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Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 9:38 pm
by Bronte
For those of use who have "hit the lotto," our debt loads tend to make it feel more like "getting a job that allows us to service our debt." (For those of us who are still looking, good luck. You'll find something.) Let's discuss some financial planning. Over what duration do you plan to pay down your debt? How much do you plan to save during that time? How do you plan to invest? What cool shit do you plan to purchase?
Here's a spreadsheet I made for a five year plan:
https://docs.google.com/spreadsheet/ccc ... n_US#gid=0. Finance types, let me know if you see any flaws. Right now it's not editable (last time we tried that, it kept breaking; this is why we can't have...), but we can work on making it better and I can give pointers on how to customize it.
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 9:50 pm
by Lawl Shcool
5 years seems like the best route for me. It will be lame being brugal on biglaw money but entering my 30s out of debt and 5 years into a solid career sounds VERY nice.
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 9:52 pm
by Anonymous User
Did you include the interest that will be accruing on your loans during those 5 years? It doesn't look like you did, but it's not entirely clear.
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 9:53 pm
by bk1
I remember a similar thread to this a while back where some people argued you should pay down ASAP and others argued you should build assets and keep money liquid in case of investment opportunities. Can't remember the thread but it got hashed out over a serious number of pages.
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:01 pm
by Bronte
Anonymous User wrote:Did you include the interest that will be accruing on your loans during those 5 years? It doesn't look like you did, but it's not entirely clear.
I believe it does include that. It calculates the flat payment, with interest, that will be required each month to pay down the debt in five years. This is calculated by the formula
=-PMT(0.09/(12*[number of years]),12*[number of years],[starting principal]) [Edit: this formula was wrong, should be:=-PMT(0.09/12,12*[number of years],[starting principal])] . This spits out the fixed monthly payment that will be required to pay down the debt in five years, including the accruing interest.
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:04 pm
by bk1
Found the thread:
http://www.top-law-schools.com/forums/v ... 5&t=162114
Also relevant is where people are walking (granted though that most will be NYC).
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:05 pm
by Transferthrowaway
Where is the option to pay it down in 1 year for the Susman/Wachtell bros?
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:07 pm
by Bronte
I'm hoping this thread will be much awesomer than that one.
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:08 pm
by Bronte
Transferthrowaway wrote:Where is the option to pay it down in 1 year for the Susman/Wachtell bros?
We'll let them openly brag ITT.
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:18 pm
by Transferthrowaway
Susman Bro wrote: I figure I'll pay off my loans with my first year salary and then spend the bonus on a Bluth McMansion. Fuck state income tax, amirite?
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:22 pm
by KeepitKind
Does your Debt total include SA salary? it seems that could be used toward tuition and bring the total down a bit from $210k
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:24 pm
by Bronte
KeepitKind wrote:Does your Debt total include SA salary? it seems that could be used toward tuition and bring the total down a bit from $210k
No, it doesn't. Right now it assumes that's what you graduate with. Overall, it's very conservative. The 40% tax rate might be high, as well as the 9% interest rate. And yeah the graduating debt could be reduced somewhat with your summer SA. Should be pretty easy to download the spreadsheet and adjust that.
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:31 pm
by Anonymous User
Any thoughts on someone who will have around 90-100K after graduation? Pay it off over 5 years or go for quicker?
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:33 pm
by Bronte
Anonymous User wrote:Any thoughts on someone who will have around 90-100K after graduation? Pay it off over 5 years or go for quicker?
You could do it quicker, but I think five years is reasonable. Download the spreadsheet and just switch the numbers. If you have trouble let me know. You could increase your savings.
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:35 pm
by Tiago Splitter
Total interest paid: $9749...
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:38 pm
by Bronte
Tiago Splitter wrote:Total interest paid: $9749...
Doesn't sound right? That's the total interest you pay over the life of the loan. It comes out to less than 9% of $210,000, because the interest accrues on a decreasing principal base as you make large payments against the loan.
Edit: ah, I think I found a flaw. I'll update it now. It makes it less rosy...
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:39 pm
by Tiago Splitter
Bronte wrote:Tiago Splitter wrote:Total interest paid: $9749...
Doesn't sound right? That's the total interest you pay over the life of the loan. It comes out to less than 9% of $210,000, because the interest accrues on a decreasing principal base as you make large payments against the loan.
Interest compounds annually. That's only one year worth.
Not that I know how to fix it. I'm sure someone around here does.
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:42 pm
by Tiago Splitter
Saw the update. That does take the luster off of things a bit, but as you said before the other assumptions aren't rosy in any way.
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:44 pm
by Moxie
Assuming 9% interest on 100,000 and you're paying down 25,000 a year:
First year you pay down 25,000 of 100,000+9,000 = 84,000 remaining
Second year you pay down 25,000 of 84,000+7,560 (9% interest accrual) = 66,560 remaining.
Following this pattern,
you're going to pay a hell of a lot more than 9% of the initial principle.
Tiago Splitter wrote:Total interest paid: $9749...
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:45 pm
by Bronte
Tiago Splitter wrote:Bronte wrote:Tiago Splitter wrote:Total interest paid: $9749...
Doesn't sound right? That's the total interest you pay over the life of the loan. It comes out to less than 9% of $210,000, because the interest accrues on a decreasing principal base as you make large payments against the loan.
Interest compounds annually. That's only one year worth.
Not that I know how to fix it. I'm sure someone around here does.
I think I fixed it. Interest compounds monthly. I had the formula wrong. It's more like $55,000 in interest. Makes it a lot harder to save much money if you want to pay down in five years.
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:46 pm
by Tiago Splitter
Interest compounds monthly
I figured annual compounding was too generous, but that makes the numbers easier to think about, as in moxie's example above. Spreadsheet looks good now.
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:51 pm
by romothesavior
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Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:54 pm
by Bronte
romothesavior wrote:If I stay with my woman, she'll be contributing 60k to our income. Obviously my job won't pay 160k in a Midwestern secondary market, but our pre-tax incomes + bonuses combined will be 170+. I think we will be able to live very, very comfortably in St. Louis/Indianapolis on that, and I should be able to pay off my debt in 5 years with little issue.
More power to you. I'll just make my SO pay for dinners out. Feminism, amirite?
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:54 pm
by BackToTheOldHouse
What's the tax rate like in CA for a family (husband/wife plus kids) making $160K?
Re: Financial Planning for Debt-Ridden Biglawyers
Posted: Mon Sep 19, 2011 10:58 pm
by Bronte
BackToTheOldHouse wrote:What's the tax rate like in CA for a family (husband/wife plus kids) making $160K?
I don't know much about tax, but much of your taxes will be federal. I think the 40% rate I currently have significantly overstates the federal taxes. One source seems to put it at closer to 25%.
http://www.moneychimp.com/features/tax_brackets.htm. California income tax will be pretty high, probably about 10%.
http://www.tax-rates.org/California/income-tax.
I've reduced the tax rate a bit in the spreadsheet.