shortly after graduation someone asks why they did that so soon or so quickly. As a new biglaw associate, what are the drawbacks to immediately refinancing with SoFi or First American?


nothing. rates are only going to go up. I did the first republic 7 year, and given how low their rates are relative to my future mortgage rate that I'll be able to get, I regret not doing the 15. lock that shit down now. the fed has raised rates 8 times the past three years and, ITE, it seems that your rates will only be rising.


The reason people ITT have cautioned against refinancing so soon is that many, many people end up hating biglaw to the point where they want to leave much, much sooner than they had originally anticipated. This is dependent on your loan balance and future plans, but refinancing early could severely limit your career options down the road.

From a pure interest rate perspective, you're correct. But you aren't considering loan balance, potential loan forgiveness and the individual's future career interests.


fair. although i'd say banking on loan forgiveness is about as prudent as banking on not hating big law so much that you walk away from $200k+ comp for 5ish years. that said, i already know some people that have lateraled to small law after one year...


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boredtodeath

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Re: Personal Finance 101 for Young Lawyers

Postby boredtodeath » Tue Oct 16, 2018 4:56 pm

SplitMyPants wrote:
Anonymous User wrote:
boredtodeath wrote:
SplitMyPants wrote:
legallybrunette93 wrote:A few times in this forum or other forums, in response to someone saying that they refinanced their loans shortly after graduation someone asks why they did that so soon or so quickly. As a new biglaw associate, what are the drawbacks to immediately refinancing with SoFi or First American?


nothing. rates are only going to go up. I did the first republic 7 year, and given how low their rates are relative to my future mortgage rate that I'll be able to get, I regret not doing the 15. lock that shit down now. the fed has raised rates 8 times the past three years and, ITE, it seems that your rates will only be rising.


The reason people ITT have cautioned against refinancing so soon is that many, many people end up hating biglaw to the point where they want to leave much, much sooner than they had originally anticipated. This is dependent on your loan balance and future plans, but refinancing early could severely limit your career options down the road.

From a pure interest rate perspective, you're correct. But you aren't considering loan balance, potential loan forgiveness and the individual's future career interests.


fair. although i'd say banking on loan forgiveness is about as prudent as banking on not hating big law so much that you walk away from $200k+ comp for 5ish years. that said, i already know some people that have lateraled to small law after one year...


accidental anon


Fair point, and again, this is more relevant to those borrowers with large loan balances, but (1) I think federal loan forgiveness for anyone whose loans were issued pre-Trump is a pretty good bet and (2) even if you don't ultimately seek forgiveness, how much are you really losing by going on IDR for a couple of years, artificially lowering your payments and banking the difference until you decide what you want to do?

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Dr. Nefario

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Re: Personal Finance 101 for Young Lawyers

Postby Dr. Nefario » Fri Nov 09, 2018 2:59 pm

I feel like at some point there was a general discussion about roth 401(k) vs. traditional and which is smarter for biglaw associates, does anyone have input or know where that was?

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Re: Personal Finance 101 for Young Lawyers

Postby Yugihoe » Sat Nov 10, 2018 8:58 pm

Dr. Nefario wrote:I feel like at some point there was a general discussion about roth 401(k) vs. traditional and which is smarter for biglaw associates, does anyone have input or know where that was?



Well given that you're going to be in the highest tax bracket as a big law associate (excluding stub year) I can't imagine a reason for not doing a traditional 401k where you put in pre-tax money. You might or might not be at that tax bracket when you begin to withdraw, so I see no upside to doing the roth 401k from the start.

I personally do a traditional 401k and book door 5500 into my roth each year.

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HangingAround

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Re: Personal Finance 101 for Young Lawyers

Postby HangingAround » Sun Nov 11, 2018 6:05 pm

Yugihoe wrote:
Dr. Nefario wrote:I feel like at some point there was a general discussion about roth 401(k) vs. traditional and which is smarter for biglaw associates, does anyone have input or know where that was?



