Tuesday, April 11, 2006

Hey Lawyers! What's Your Excuse?!?

I know a bunch of lawyers, some family members, people I went to college with, and others I've met through friends. Most of them are not people whose finances I am familiar with, and their stories are all different, but there always seems to be some money drama.
One is in his late 40s, obviously successful, living in a huge house in a gated community that must have cost him about $2 million, by my estimate, with a Mercedes SUV and a BMW in the garage. He's been in rehab once or twice for prescription drug addiction because he's so stressed out about his job and whenever someone compliments him on his beautiful home he complains that paying for it is giving him an ulcer.
Some others have worked in prestigious firms in big cities for a few years-- I know one person who still does that, but the others, after paying off their loans, moved into paths they found more rewarding but less high-paying, such as working for non-profit organizations or in academia. (I did have one college friend who eschewed the big firms altogether and went straight into the low-paying, good-for-humanity track-- I don't know exactly what she does, because I dropped her like a hot potato when I heard she wasn't making the big bucks. Only kidding, we just drifted apart, but I hear she is alive and well and she and her partner own a house.)
But there is one acquaintance I particularly want to write about, who seems to be representative of a lot of his peers. Let's call him Frank. (I think half the fun of blogging is renaming everyone I write about!). He's been working at a big firm for about 6 or 7 years, I think. Going by what I've heard, and from a comment on this post, Frank must be making well over $200k by now, perhaps close to $300k with a bonus factored in. But he's kinda broke.
I know law school is expensive-- if you know any young lawyers, I think it's impossible not to hear about how expensive it is. Most people seem to leave law school with around $100k in debt. And if you had other debt from before law school, other student loans, credit cards, whatever, let's say Frank had $150k in debt. For the sake of argument, let's say it's at 7% to be paid back over 10 years. That is a monthly payment of about $1750. But his gross pay is probably over $20k a month. Say taxes take out 45%, he's left with about $11,500 a month. Ok, that is now, but even in his first year out of law school, his take home was probably $6000 a month. Why didn't he pay off his loans years ago, or build up savings?
He's not married, doesn't have kids. He rents a 2-bedroom apartment for about $2700. He has a car that he hardly uses. He travels once or twice a year. He probably eats out sometimes, but I don't think his food bills can be that big because he seems to work late and eat on an expense account most of the time. He belongs to a gym. Frank is actually not someone who seems to be wildly extravagant in some of the ways you hear about, but I can't help wondering why he pays for the big apartment and car when if he'd just scaled things back a bit for a few years, he could have paid off his debts and had money in the bank.
Of course I don't know all the intimate details of his finances and the numbers I'm guessing at above may be wildly wrong, but I suspect there are plenty of people in New York, not just lawyers, for whom this scenario could be close to true. What it boils down to for me is this question: if you have $100k in debt and then start working in a job that pays you at least $125k a year, what is your excuse for saying you can't get out of debt and save money, even in an expensive city like this one? If my salary had been $125k, I estimate I would have saved about $50,000 last year, even if I paid double my current rent. Yeah, I'm probably more frugal right now than I would be if I made $125k, but I'm not THAT frugal! I have plenty of fun, and if I made $125k, I'd have ample wiggle room to have a lot more fun and still save a significant amount of money!
To his credit, Frank is not one of these whiny people who always plead poverty even though they make more money than you. In fact, the only reason I know Frank's story is because of a third friend of ours who knows him better than I do.
She knew I was looking to buy an apartment, she had heard Frank say he wanted to buy something, and decided that the perfect solution would be for Frank and me to buy a brownstone with 3 apartments, so we could each live in one unit and rent the third one out to her. She works on Wall St. but at a low level, and she has long-standing debt issues so I knew she couldn't pitch in, but knowing that Frank was an up and coming lawyer, as well as a very nice guy, I started to overcome my natural reluctance to mix friendship and finances and began to think this could be a great idea. I emailed her some listings for houses that might have been possibilities. But when she asked Frank about it, he confessed that he only had $5,000 in the bank. I just thought it was so ironic that among a Wall Streeter, a lawyer and a publishing grunt, the publishing grunt was the only one who could scrape up a downpayment.
So to all you Franks out there, no offense-- I know we all have different reasons for why we do things, but I can't help shaking my head in bewilderment...


Single Ma said...

This reminds me so much of R.K's Cash Flow game. My friends and I play it about once a month. You get to choose your career but the object of the game is to get out of the rat race and achieve your ultimate financial goal.

We all think it's so hilarious when a teacher gets out before a doctor. That game gives a clear meaning to, "it's not how much you make, but what you do with it."

Hopefully your friend "frank" will recognize the value of his cheese before it's too late.

Laws Finance said...

I think lawyers tend to have this notion that they need to impress everyone, so they buy big expensive things that they don't need.

I am in law school now. My debt will be over $100k when I'm done. But I also already have about $6k in my Roth IRA and a portfolio of ETF's in a taxable account. I actually just posted my allocation a few days ago on my blog. But I seem to be the exception around here. Most of the students are building up unnecessary debt by shopping and eating at expensive restaurants, not saving. Sad, really. Also, my loans are very low interest. That's how I justify having investments and student loans simultaneously.

lauda said...

