Personal Finance 101 for Young Lawyers Forum

[nixy]

Honestly, we just put less down and lived with the PMI. But I’m in a relatively low COL area so I get that that may not work in all housing markets.

[BmoreOrLess]

Thoughts on using a 401k loan to help fund a down payment for a house? Won’t have enough cash to get 20% down on anything reasonable until year end bonus time, and a 401k loan seems like the best option to bridge the gap and avoid PMI (I’m about as comfortable as I could be with job security at my firm).

Still trying to press the wife to rent for another year, but I think buying is really the only option to get into the burbs and get the outdoor space my wildchild kid needs (and also significantly reduce our daycare costs). I’m guessing the move would save us about $1k a month in fixed costs even taking everything in (e.g., needing a second car).

Why can’t you just wait until year end bonus time? I would think of the 401k as just totally off limits absent catastrophe even as a loan. Wouldn’t want to unnecessarily break that mental seal. But that’s just me.

Obviously waiting would be the ideal situation, but our lease ends in August and we don’t have a month to month option, so it’s either buy a house between now and then or rent another year.

[Chrstgtr]

Thoughts on using a 401k loan to help fund a down payment for a house? Won’t have enough cash to get 20% down on anything reasonable until year end bonus time, and a 401k loan seems like the best option to bridge the gap and avoid PMI (I’m about as comfortable as I could be with job security at my firm).

Still trying to press the wife to rent for another year, but I think buying is really the only option to get into the burbs and get the outdoor space my wildchild kid needs (and also significantly reduce our daycare costs). I’m guessing the move would save us about $1k a month in fixed costs even taking everything in (e.g., needing a second car).

Why can’t you just wait until year end bonus time? I would think of the 401k as just totally off limits absent catastrophe even as a loan. Wouldn’t want to unnecessarily break that mental seal. But that’s just me.

Obviously waiting would be the ideal situation, but our lease ends in August and we don’t have a month to month option, so it’s either buy a house between now and then or rent another year.

PMI isn’t the worst thing. It’s about a percent and typical horn appreciation is 2%, so you already are ahead in a normal year. The bigger concern with PMI right now is that you might not get your offer accepted in many markets bc of appraisal risk in the current appreciating market. Or rates going up when you refi.

I wouldn’t touch 401K unless you absolutely have to (read: medical emergency or something similar). It’s your best egg and taking money out of the market is never a great idea.

Do you have a brokerage account that you can take a little margin out on?

[nealric]

Thoughts on using a 401k loan to help fund a down payment for a house? Won’t have enough cash to get 20% down on anything reasonable until year end bonus time, and a 401k loan seems like the best option to bridge the gap and avoid PMI (I’m about as comfortable as I could be with job security at my firm).

Still trying to press the wife to rent for another year, but I think buying is really the only option to get into the burbs and get the outdoor space my wildchild kid needs (and also significantly reduce our daycare costs). I’m guessing the move would save us about $1k a month in fixed costs even taking everything in (e.g., needing a second car).

You could also look into an 80/10/10 loan (you get a second mortgage for the 10%). The thing I hate about PMI is that getting rid of it is a crapshoot. You are at the whim of an appraiser. The piggyback loan is usually higher interest, but you can kill it at your leisure.

[lolwutpar]

I dealt with this a bit when I bought a house in a HCOL area.

Option 1 - if your firm has a private bank relationship, they likely have mortgages available with pretty good (but not the BEST) rates. 10% down, no PMI, no impound (which I like). Can do nonconforming loans, including jumbos

Option 2 - work with a loan broker to get a doctor's loan. 10% down, no PMI, but you pay for it in the rate

Option 3 - 80/10/10 loan - may or may not be worth it depending on how the interest rates work out, but you do avoid PMI

Option 4 - 10% down, eat PMI (depending on where you're buying sometimes it's not a lot) and hope this market continues and you blow past 20% equity soon

[Anonymous User]

Hello. I am a 2L getting ready to start at a summer associate program that is full market, but I will be in a low COL area. Any suggestions on how I should budget my money? Current situation:

Live alone in a $1,200/month apartment and live pretty modestly.

$80,000 in loans.

$10,000 liquid and $3,250 in the market.