Well given that you're going to be in the highest tax bracket as a big law associate (excluding stub year) I can't imagine a reason for not doing a traditional 401k where you put in pre-tax money. You might or might not be at that tax bracket when you begin to withdraw, so I see no upside to doing the roth 401k from the start.

I personally do a traditional 401k and book door 5500 into my roth each year.


I don't know much about this, but isn't a reason you would do a Roth over a traditional the fact that the highest tax bracket now may be lower than whatever tax bracket (the highest or whatever other one) you're taxed at when you withdrawn from that traditional 401(k) when you begin to withdraw? I mean not just lower in absolute terms but lower enough in terms of TVM to justify foregoing the additional money saved in the present by not being taxed on the traditional 401k contribution.

Separately, I don't understand why you back door to a Roth if you prefer putting in pre-tax money. Once you backdoor, are you not paying taxes on the money you moved as if you had just contributed to a Roth in the first place? My understanding is that people backdoor to get around income limits on contributing directly to Roth IRAs not to somehow use pre-tax money but still get the benefits of a Roth.

I'm probably misunderstanding something here, and I'd appreciate if someone would set me straight.

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Re: Personal Finance 101 for Young Lawyers

Postby Yugihoe » Mon Nov 12, 2018 3:35 pm

HangingAround wrote:
Yugihoe wrote:
Dr. Nefario wrote:I feel like at some point there was a general discussion about roth 401(k) vs. traditional and which is smarter for biglaw associates, does anyone have input or know where that was?



Well given that you're going to be in the highest tax bracket as a big law associate (excluding stub year) I can't imagine a reason for not doing a traditional 401k where you put in pre-tax money. You might or might not be at that tax bracket when you begin to withdraw, so I see no upside to doing the roth 401k from the start.

I personally do a traditional 401k and book door 5500 into my roth each year.


I don't know much about this, but isn't a reason you would do a Roth over a traditional the fact that the highest tax bracket now may be lower than whatever tax bracket (the highest or whatever other one) you're taxed at when you withdrawn from that traditional 401(k) when you begin to withdraw? I mean not just lower in absolute terms but lower enough in terms of TVM to justify foregoing the additional money saved in the present by not being taxed on the traditional 401k contribution.

Separately, I don't understand why you back door to a Roth if you prefer putting in pre-tax money. Once you backdoor, are you not paying taxes on the money you moved as if you had just contributed to a Roth in the first place? My understanding is that people backdoor to get around income limits on contributing directly to Roth IRAs not to somehow use pre-tax money but still get the benefits of a Roth.

I'm probably misunderstanding something here, and I'd appreciate if someone would set me straight.


1. Ah I see your point. In other words, you're saying (i) 20+ years from now, the highest tax bracket may be higher than whatever your tax bracket is now and/or (ii) that whatever tax hit you take now on contributing post-tax money now into a roth will be less than the taxes you'll pay at withdrawl on a traditional ira on the the presumably much larger growth that will accumulate over the 20 years.

My thinking is that you assume you will NOT be in the highest tax bracket at retirement, whereas now as a big law associate, you most definitely are. Also, it's easier to play around with your income levels in retirement because you can time the withdrawls, no? As for the second part of this question, I'm not sure on the math. But conversely, the extra untaxed principal amount you are able to put into a traditional amount is also compounding, so by deferring the taxes, you've got more capital working for you?

2. I am backdooring $5500 in addition to the $18500 I put into my traditional 401k (and backdooring to circumvent the income limits). It's just a way to max another tax advantaged vehicle. Also my employer ONLY provides a traditional 401k option.

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Re: Personal Finance 101 for Young Lawyers

Postby HangingAround » Mon Nov 12, 2018 10:24 pm

Yugihoe wrote:
HangingAround wrote:
Yugihoe wrote:
Dr. Nefario wrote:I feel like at some point there was a general discussion about roth 401(k) vs. traditional and which is smarter for biglaw associates, does anyone have input or know where that was?



