Law students dream of big starting salaries – but will high salaries be enough for a comfortable lifestyle with law school loans? This post intends to find out.
Law school is billed as a “safe” bet but I’m telling you – don’t go to law school without a financial plan! When I looked at law school tuition prices recently, I was shocked. Prices have doubled since I went to school 10 years ago. And even when I was in school, the tuition prices and student loan loads were burdensome. Meanwhile, BigLaw salaries (the highest salaries a law graduate can expect when she graduates) have only increased slightly.
The rising cost of law school tuition should give any potential law student pause. My last post touched on how the rising cost of college should encourage more students to think critically before attending – and the same is true for law school.
What I hope you’ll find by the end of this post, is that even if you end up with a high salary, attending law school is a risky investment. That doesn’t mean you shouldn’t go, but you must go in with open eyes and a financial plan.
Most articles addressing whether college is worth the cost inexplicably conclude “of course!” But this doesn’t make sense based on basic economic facts.
Average costs for four years in college are between $44,000-165,000 (public to private schools) JUST FOR TUITION. Adding minimum living costs, this could easily balloon to $84,000-$205,000 at 5% interest. The median entry-level salary for a college graduate is $48,000. Even entry-level salaries at the high end are $71,000 (pre-tax).
The best case scenario (assuming no financial aid) is spending $84,000 and four years of hard work on college, likely not learning relevant job skills, in order to qualify for, apply for, and get hired to work 40+ hours a week for 52 weeks in order to earn $50,000 after taxes to pay off your loans (and you might not even like this job). The worst case scenario is that you spend $200k in loans to attend college and end up at a job you could have gotten straight out of high school.
Am I missing something or are the numbers not adding up on this investment?
Being single seems like it would be an impediment to advancing in your career. For instance, a significant other can halve your chores and expenses and provide advice and support – clear benefits. For me though, being single helped advance my career. It turns out that my experience is typical for highly educated women professionals. Here are 8 ways being single can help a women’s career (or how being married/coupled can hurt it) and my experience navigating these obstacles.
I read 113 books this year. Considering I didn’t have a full-time job for 10 months, it’s probably not as high as it could have been (but there are 42 books that I started and did not finish, for lack of interest). I love Best Of book lists, and I love new book recommendations, so this is mine.
My tweet earlier this week got me thinking about emergency funds:
What counts as an emergency?
According to Vanguard, an emergency fund is a stash of money set aside to cover the financial surprises life throws your way. A number of people commented that one shouldn’t use an emergency fund to attend a wedding because a wedding “obviously did not fit the definition of emergency.” But, as a lawyer, I have to say, it depends.
an unforeseen combination of circumstances or the resulting state that calls for immediate action
So does a last minute destination wedding count as an emergency? Some people say a wedding is not unforeseen or does not require immediate action. But this year, I’ve attended four weddings, three were destination weddings and all four occurred between three to eight months after the engagement. For a destination wedding, given that kind of notice, I needed to buy a plane ticket quickly. It’s hard to start saving money for a significant purchase in a few weeks (especially assuming you couldn’t save prior to knowing about the wedding).
[As a side note, my comments section asked what jerks have short-notice destination weddings. My friends are wonderful thoughtful people. As people get older, they want to get the wedding done ASAP and their friends and family can’t necessarily plan a year in advance. The weddings were in the most convenient locations for the most relatives, particularly the elderly ones. So though it’s a destination wedding for the bride and groom and for me, it’s the closest one for a majority of the guests. And finally, it’s an invitation, not a subpoena! I have the choice to say no. I chose to go.]
So I think last minute destination weddings can meet the definition of “emergency.” But what does that matter if you value having the money in your account more than going to a last minute destination wedding?
Your Definition of Emergency Will Vary (And It’s Ok)
A number of commenters noted that they prefer to have separate savings accounts for unexpected good things. I mean, yeah, if you have a wedding fund, take the money out of that instead of the emergency fund. Duh. But let’s say you only have one batch of savings and you call it emergency savings. If there’s enough money to carve out a section for wedding savings, that’s the same thing as having a separate wedding fund. So there’s no real reason to get angry at someone for dipping into their emergency funds when there’s enough money to get everything done.
If all your savings in the whole world equals the amount you would spend on this wedding, then yes, that’s a risky idea. But you are entitled to make that risky choice.And it might be a rational choice. As much as personal finance bloggers talk a big deal about preparing for once-in-a-lifetime doom and gloom moments, sometimes once-in-a-lifetime happy events turn up on your doorstep. I think, for most people, unexpected happy events are more likely to occur than the worst case scenarios.
There is a chance that you will lose your job and your life will collapse all at the same time. There is also a chance that you will miss out on all sorts of fun events and the worst never happens. And even if the worst happens, it’s ok to believe that you’ll be ok and find a way that doesn’t mean your life is an utter disaster.