Additionally, for what you suggest that I invest, what should I invest it in? Right now, I've just been doing stocks with about half in VOOV and the rest in reliable stocks (T, CCL, MGM, etc.).

Thanks!

[showusyourtorts]

Hello. I am a 2L getting ready to start at a summer associate program that is full market, but I will be in a low COL area. Any suggestions on how I should budget my money? Current situation:

Live alone in a $1,200/month apartment and live pretty modestly.

$80,000 in loans.

$10,000 liquid and $3,250 in the market.

Additionally, for what you suggest that I invest, what should I invest it in? Right now, I've just been doing stocks with about half in VOOV and the rest in reliable stocks (T, CCL, MGM, etc.).

Thanks!

Probably a question more for the forum at large, but can OP make a $6k contribution to their 2021 IRA with the firm's salary? I know the general rule of thumb is to live off your SA earnings and essentially take out less during loans in your third year, but I imagine that contributing to an IRA may be one of the few exceptions to that.

Also, would that contribution even (maybe) be deductible if you're not yet actually signed up for your employer's health plan/etc? I forget the details.

[Anonymous User]

What is the best use of the special anti-lateral bonus? I am a third-year associate with $130K in student debt (but have $40K in a HYSA, which I segregated for purposes of making a balloon payment before the COVID forbearance). Should I be using this "found money" toward my loans or investing the whole lot (or a combination of the two)?

I am also getting married later this year and have started saving for a down payment for a house (though I don't plan to buy for 2 years).

I have about $50K in investments and have a 6-month In-Case-of-Emergency fund in cash (also in a HYSA).

[Anonymous User]

What is the best use of the special anti-lateral bonus? I am a third-year associate with $130K in student debt (but have $40K in a HYSA, which I segregated for purposes of making a balloon payment before the COVID forbearance). Should I be using this "found money" toward my loans or investing the whole lot (or a combination of the two)?

I am also getting married later this year and have started saving for a down payment for a house (though I don't plan to buy for 2 years).

I have about $50K in investments and have a 6-month In-Case-of-Emergency fund in cash (also in a HYSA).

bumping this.

[Chrstgtr]

What is the best use of the special anti-lateral bonus? I am a third-year associate with $130K in student debt (but have $40K in a HYSA, which I segregated for purposes of making a balloon payment before the COVID forbearance). Should I be using this "found money" toward my loans or investing the whole lot (or a combination of the two)?

I am also getting married later this year and have started saving for a down payment for a house (though I don't plan to buy for 2 years).

I have about $50K in investments and have a 6-month In-Case-of-Emergency fund in cash (also in a HYSA).

bumping this.

This will depend on your personal situation and risk tolerance. On average, you are better off investing the money right now. But tomorrow the market might crash causing you to lose your job and your ability to ever pay off your loans. What you chose to do will really depend on your risk tolerance, future earnings potential, and outstanding loan size. For me, this was too big a risk when I had a large outstanding loan balance. As I decreased my total balance, I leaned into the market, and thus far this strategy has paid out well (although not as well as if I just invested it all the entire time). But tomorrow, I may be crying because I got greedy.

Same goes for saving for a house. Are you willing to wait additional time if you invest money for a downpayment and the market crashes? Or are you willing to accept losses to lock in a good home price if the market crashes?

[Anonymous User]

Apologies if this has been addressed before - recently moved in-house and wondering whether it makes sense to participate in my company's ESPP (stock purchase plan).

A few details:
-Can contribute the greater of 10% of salary or $25,000 a year
-Deductions are taken after-tax from each paycheck and shares are purchased on the last trading day of each quarter
-Shares are purchased at a 5% discount of the average of the daily high and the daily low for such date
-No black-out period in terms of selling the shares
-Small fee to sell the shares and withdraw the $ to another account (would be $25 total each quarter)
-In the 35% marginal tax bracket

I'm thinking I would contribute the full $25,000, so $6,250 a quarter and sell the shares + withdraw the cash automatically, thus incurring ordinary income tax on the profit and 5% discount. I've read plenty of articles that say an ESPP is an amazing deal, but a lot of them analyze plans with larger discounts and look-back periods. My biggest concern here is that the discount is small (5%), the way they calculate the share price seems disadvantageous (the average of the daily high and low could be lower than the share price at end of the day) and the $25 each quarter to sell and withdraw will eat away at the profit here.