Well given that you're going to be in the highest tax bracket as a big law associate (excluding stub year) I can't imagine a reason for not doing a traditional 401k where you put in pre-tax money. You might or might not be at that tax bracket when you begin to withdraw, so I see no upside to doing the roth 401k from the start.

I personally do a traditional 401k and book door 5500 into my roth each year.


I don't know much about this, but isn't a reason you would do a Roth over a traditional the fact that the highest tax bracket now may be lower than whatever tax bracket (the highest or whatever other one) you're taxed at when you withdrawn from that traditional 401(k) when you begin to withdraw? I mean not just lower in absolute terms but lower enough in terms of TVM to justify foregoing the additional money saved in the present by not being taxed on the traditional 401k contribution.

Separately, I don't understand why you back door to a Roth if you prefer putting in pre-tax money. Once you backdoor, are you not paying taxes on the money you moved as if you had just contributed to a Roth in the first place? My understanding is that people backdoor to get around income limits on contributing directly to Roth IRAs not to somehow use pre-tax money but still get the benefits of a Roth.

I'm probably misunderstanding something here, and I'd appreciate if someone would set me straight.


1. Ah I see your point. In other words, you're saying (i) 20+ years from now, the highest tax bracket may be higher than whatever your tax bracket is now and/or (ii) that whatever tax hit you take now on contributing post-tax money now into a roth will be less than the taxes you'll pay at withdrawl on a traditional ira on the the presumably much larger growth that will accumulate over the 20 years.

My thinking is that you assume you will NOT be in the highest tax bracket at retirement, whereas now as a big law associate, you most definitely are. Also, it's easier to play around with your income levels in retirement because you can time the withdrawls, no? As for the second part of this question, I'm not sure on the math. But conversely, the extra untaxed principal amount you are able to put into a traditional amount is also compounding, so by deferring the taxes, you've got more capital working for you?

2. I am backdooring $5500 in addition to the $18500 I put into my traditional 401k (and backdooring to circumvent the income limits). It's just a way to max another tax advantaged vehicle. Also my employer ONLY provides a traditional 401k option.


Yea, even if you weren't necessarily in the highest tax bracket, the third highest tax bracket 20+ years from now could be higher than the one now. Not that it would be, but at least the highest tax brackets have gotten really high at points in the past (wartime particularly) so I imagine the next highest ones during those times were also pretty high. But yes to (i) and (ii) not as definite reasons but as ones that may apply depending on too many other variables. I also think it may be helpful in that people tend to undersave for retirement so not having to also pay taxes on that amount may help people be more accurate in saving enough if they aren't properly factoring in taxes (of course, that's just personal error that wouldn't apply to everyone).

I was trying to account for having extra money now under the traditional approach in my TVM comment but did not articulate it well. That's certainly an important variable.

Thanks for the explanation. I guess now my question is why is it that you backdoor the 5500 to a Roth IRA rather than just keep the 5500 in a traditional IRA? I assume your preference for the traditional over Roth 401(k) (if given the choice) would also carry over to the same preference IRA. Although I do see a benefit to doing one of each to hedge against the more speculative advantages/disadvantages of each particularly regarding future tax rates, that doesn't seem to be part of your reasoning as far as I can tell. Perhaps I'm still missing something else.

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Re: Personal Finance 101 for Young Lawyers

Postby Yugihoe » Mon Nov 12, 2018 11:07 pm

HangingAround wrote:
Yugihoe wrote:
HangingAround wrote:
Yugihoe wrote:
Dr. Nefario wrote:I feel like at some point there was a general discussion about roth 401(k) vs. traditional and which is smarter for biglaw associates, does anyone have input or know where that was?



