Inspiration for New Grads with Big Debt Forum

[TatteredDignity]

http://thepowerofthrift.com/how-i-paid- ... -one-year/

Big law worker pays off $95,000 in first year at chicago firm and is now living off of passive income. Many of you will have much more than 95k in debt, but the same principles apply.

Pro tip: don't live on the coasts.

[jrass]

Admire the self discipline and follow through, but that guy loves money too much.

[TatteredDignity]

Admire the self discipline and follow through, but that guy loves money too much.

If by "that guy" you mean the blogger I linked to, she calls herself Thriftygal...maybe you're talking about someone else.

Also don't understand the comment. If she "loved money," she would have stayed in the big law grinder. Instead, she loves experiences/traveling more than money, so she got out.

[dabigchina]

http://thepowerofthrift.com/how-i-paid- ... -one-year/


Pro tip: don't live on the coasts.

This 100%. When I visited Chicago, I was blown away with just how cheap everything was. I was also blown away with how much fun the city was. Granted, the winters suck, but it's not like you'll be running around outside more than 10 mins per day on average as a biglaw associate anyway.

[hairbear7]

I'm confused how the numbers work.

How do you pay off 95k in one year? After taxes your salary isn't much more than 100k, right? Even with her cheap rent and basic groceries with nothing else, how does she have 95k post-tax and post-living expenses to pay off that debt?

[bk1]

I'm confused how the numbers work.

How do you pay off 95k in one year? After taxes your salary isn't much more than 100k, right? Even with her cheap rent and basic groceries with nothing else, how does she have 95k post-tax and post-living expenses to pay off that debt?

Bonus, tax refund from stub year bring this up ~20k. Living off 25k post tax is doable based on the author's frugality.

[TatteredDignity]

I'm confused how the numbers work.

How do you pay off 95k in one year? After taxes your salary isn't much more than 100k, right? Even with her cheap rent and basic groceries with nothing else, how does she have 95k post-tax and post-living expenses to pay off that debt?

I had the same thought. I think it's really borderline, but possible. If she got a cravath-level bonus in her stub year and first full year (2010 and 2011), that would have been an extra $22,500. Take-home on $185,000 is close to $120,000. Living on $25k in a major city would suck, but it's definitely possible (especially paying $750 per month for rent like she did).

Edit: scooped hard by bk1

[hairbear7]

Interesting, thanks!

[WeeBey]

Fuck that.

Why work that hard to live that poor. 95K isnt that much. I'd rather refinance over a 10 year plan, save up for a downpayment, buy a condo, and invest.

[El Pollito]

http://top-law-schools.com/forums/viewt ... 0&t=258668

[totesTheGoat]

Why work that hard to live that poor. 95K isnt that much. I'd rather refinance over a 10 year plan, save up for a downpayment, buy a condo, and invest.

Because for the next 9 years she can reap all dat compound interest and buy a house instead of a shit condo, and still have enough to out invest somebody who's paying on the 10 year plan.

[Desert Fox]

I'm confused how the numbers work.

How do you pay off 95k in one year? After taxes your salary isn't much more than 100k, right? Even with her cheap rent and basic groceries with nothing else, how does she have 95k post-tax and post-living expenses to pay off that debt?

I had the same thought. I think it's really borderline, but possible. If she got a cravath-level bonus in her stub year and first full year (2010 and 2011), that would have been an extra $22,500. Take-home on $185,000 is close to $120,000. Living on $25k in a major city would suck, but it's definitely possible (especially paying $750 per month for rent like she did).

Edit: scooped hard by bk1

People at Northwestern live on like 25-30k post tax dollars during school and still end up eating at restaurant and drinking at bars not infrequently.

But weren't Cravath bonuses way less than 22500? They aren't even 22500 now. I figure they were under 10k back then.

[Desert Fox]

Why work that hard to live that poor. 95K isnt that much. I'd rather refinance over a 10 year plan, save up for a downpayment, buy a condo, and invest.

Because for the next 9 years she can reap all dat compound interest and buy a house instead of a shit condo, and still have enough to out invest somebody who's paying on the 10 year plan.

There is some stupidity in her plan. 401k is probably a safer investment that paying off all 95k at once.

[GreenEggs]

People at Northwestern live on like 25-30k post tax dollars during school and still end up eating at restaurant and drinking at bars not infrequently.

But weren't Cravath bonuses way less than 22500? They aren't even 22500 now. I figure they were under 10k back then.

I live pretty comfortably, including rent, in NYC on 20-21k for 9 months (during school). I don't think it's just Chicago specific.

