Today, I have a guest post from Marissa Geannette, who writes over on her blog, The Unbillable Life. I discovered Marissa’s blog earlier this year and found her story to be very relatable. Like me, Marissa is also a former Biglaw attorney that made the jump to self-employment, moving off the clear, career path in order to gain back more control of her life. Her blog is definitely one that’s worth reading and I suspect that a lot of people in high-stress, prestigious jobs might relate to exactly what she writes about on her blog (i.e. that sense that you’re stuck in your job, even when you really aren’t).
In this post, Marissa shares five financial adjustments she made after going from a huge, six-figure salary in Biglaw to making basically nothing. It’s a great post that mirrors a lot of the steps I had to take when I also made the move from working full-time as an attorney to striking it out on my own. Take it away Marissa!
When I left my Biglaw job of 8 years, I knew I was going to have to make some financial adjustments, as my plan was to leave the law (and my Biglaw salary) and possibly never go back. On the one hand, I’d paid off my student loans and had saved enough money to comfortably live off of for a while. On the other hand, I didn’t want to just blow through my savings and be back to square one, searching for another law firm job that I knew I didn’t want, in order to build up my savings again.
So I made some changes. Most of these tips also work if you’re taking less drastic measures and instead of leaving the traditional workforce entirely, are switching from a high-salary position to a lower-paid one. I hope that reading about the changes I made, the steps I took, and a few mistakes I made along the way, can help you make some adjustments of your own if you’re contemplating a similar change.
The 5 Financial Adjustments I Made (and a few lessons learned)
Here are five key adjustments I made to my finances (and life) after I left my six-figure salary for a zero-figure (but growing) salary.
1. I Rolled Over My 401K (with a hiccup along the way)
When I was in Biglaw, my entire retirement planning boiled down to one thing – max out my 401k. After I left the firm, it took me a few months before I thought about the chunk of change that I’d acquired in my firm’s 401k.
I was supposed to do something with that money, wasn’t I? The term “rollover” was vaguely familiar, but I was intimidated by the process of doing one myself, so I ignored my 401k money for a few months. Then I made my first big financial mistake: instead of educating myself on what a rollover is (and how simple it is to do) and doing it myself, I was lured in by an offer to open a managed account at a big bank. I knew in my gut that I didn’t want a managed fund, but I didn’t have the confidence that I could do the rollover correctly by myself.
I don’t even remember why I went to that bank or how I came across the offer, but I walked into a branch, met with a banker and got sucked in by the ease of it. I signed a few things, they promised me the rollover would be completed within a week or two and that was it. My money was now sitting in a managed fund, and I was being charged a fee for this management.
I imagine my thought process might have been similar to that of the Financial Panther’s brother when he decided to put his money into a managed fund. He had a friend who worked at a bank who said he could make his money grow for him. He, too, was lured in by the ease of it and the promise of “beating the market.”
Luckily, I only kept my money in that managed account for about 6 months. I decided one day to take a look at the fees I was paying and how my money in this managed account vs. other money I had in Vanguard index funds was fairing. Turns out the big bank was not beating the market – not even close, actually – and I was paying way too much for their management “expertise.” (Editors Note: It’s always better to mess up with tax-advantaged accounts vs. taxable accounts since you can course-correct tax-advantaged accounts without having to worry about tax consequences. My brother messed up with taxable accounts, which makes his process of deciding what to do a little more complicated.)
I felt like I was being robbed of my money, which finally motivated me to figure out how to move my money out of that managed fund and into a Vanguard IRA. This was now slightly more complicated than if I had just done the original rollover, but I figured it out. I had to liquidate the managed fund, reinvest that cash into a Vanguard target-date fund at the big bank, and then do a direct transfer of the Vanguard fund into a newly opened Vanguard IRA account. Did you catch all of that? It doesn’t matter; just take-away from it that I made a stupid mistake, fixed it, but it ended up costing me time and money to do so.
I plan to leave my money in that Vanguard IRA until I retire and will definitely be wary of any advisor who tells me that his bank’s managed funds can beat the market. I can’t believe I was a sucker for that line! Lesson learned, though, and I’m happy that the mistake only lasted a few months. I now firmly believe in one of the pillars of the Financial Panther’s investment philosophy: you can’t beat the market so quit trying.
2. I Opened Up a Roth IRA to Continue Saving for Retirement
When I was in Biglaw, I maxed out my 401K (other than during my first year – oops), but I didn’t otherwise save any money specifically for retirement.
During this time, I’d heard about a Roth IRA, but it wasn’t something I considered for myself because of the income limits (in 2019, a single individual can contribute up to $6,000 to a Roth IRA, so long as he or she earns $122,000 or less in the year). My Biglaw salary was above the threshold so I didn’t bother with a Roth IRA.