Really appreciate any thoughts!

[Anonymous User]

Looking for credit card recommendations. I am finishing a clerkship and starting as a second year IP litigator in NY at a boutique. I figure I'll have to expense things at times like travel between major cities, meals, car rentals etc. and I'd like to maximize rewards for expenses.

[Chrstgtr]

Looking for credit card recommendations. I am finishing a clerkship and starting as a second year IP litigator in NY at a boutique. I figure I'll have to expense things at times like travel between major cities, meals, car rentals etc. and I'd like to maximize rewards for expenses.

This depends a bit on what your other spending will be, but the Chase Sapphire Reserve is a great card. It is effectively 4.5% back on dining/travel, which is everything you described. Note, a lot of firms will require you to put travel on your firm credit card.

[omar1]

Has anyone heard of "solo 401k"? As a solo, what is the max I can contribute per year to get the max tax benefit? Any recommendations on institutions with the lowest fees? Thx

[jsnow212]

Apologies if this has been addressed before - recently moved in-house and wondering whether it makes sense to participate in my company's ESPP (stock purchase plan).

A few details:
-Can contribute the greater of 10% of salary or $25,000 a year
-Deductions are taken after-tax from each paycheck and shares are purchased on the last trading day of each quarter
-Shares are purchased at a 5% discount of the average of the daily high and the daily low for such date
-No black-out period in terms of selling the shares
-Small fee to sell the shares and withdraw the $ to another account (would be $25 total each quarter)
-In the 35% marginal tax bracket

I'm thinking I would contribute the full $25,000, so $6,250 a quarter and sell the shares + withdraw the cash automatically, thus incurring ordinary income tax on the profit and 5% discount. I've read plenty of articles that say an ESPP is an amazing deal, but a lot of them analyze plans with larger discounts and look-back periods. My biggest concern here is that the discount is small (5%), the way they calculate the share price seems disadvantageous (the average of the daily high and low could be lower than the share price at end of the day) and the $25 each quarter to sell and withdraw will eat away at the profit here.

Really appreciate any thoughts!

Um, no.

[EliteFlyer]

Apologies if this has been addressed before - recently moved in-house and wondering whether it makes sense to participate in my company's ESPP (stock purchase plan).

A few details:
-Can contribute the greater of 10% of salary or $25,000 a year
-Deductions are taken after-tax from each paycheck and shares are purchased on the last trading day of each quarter
-Shares are purchased at a 5% discount of the average of the daily high and the daily low for such date
-No black-out period in terms of selling the shares
-Small fee to sell the shares and withdraw the $ to another account (would be $25 total each quarter)
-In the 35% marginal tax bracket

I'm thinking I would contribute the full $25,000, so $6,250 a quarter and sell the shares + withdraw the cash automatically, thus incurring ordinary income tax on the profit and 5% discount. I've read plenty of articles that say an ESPP is an amazing deal, but a lot of them analyze plans with larger discounts and look-back periods. My biggest concern here is that the discount is small (5%), the way they calculate the share price seems disadvantageous (the average of the daily high and low could be lower than the share price at end of the day) and the $25 each quarter to sell and withdraw will eat away at the profit here.

Really appreciate any thoughts!

Between the modest discount and the ordinary income tax, this doesn't sound like the most competitive deal. Choose FI has some good shows including a recent one that covered ESPPs here: https://www.choosefi.com/is-my-companys ... ed-ep-314/

[Anonymous User]

Looking for credit card recommendations. I am finishing a clerkship and starting as a second year IP litigator in NY at a boutique. I figure I'll have to expense things at times like travel between major cities, meals, car rentals etc. and I'd like to maximize rewards for expenses.

This depends a bit on what your other spending will be, but the Chase Sapphire Reserve is a great card. It is effectively 4.5% back on dining/travel, which is everything you described. Note, a lot of firms will require you to put travel on your firm credit card.