[Desert Fox]

People at Northwestern live on like 25-30k post tax dollars during school and still end up eating at restaurant and drinking at bars not infrequently.

But weren't Cravath bonuses way less than 22500? They aren't even 22500 now. I figure they were under 10k back then.

I live pretty comfortably, including rent, in NYC on 20-21k for 9 months (during school). I don't think it's just Chicago specific.

Subsidized dorm room or live far from school?

There is a massive difference between NYC on 20k and Chicago on 20k.

[bk1]

People at Northwestern live on like 25-30k post tax dollars during school and still end up eating at restaurant and drinking at bars not infrequently.

But weren't Cravath bonuses way less than 22500? They aren't even 22500 now. I figure they were under 10k back then.

Forgot that this would have been a few years ago. Cravath would have been 10k for the year prior to the article. So ~6k from bonus, ~5k from refund. She might be living off ~15k. Then again, the numbers might be slightly off (i.e., she is counting money or using income from slightly before and/or slightly after 2013). She also might have other ways to save (e.g., still on parents' insurance).

I don't think it's outlandish to believe she did it. Personally, it wouldn't be what I'd do. But plenty of people are highly focused on FIRE and make choices similar to the author's.

There is some stupidity in her plan. 401k is probably a safer investment that paying off all 95k at once.

She could only have done 23500 in tax-advantaged retirement accounts. Of she was on federal loans at 6-8% interest, there's something to be said for the guaranteed returns of paying off the debt. That said, for someone committed to being that frugal, I would probably max out retirement accounts since she would have paid it off pretty quickly anyways and she would never get that tax-advantaged space back if she didn't use it.

Why work that hard to live that poor. 95K isnt that much. I'd rather refinance over a 10 year plan, save up for a downpayment, buy a condo, and invest.

Because for the next 9 years she can reap all dat compound interest and buy a house instead of a shit condo, and still have enough to out invest somebody who's paying on the 10 year plan.

She gets compound interest whether she pays it off before infesting or pays it off while investing (assuming she is using the same money to either pay down debt or invest). The real question is what kind of rate she could get on a refinance and whether her investments over that period would beat that amount. More importantly, the author seems to value having the burden gone and I think making slightly suboptimal but still intelligent financial decisions (i.e, if we assume that refinancing was a better plan) is fine if it makes you feel better psychologically. This is why debt snowball plans (pay off smallest balance debt first) are generally more successful than debt avalanche plans (pay off highest interest rate debt first), even though the latter saves money; psychological impact should not be undervalued.

What I would take away is that if you have the discipline and desire, you can probably pay down 80k+/year on a biglaw salary. If that's not worth it to you, that's perfectly fine. You just need to understand your own priorities.

[jrass]

Admire the self discipline and follow through, but that guy loves money too much.

If by "that guy" you mean the blogger I linked to, she calls herself Thriftygal...maybe you're talking about someone else.

Also don't understand the comment. If she "loved money," she would have stayed in the big law grinder. Instead, she loves experiences/traveling more than money, so she got out.

She says she moved somewhere because the COL was less and she lived with a roommate while making 200k a year. It isn't like billing enough hours to get a bonus is a walk in the park. She was probably going through weeks and months in complete exhaustion. Keeping that frugality and self discipline on day to day basis is awfully hard if you don't love money. Also, leaving big law could easily have been the smarter financial decision. If a person has no partnership prospects and is in the process of burning out, it's very likely that their career income will be more notwithstanding a temporary setback.

[totesTheGoat]

She gets compound interest whether she pays it off before infesting or pays it off while investing (assuming she is using the same money to either pay down debt or invest).

Right, but WeeBey was bemoaning making so much but living so poor. You don't get compound interest on money you blow.

In order for WeeBey's plan to "equal out" over the 10 year repayment (assuming an average 8% annual growth), she'd have to invest just short of $75k in the first year to make up for the additional investments that the "pay it off" plan could make since under that plan she isn't paying $12k/year toward student loans.

Yes, $45k for all living expenses is an improvement over $25k in the first year, but it's not exactly the difference between caviar and ramen. More like lean cuisine and ramen.

The real question is what kind of rate she could get on a refinance and whether her investments over that period would beat that amount. More importantly, the author seems to value having the burden gone and I think making slightly suboptimal but still intelligent financial decisions (i.e, if we assume that refinancing was a better plan) is fine if it makes you feel better psychologically. This is why debt snowball plans (pay off smallest balance debt first) are generally more successful than debt avalanche plans (pay off highest interest rate debt first), even though the latter saves money; psychological impact should not be undervalued.