But if you prefer to have the money in your emergency fund and never use it, you are entitled to make that choice too! When we think of emergency funds, we have to think of what we value, the odds that the worst will happen, and most importantly, what we are most comfortable with.
My Emergency Fund
I don’t have an emergency fund anymore. When I had just started working, I squirreled money away in case of an emergency. And that money started to accumulate until I had saved the recommended 3 months. 6 months. 9 months. That was quite a bit of money sitting in a savings account. And not that I was complaining, but I barely dipped into it.
I was steadily employed. My car was 13 years old, and lasted for 5 years after that, and then I went car-free for 3 years after that. My laptop was 4 years old, but lasted another 3 years, and actually buying another laptop wasn’t that expensive. I had an unexpected medical emergency but that didn’t cost as much as I expected it to. So I just had a bunch of money sitting around.
Meanwhile, I was also saving in my 401k and my Roth IRA. I had paid off my loans. And I got to thinking, let’s say I lost my job. I wouldn’t need all of the money immediately – I would only spend it one month at a time. If I lost my job, I would get a 0% interest credit card to float me for a year, and even if I lost my job during a recession, I would have that year to liquidate a month or a few months of stocks assuming I didn’t get another job for over a year. And I don’t have any dependents or a mortgage, so worse to worse, I could drastically reduce my lifestyle rather quickly. And there’s also the possibility that I wouldn’t lose my job and that I would have missed out on all the dividends and growth from keeping my tends of thousands earning 1% in a savings account for years.
So I started moving money from my emergency fund into my investment accounts and I haven’t looked back. This is a bit of a moot point now because I quit my job in February without pre-planning. The stock market is booming and I’m happy that I’ve let my money grow over the years. That was the choice that I was the most comfortable with.
Conclusion
What’s an emergency fund? It’s the savings you have to give yourself peace of mind in light of the existence of unexpected events. It can be any amount, and it can go up or down. You can dip into it for any kind of unexpected event and you shouldn’t have to answer to anyone else about what constitutes an “emergency.”
Also check out J. Money‘s great post about this topic!
I wish I could counter Susan Cain’s groundbreaking book about introverts, Quiet, with one about extroverts, and I’d call it, Also Quiet.
You may be thinking that if a book about introverts is called, Quiet, then a book about extroverts should be called “Loud.” But as much as Ms. Cain’s book dispels some myths about introverts, it creates quite a few misconceptions about extroverts. Here I’ve written a few things that introverts get wrong about extroverts.
Why do we teach women to be afraid? For years now, I’ve seen articles and social media posts discussing how #yesallwomen live in constantfear of violence. This fear means women refrain from many enjoyable routine activities like exercising, going out at night, or traveling by themselves.
This idea bothers me every time I see it. The fear is grossly outsized compared with the actual risk. For example, Wikipedia states:
Although fear of crime is a concern for people of all genders, studies consistently find that women around the world tend to have much higher levels of fear of crime than men, despite the fact that in many places, and for most offenses, men’s actual victimization rates are higher. [emphasis added]
It’s common knowledge that one must control one’s thoughts because thoughts lead to actions. The same is true with money – how you think about money directly leads to how one spends money. So it goes that improving your relationship with money is an important first step to changing your spending habits.
Many people, particularly women, believe they are terrible with money and then act according to that belief. “I’m terrible with money,” one thinks, and thus that person doesn’t feel the impetus to learn how to be better with money. Or she tells herself she is terrible with money so it doesn’t hurt her psyche when she’s spending as she shouldn’t.
If you are terrible with money, then acting as if you’re terrible with money seems like a logical next step. But if you perceive yourself to be good with money, it’s harder to act against that identity. If you act against your belief in yourself, you have cognitive dissonance. So you then have to change your actions to match up with your identity or you rationalize your actions to yourself so you can retain your identity. Either way, it’s a bit more difficult than just thinking bad person=bad actions.
Step one to pay off law school debt, is to reduce law school debt. That is, take out fewer loans. Though it doesn’t seem like you can do much to improve your debt while you’re in school and not working, but there you’re wrong. There are lots of strategies to decrease the loans you take out, and thus decrease your debt burden when you graduate. Here are the seven strategies I used to reduce my debt by tens of thousands of dollars while attending school.
I managed to save $65k over two years for law school, but I did so in a dodgy way. I utilized tax savings and retirement accounts to up my savings. Did I miss out on huge growth?
Paying for higher education is a huge obstacle these days – and graduate school is the worst. Graduate education typically does not have the scholarships or need-based aid given in undergrad. This leads to graduate students typically borrow three times what undergraduates do. I knew I was on my own saving for law school. Thus, I worked after college and saved $65,000 to pay for law school. However, my method of saving was a bit dodgy/controversial. Read on to see if you think this was the right approach.
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