(It turns out there’s a loophole commonly referred to as the “backdoor” Roth IRA whereby those with high incomes can convert a Traditional IRA to a Roth IRA (legally!), but I didn’t know about this at the time.)
All of this is to say, the Roth IRA was new to me when I left Biglaw. I was no longer able to contribute to a traditional 401k, but I still wanted to save a little for retirement every year, so I decided to educate myself on my options. That’s when I discovered the Roth IRA.
I had begun to work again (more on that below) and my income was now way under the threshold, so I could take advantage of the Roth IRA. I decided to max it out and contribute the full $6,000 that I was allowed as a single taxpayer.
A Roth IRA wasn’t something I’d thought about before leaving Biglaw, but it was a financial adjustment that I’m happy to have made. For me, the benefits of the Roth IRA include:
- Contributions to a Roth IRA are taxed now. This is great for me because my current tax bracket is very low (I’m only working part-time, so my income isn’t where I want it to be yet – not great for the bottom line, but good news for a taxable retirement account).
- It’s nice to have a diversified tax strategy for retirement. Between the 401k and Roth IRA contributions, I’ll have money in retirement that is taxable during retirement when I withdraw it (401k) and also some that I can withdraw tax-free at that time (the Roth IRA).
- If I need the money in an emergency, I can take out the amount I contributed to the Roth IRA, tax-free, at any time (I would have to pay taxes on any gains that I withdraw). This makes it easier to stash the money away, since I know I can get it back if I need to without penalty (unlike the high penalties you pay on withdrawing early from a 401k).
There aren’t really any drawbacks of the Roth IRA that I can think of, other than the fact that the bulk of my W-2 wages is going to my contribution, but I’m ok with that as I’ve decided that’s what I want to do with my earnings.
3. I Had to Become More Aware of My Cash Flow Needs and Start Hustling for Money
Once those Biglaw paychecks stopped hitting my bank account every month, I had to figure out how to better manage my cash flow. Instead of counting on a paycheck, I needed to figure out how to manage my savings and investments to sustain my lifestyle.
Luckily, before I left my job, I had paid off my Biglaw loans and saved up enough money that I was able to comfortably leave my job without having another one lined up. However, I was still going to be living in NYC and I didn’t have enough money lying around to live like I had been living indefinitely. I needed a strategy to make my money work best for me until I started earning more.
The first thing I did was I allocate my savings strategically for the first year and a half after leaving my job. I thought of it in this way:
- Checking Account: here, I kept enough to cover monthly expenses for the upcoming two months.
- High-Interest Savings Account: here, I kept enough money to cover expenses for months three through twelve post-Biglaw job. I’d move enough money to pay for my current monthly expenses from here into my checking account as needed, but preferred to keep as much as I could in this account, since it earned some interest.
- CD: here, I kept any cash I had that I thought I might need after the first 12 months of my new life. The money wouldn’t be available to withdraw for a year, but that was fine as anything I needed immediately was in easy to access checking or savings accounts. This money would make me the most interest, without any risk.
- Vanguard Index Funds: here, I put (or rather, kept) everything else I had saved from my Biglaw job. I can access this if I need to, but my plan is to leave my money in the market for many years to come and let it do its thing.
Almost a year into my time off, I realized I could keep spending my savings and be fine for a while longer, but I didn’t want to do this. I didn’t like the feeling that I was burning through my savings, even if it wasn’t at a rapid pace. But I definitely wasn’t ready to go back to a traditional job.
I was at a crossroads last winter when I realized I could start making money doing things I never would have thought I would or could do. First, I started to freelance write, something I didn’t think I could do and make money doing since I wasn’t “qualified” to write (turns out, I was wrong). Second, I began to work at a gym, part-time, for minimum wage.
I could go on and on about my fears and apprehensions in starting both of these new jobs, which were scary to me, for very different reasons. I won’t get into that here since this post is about finances, but I do plan to write more about that in the future so stay tuned! What I’ll say for now is that I resonate so much with everything the Financial Panther writes about pursuing what you want to do, not what others want you to do, no matter what that is.
4. I Had to Budget for and Pay for Things I Used to Get for Free
When you work in an office, there are so many little things that are provided for free that make your life easier (and cheaper). I’m not even talking about the perks you get when you work in places like Google or Facebook, where rumor has it all of your meals are provided for and errands like dry cleaning are taken care of for you, on-site, for free.
I’m talking about the things every standard office provides. Certainly, things that every Biglaw firm provides. Below are some of the things that my firm provided that I took for granted when I was working there. After I left, I had to make some adjustments and start to spend my own money to buy them when needed.