What I would take away is that if you have the discipline and desire, you can probably pay down 80k+/year on a biglaw salary. If that's not worth it to you, that's perfectly fine. You just need to understand your own priorities.

This ^^

There is some stupidity in her plan. 401k is probably a safer investment that paying off all 95k at once.

By the strict math, yes. However, as bk1 says, there is a psychological aspect as well.

I'll also say that the math doesn't take risk into account. I'd much rather have an empty 401k and a paid off student loan if I lost my job. Overall, these thrifty blogger types tend to be very risk averse.

Keeping that frugality and self discipline on day to day basis is awfully hard if you don't love money.

As somebody who used to live extremely frugally before getting married (still working on getting the wife on board), it's not about the money. In a sense, I hate money. Money causes stress and anxiety. It's about opening doors to lifestyles and opportunities that don't exist when you're saddled with a quarter million dollars in debt. Debt is a boat anchor.

[Desert Fox]

Also her 4k emergency fund is laughably low.

I'm guessing she had help or is stretching the definition of "year." I bet she paid it off early in her second full year of biglaw (so closer to 16 months than 12).

Psychologically it also helps having big, not crazy amount. It's easy to hunker down and not spend a dime of money when the zero balance date is so close. It's infinitely more hard to do than say, 265k. Because you'd have to never spend for three whole years.

[bk1]

Also her 4k emergency fund is laughably low.

Eh. Kind of, but if she's really living off of 20-25k/year in expenses then that's still a 2+ month e-fund.

Psychologically it also helps having big, not crazy amount. It's easy to hunker down and not spend a dime of money when the zero balance date is so close. It's infinitely more hard to do than say, 265k. Because you'd have to never spend for three whole years.

I know dat feel.

[Desert Fox]

Also her 4k emergency fund is laughably low.

Eh. Kind of, but if she's really living off of 20-25k/year in expenses then that's still a 2+ month e-fund.

Psychologically it also helps having big, not crazy amount. It's easy to hunker down and not spend a dime of money when the zero balance date is so close. It's infinitely more hard to do than say, 265k. Because you'd have to never spend for three whole years.

I know dat feel.

I wouldn't try to pay down anywhere near as crazy as this lady. My thing is having a couple things I'm willing to spend decent money on (vacations) and then doing a budget that allows fairly substantial paydowns).

Working just to pay DirectLoans is a surefire way to early burn out.

[TatteredDignity]

Working just to pay DirectLoans is a surefire way to early burn out.

But the burnout may be acceptable if, like her, you plan on just ragequitting at the end of it. Though I guess you'd have to stick around for a few more years after payoff for the whole law school enterprise to have been worth it at all.

[totesTheGoat]

Also her 4k emergency fund is laughably low.

Eh. Kind of, but if she's really living off of 20-25k/year in expenses then that's still a 2+ month e-fund.

Psychologically it also helps having big, not crazy amount. It's easy to hunker down and not spend a dime of money when the zero balance date is so close. It's infinitely more hard to do than say, 265k. Because you'd have to never spend for three whole years.

I know dat feel.

I wouldn't try to pay down anywhere near as crazy as this lady. My thing is having a couple things I'm willing to spend decent money on (vacations) and then doing a budget that allows fairly substantial paydowns).

Working just to pay DirectLoans is a surefire way to early burn out.

Agreed on all counts. She's a bit on the extreme side for my taste. I don't mind getting rid of all the financial "clutter" and reallocating it to paydown, but it would be a miserable existence to just sit in an empty apartment staring at the walls for a year (or 2 or 3, in the case of $265k).

However, I think that a lot of people don't know exactly how efficient you can be with money if you get creative. $750 rent (per the article) + $200 food + $50 utilities + $50 housewares + $200 insurance + $80 (public) transportation (per the article) + $75 phone + $95 misc = $1500/month ($18k/year) in bare-minimum basic expenses. You've still got $500/month to allocate to "enjoying life" before you hit $25k a year. It's certainly not for me, but it's theoretically doable.

I wish she would put up a budget spreadsheet for the year. I want to see how much she made and how much she spent on everything. That would go a long way to answering some of our skepticism.

[Tiago Splitter]

I'll also say that the math doesn't take risk into account. I'd much rather have an empty 401k and a paid off student loan if I lost my job. Overall, these thrifty blogger types tend to be very risk averse.

Even without PAYE this makes no sense but with PAYE it's absolutely insane.

[star fox]

Living on $25k in a major city (Chicago) would suck, but it's definitely possible (especially paying $750 per month for rent like she did) is super manageable.