This is the classic Millionare Next Door situation--the average Joes are the ones with a million in the bank while the others(lawyers, doctors, etc) have nothing. Being an attorney--I understand this situation and think it should be classified as such (as opposed to a problem). Granted, I agree with it, but it does not account for the preference of lifestyles. Why do you want to have a million dollars in the bank--to continue eating mac and cheese for dinner each night. Just leave the situation alone, and don't call it problem--it is simply a matter of preference--some lawyers like $300 meals, wine not included, and well they will never have a million in the bank. But on the other hand, these same people make more in a month than those millionares next door make in a whole year. Anyway, this is a rant, but there are a lot of things that a large salary can purchase, which a net worth statement cannot--private school for your children, vacations in Europe, etc...These are things that such people choose over saving every last penny...oh well, my two cents

Apollo said...

I wonder if the term emotional IQ comes into play. For me its not about extreme excesses or deprivation. Its about balance and moderation and being content to live within one's means and abilities.

Here is a little song I wrote
You might want to sing it note for note
Don't worry be happy
In every life we have some trouble
When you worry you make it double
Don't worry, be happy......

Bobby McFerrin - Yeh Mahn

xmiles_openwallet said...

If a wallstreeter can do something not entirely financially smart, why couldn't a lawyer do something no illegal? Hehe...

Anonymous said...

The other thing is that given the privation of time and happiness that comes with the job at the typical major nyc law firm, one would be less likely to want to deprive oneself of a super expensive apartment or other accomodations. I call the poor lawyer thing in nyc the "$200 tie syndrome." They get caught in their own spending BS and can't get out.

Anonymous said...

frank may have plenty of money, or perhaps he spends it on hookers. personally, as a 5th year lawyer at a biglaw firm, I tell peopl I have no money too. In actuality, by other people's standards, I have plenty of money. Now I don't know this Frank or what he's worth, but after being a lawyer at biglaw for 5 years, you are exposed to dudes with REAL money, not this 500K-1 MM net worth crap. I'm talking real money. Thus, we have the attitude that being worth the aforementioned range is having "no money" and we thus live accordingly. The myth of the starving biglaw lawyer abounds, particularly with those in the 5-6 years out and beyond range. Just cause he still rents and claims poverty does not in any way mean he does not dwarf your finances. And as a 7th year I will tell you that if he truly is a biglaw firm, hew is making at least $230K base plus a $65K bonus, again, at least. Unless he blows his dough completely on hookers, he's doing fine. Again, lawyers are not usually the best at finance, but lawyers who do finance work are normally pretty saavy, despite these starving lawyer myths. The tru starving lawyers are the ones who went to crappy law schools and work at insurance defense shops or hang a shingle out for ambulance chasing work. True, junior biglaw lawyers can get caught up in the appearances thing living in NYC, but by the time you reach mid level to senior status, you usuaully reconcile that stage.

Chitown said...

Mixed reviews here but I like the discussion. I think learning to live within your means is a lesson that everyone needs to learn regardless of what profession and income level. In my position, I have the privilege of viewing a lot of financial statements of professionals in different employment sectors. Believe it or not, there is a vast mix across the board of wealthy clients that are either debt free or highly levered so it is difficult to generalize. It really just depends on the person, their individual circumstances, and sometimes location and age.

Like Laws of Finance, I am a law student in my 20’s (late 20’s) in Chicago and I will graduate with over $100k in student loans. I know that a lot of lawyers out of law school do aggressively pay off their student loans but shelter a lot of their other liquid and marketable assets in retirement vehicles for liability reasons. It wasn’t until I started law that I developed the conscious mind to live within my means primarily because I knew I would eventually have to pay back my student loans. My bad financial habits developed outside of the law field and before I even considered law school. So, putting on the airs of financial abundance can happen to anyone in any profession.

Anonymous said...

I know I'm very late to the party but this is a great post with some great comments. I wholeheartedly agree with the other two lawyers/bankers who commented.

I'm in my 20s and work as an investment banker on Wall Street. My salary is over $300K which is still a pittance by Wall Street standards. As another poster mentioned, when people like "Frank" say they have nothing it may mean something entirely different from what an "average Joe" means. I've only been working about 3 years but I have $250k saved up (my compensation started at around $100k my first year). To me this feels like NOTHING. And if someone were to ask me I would say just like Frank, that I have barely anything in the bank. The reason is because relative to the incomes and net worths of people in my business it is NOTHING. No one in this business is aiming for a $1 million net worth, everyone will easily have that at a young age, instead people are aiming for $10 or $20 million or more. The common question is "What's your number?" - it means how much would you need to walk away from it all. And most responses are between $10-$30MM amongst my peers.

I agree that it is silly your friend is complaining about his student loans when he is making a few hundred thousand a year but it is very likely he is complaining because he does not feel rich yet, which afflicts many people who earn high incomes and are surrounded by people who earn high incomes.

Also, like another poster said, should he be penny pinch and live like a miser? Part of the reason to make a lot of money is to live the life. I'm saving for retirement but not at the expense of enjoying my high income today. I don't want to save it all up for when I'm 65, youth is a great time to have fun with loads of money. Tonight my friends and I are hitting a New Years party we paid $1000 a couple for, it will be filled with models, famous people, rich people, and the venue is first class. That's not the kind of thing I'm going to do when I'm 65, its the kind of thing I'm going to do now.