Things I have to spend my money on now if I need them:
- Office supplies
- Mailing envelopes and packing materials for Amazon returns
- Snacks and coffee; a heavily-subsidized cafeteria for lunches
- Fully equipped gym with a Peloton bike
- Sponsored happy hours and nights out with open bars and free food; sometimes even tickets to sports games and concerts
On the flip side, there were also many things that I used to spend money on that, for various reasons, I no longer do, now that I don’t work in an office.
Things I no longer spend money on:
- Daily Metrocard (I basically walk everywhere now)
- Business casual clothes (I ceremoniously got rid of them all)
- Stress spending (this one was huge for me; I used to mindlessly spend way too much money on makeup and clothes at places like Sephora and Asos)
After leaving Biglaw, I basically underwent an entire budget overhaul. I’m grateful for the perks that my office used to provide, especially now that I am more aware of how much they really did have available to make us comfortable at work. But I’m happier now, and my wallet is too, now that I buy my own office supplies and no longer have to spend money on business casual outfits.
(Editors Note: Interesting points about the free stuff you get at work that you don’t think about. A few things I’ve done are: save boxes for my own Amazon purchases so I can use them as shipping materials, eat for free by taking advantage of secret shopping gigs, and get paid to exercise by doing food deliveries on my bike. I know Marissa has hacked her exercise budget by grabbing a job at a gym.)
5. I Had to Figure Out My Own Health Insurance
Losing out on employer-sponsored health insurance keeps many people in jobs they want to leave for far too long. While it is a huge consideration, don’t let it be the reason that you stick around at a job that you’re miserable at.
Before I left my job, I began to hint that I was thinking about leaving without having another job lined up. Some of the well-intentioned people in my life reinforced a fear I held by nervously asking me, “well, what would you possibly do about health insurance if you left?” The question was posed in such a way that it seemed as though there was no alternative. For a while, I felt like I had to stay at my job just for my insurance.
Finally, I took my head out of the sand and began to research what happens when you do actually have to get your own health insurance. And then I promptly put my head back in the sand.
Health insurance was a doozy of a financial adjustment to figure out and so I took the easy way out. I left my job and essentially gave up the search for health insurance by opting for COBRA. For anyone who is unfamiliar with COBRA, it is a government program that allows you to stay covered under your employer-sponsored health plan for a certain period of time after you leave your job. It’s great in that you get to keep your health insurance, but not so great in that you have to pay for 100% of that insurance. This cost me, a single person with no health conditions, almost $800 a month.
I know this means that I paid way more for coverage than necessary and I could have found a cheaper alternative on the health insurance marketplace. That being said, I also had excellent health insurance while I was on COBRA, so if anything were to happen, I knew that I was paying a lot but would also get a lot for it.
Whatever you end up doing, don’t let the complications or scariness of health insurance coverage prevent you from making a job change. It is definitely figure-out-able, even if you take the easy way out, like I did, and settle for COBRA for a few months, a year or the whole time allowed, until you get another job with health insurance or figure out another, cheaper alternative.
(Editor’s Note: Health insurance is also something that I’ve struggled with a bit. My wife owns her own business, so going on her plan doesn’t help me since we’re footing the whole bill anyway. I screwed up and didn’t sign up for health insurance during the qualifying event period after I quit my job, so I ended up having to sign up for a healthshare ministry to cover me for 2019 just so I wouldn’t go bankrupt if I got hit by a bus. In 2020, I’m going to go back to health insurance purchased off my state exchange, since I honestly am not very comfortable with having my current pseudo-health insurance. I also agree that you shouldn’t let health insurance keep you in a job that isn’t for you, although at the same time, I admit that I have very low health care costs as a healthy, young male without kids.)
Don’t Let Money Fears Keep You from Making a Career Change
If you’re contemplating leaving a high-paying job (or any job, for that matter) for a less traditional path, money is probably a big consideration. Don’t let it be the roadblock in your way to living a better life or taking a different path.
There will certainly be changes you have to make to your finances, whether it’s buying your own health insurance, making money in ways you hadn’t imagined before, or any number of other things. Just know that you’ll have to make financial adjustments along the way, but that’s ok – you’ll figure it out.
The Unbillable Life is a career blog written by Marissa Geannette, a former Biglaw associate who writes about her experiences working in Biglaw in NYC. Along with advice on how junior attorneys can succeed in Biglaw, she also blogs about why she left that career after 8 years to pursue an alternative, less traditional path. Read more career success tips and career change advice on the blog, www.theunbillablelife.com, or reach out to her at firstname.lastname@example.org with any questions or comments.