Well given that you're going to be in the highest tax bracket as a big law associate (excluding stub year) I can't imagine a reason for not doing a traditional 401k where you put in pre-tax money. You might or might not be at that tax bracket when you begin to withdraw, so I see no upside to doing the roth 401k from the start.

I personally do a traditional 401k and book door 5500 into my roth each year.


I don't know much about this, but isn't a reason you would do a Roth over a traditional the fact that the highest tax bracket now may be lower than whatever tax bracket (the highest or whatever other one) you're taxed at when you withdrawn from that traditional 401(k) when you begin to withdraw? I mean not just lower in absolute terms but lower enough in terms of TVM to justify foregoing the additional money saved in the present by not being taxed on the traditional 401k contribution.

Separately, I don't understand why you back door to a Roth if you prefer putting in pre-tax money. Once you backdoor, are you not paying taxes on the money you moved as if you had just contributed to a Roth in the first place? My understanding is that people backdoor to get around income limits on contributing directly to Roth IRAs not to somehow use pre-tax money but still get the benefits of a Roth.

I'm probably misunderstanding something here, and I'd appreciate if someone would set me straight.


1. Ah I see your point. In other words, you're saying (i) 20+ years from now, the highest tax bracket may be higher than whatever your tax bracket is now and/or (ii) that whatever tax hit you take now on contributing post-tax money now into a roth will be less than the taxes you'll pay at withdrawl on a traditional ira on the the presumably much larger growth that will accumulate over the 20 years.

My thinking is that you assume you will NOT be in the highest tax bracket at retirement, whereas now as a big law associate, you most definitely are. Also, it's easier to play around with your income levels in retirement because you can time the withdrawls, no? As for the second part of this question, I'm not sure on the math. But conversely, the extra untaxed principal amount you are able to put into a traditional amount is also compounding, so by deferring the taxes, you've got more capital working for you?

2. I am backdooring $5500 in addition to the $18500 I put into my traditional 401k (and backdooring to circumvent the income limits). It's just a way to max another tax advantaged vehicle. Also my employer ONLY provides a traditional 401k option.


Yea, even if you weren't necessarily in the highest tax bracket, the third highest tax bracket 20+ years from now could be higher than the one now. Not that it would be, but at least the highest tax brackets have gotten really high at points in the past (wartime particularly) so I imagine the next highest ones during those times were also pretty high. But yes to (i) and (ii) not as definite reasons but as ones that may apply depending on too many other variables. I also think it may be helpful in that people tend to undersave for retirement so not having to also pay taxes on that amount may help people be more accurate in saving enough if they aren't properly factoring in taxes (of course, that's just personal error that wouldn't apply to everyone).

I was trying to account for having extra money now under the traditional approach in my TVM comment but did not articulate it well. That's certainly an important variable.

Thanks for the explanation. I guess now my question is why is it that you backdoor the 5500 to a Roth IRA rather than just keep the 5500 in a traditional IRA? I assume your preference for the traditional over Roth 401(k) (if given the choice) would also carry over to the same preference IRA. Although I do see a benefit to doing one of each to hedge against the more speculative advantages/disadvantages of each particularly regarding future tax rates, that doesn't seem to be part of your reasoning as far as I can tell. Perhaps I'm still missing something else.


Yes, exactly. It's a way to hedge and manipulate your income further in retirement. Can withdraw the max amount from your traditional, short of going up a tax bracket or whatever you are trying to avoid, and supplement the rest of your income from the roth.

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Re: Personal Finance 101 for Young Lawyers

Postby buckiguy_sucks » Sat Nov 17, 2018 12:59 pm

Recently started stub year at market firm.

Student debt is 185k

Currently on 10 year repayment, payments are $2090ish, currently planning on paying 3k-4K a month, colleague recommended switching to 30 year repayment plan so most of that goes to the highest interest loans (a little under 7%, lowest interest loans like 5% or so). Don’t want to refinance till I have a handle on how well I tolerate big law.


Any downside to this? Would it save me enough interest to be worth it?



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