FYI, my wife and I have worked at several firms between us (and know friends at many others) and it is far more common to have firms ask you to book travel yourself and seek reimbursement on the back end. If you are in a practice that requires a lot of travel, the credit card points can get very valuable - I worked on an investigation on another continent for several years and probably racked up something like $10k in credit card points (plus close to $50k worth of airline miles and hotel points) over the life of the matter.

[Anonymous User]

When should I pay off my loan?

Rising 2nd year. I have ~20k in my 401k and ~40k in a bank account. I have so much in the bank account because the vanguard website wouldn’t let me make an account (I realize that’s stupid).

I have ~80k in federal loans. Planning to refinance once forbearance ends in March. My question is when should I seek to pay the loans off in full?

If March rolls around and I have nearly 80k in cash to throw at it, should I actually just pay it all off? What are the downsides? Is it worth it to make maintenance payments while investing and pay it off over the course of a few years?

[The Lsat Airbender]

Simply paying it off is a perfectly reasonable plan.

You'll theoretically come out ahead, over sufficiently long timelines, by putting that money in the stock market and using your (refinanced) loans as a source of leverage, making only minimum payments. But if you can't work out how to get a brokerage account set up then probably too much complication for you (no offense, it's just not worth getting elaborate unless you're 100% confident in what you're doing because of the risks involved).

[Anonymous User]

But if you can't work out how to get a brokerage account set up then probably too much complication for you (no offense, it's just not worth getting elaborate unless you're 100% confident in what you're doing because of the risks involved).

Haha, fair enough - thanks.

[Sackboy]

But if you can't work out how to get a brokerage account set up then probably too much complication for you (no offense, it's just not worth getting elaborate unless you're 100% confident in what you're doing because of the risks involved).

Haha, fair enough - thanks.

Just to elaborate some more, with your loan balance, if you refinanced to a 15-20 year loan at today's rates and used LSA's method, you'd probably come out $150k-$200k ahead over a 40 year investment period (I'm assuming you're close to 25-26 and will retire around 65). That being said, when you actually have your loan payoff date in 15 or 20 years, you won't feel that far ahead. You'll have an extra dough, but it won't feel like that much compared to the time you waited. It's the next 20-25 years that pumps that extra dough up that you skimmed off the arbitrage that leads to $150k-$200k ahead. Still, if you expect to be in the ~$200k+ position for your career (either at a firm or in-house), then that amount of money might be worth less than the piece of mind you could have by paying it off now.

[sparty99]

But if you can't work out how to get a brokerage account set up then probably too much complication for you (no offense, it's just not worth getting elaborate unless you're 100% confident in what you're doing because of the risks involved).

Haha, fair enough - thanks.

Just to elaborate some more, with your loan balance, if you refinanced to a 15-20 year loan at today's rates and used LSA's method, you'd probably come out $150k-$200k ahead over a 40 year investment period (I'm assuming you're close to 25-26 and will retire around 65). That being said, when you actually have your loan payoff date in 15 or 20 years, you won't feel that far ahead. You'll have an extra dough, but it won't feel like that much compared to the time you waited. It's the next 20-25 years that pumps that extra dough up that you skimmed off the arbitrage that leads to $150k-$200k ahead. Still, if you expect to be in the ~$200k+ position for your career (either at a firm or in-house), then that amount of money might be worth less than the piece of mind you could have by paying it off now.

You basically only have 40,000 and need another 40k. I would refinance to 3 or 4 percent and not pay off. But make sure you save $65k over the next 12 months.

[Anonymous User]

After all the tax advantages accounts are maxed, can I just dump all my money into FSKAX (and an international fund)? Is that reasonable and likely to get good returns in the long run?

[The Lsat Airbender]

After all the tax advantages accounts are maxed, can I just dump all my money into FSKAX (and an international fund)? Is that reasonable and likely to get good returns in the long run?

Yes, that's kind of the default plan for a reason. You might consider adding bonds depending on risk tolerance.

[Anonymous User]

Does anyone have any idea as to what the correct answer is for my situation. I have enough money currently after bonus to lump sum my federal loans. Issue is to do so I’d need to liquidate all my stocks and pay STCG tax. Should I just bite the bullet and sell all in April and pay off before May 1? Should I just leave all my stocks to grow in the taxable account while putting any money I may until May 1 in a HYSA? Just not sure what the best process is for this and really don’t like having loans.