One of the maddening things about working in big law was seeing so many of my colleagues squander the golden opportunity that they had in front of them. There aren’t a ton of situations in which a 25-year old can make six-figures a year right out of school with basically no prior work experience. For the vast majority of new big law associates, that first-year salary might be more money than they’ve made in all of their other previous working years combined.
That’s why it always bothered me when I saw my colleagues renting expensive, luxury apartments and talking about the hip, new, foodie restaurant they hit up over the weekend. It wasn’t the money they spent that bugged me the most. What really bugged me was how normal a lot of them treated their big law salary. To me, earning six figures a year at 26-years old was a huge deal! I’d never even made more than $20,000 in a year. The way I saw it, this money was a blessing – and it wasn’t meant to be squandered.
A lot of other people seemed to treat their income differently. There seemed to be a mentality that this income was no big deal – as if it was totally normal for a 20-something to make so much money. It’s probably why so many of my colleagues spent their income without really thinking about it.
This mindset about our income is why this recent article in the American Lawyer caught my eye. The article, entitled “When Leaving Big Law, the Financial Struggle Is Real,” discusses the financial challenges a lot of attorneys face when they leave big law and decide to start their own law firms (note the article is behind a registration wall, but you can easily access it by entering any throwaway email). We get a glimpse into this struggle when we see one attorney forced to count her spare change just to make sure she has enough to feed herself that week.
If that was all the article was about, I wouldn’t even think twice about it. Starting up your own business in any field isn’t easy financially. And the transition from a six-figure big law salary to an unknown and erratic income is frightening for anyone.
But that’s not what this article is really about. Instead, what we get to see is exactly how little people can value their big law salary and how fast they can squander that income. There isn’t an appreciation of how special that money is until it’s no longer there.
In my opinion, when it comes to leaving big law, the financial struggle shouldn’t be real – not if you’re treating your money right.
How To Make The Financial Struggle Real When Leaving Big Law
If you want to know how to make the financial struggle real, all you have to do is look at how the attorneys in this article treated their big law income. We see how little progress these big law associates made on their debt while they were in big law and the whole thing is glossed over like it’s nothing. For example, we learn the following about this 34-year old lawyer:
Asay, who is single and without children, was about $170,000 in debt after law school, a figure that included undergraduate loans. She was still carrying about $100,000 of that when she left Gibson Dunn in 2012.
Leaving big law with so much debt would be a financial struggle for anyone. And $170,000 is a ton of debt to start out with. Under a standard 10-year repayment plan, you’re looking at a monthly payment of close to $2,000 per month assuming a standard student loan interest rate of close to 7%. It’s no wonder that this associate would find herself struggling financially post big law.
When you dig a little deeper, you have to ask yourself what type of extravagant lifestyle this associate led while she was in big law. The article tells us that she graduated from NYU Law in 2005 and started working at Gibson Dunn right after. A quick Google search shows us that this attorney was your typical K-JD lawyer (meaning that she went straight from college to law school). At the time she started her first job, she couldn’t have been more than 25 or 26 years old.
Starting salaries for an associate attorney in 2005 would have been around $135,000, with it going up to $145,000 in 2006. By 2007, associate starting salaries had risen to $160,000, which was the norm in major markets by the time I entered law school in 2010. Today, they’ve risen again to $180,000! When this attorney left Gibson Dunn, she was likely pulling in $250,000 per year plus bonus!
This associate spent six years in big law earning between $135,000 and $250,000. During that time, she probably made around $1 million in income – all while she was in her 20s. And despite making $1 million in six years, she only managed to bring her student loan balance down by $70,000?
What this tells me is that she lived a pretty nice lifestyle as a big law attorney and did very little with her student loans. Imagine if she had just lived like a student in those early years and paid off those loans. She could have done it in a few years and eventually left big law with no debt and some money in the bank. How much easier would the transition out of big law have been without that $2,000 a month student loan payment?
It wouldn’t have been very hard for her to do either. She was presumably already living like a student in NYC while she was in law school. Nothing changed between law school and big law except that she suddenly got her hands on a big paycheck. She didn’t even have to move to a new city. Upgrade your lifestyle like that, ignore your student loans and that’s how you can find yourself struggling later.
A Big Law Salary Is An Opportunity – Don’t Waste It
Maybe I’m being too harsh. Honestly, it’s all speculation on my part – the article doesn’t tell me how she spent her money, so I can’t say. Maybe she had a huge stash of savings over the years or other things going on in her life.
What everyone entering big law should do, though, is to remember how extraordinary that big law salary is. You’re going to earn every dollar of it, but that means you should be even more careful with how you use it.
Take a look at this gem later in the article about another big law associate:
Paul Saputo, a 2012 graduate of Duke Law School, said he had about $120,000 in student loan debt and roughly $30,000 in savings when he left Vinson & Elkins’ Houston office in 2014. He was driving a Porsche as a young associate.
The article doesn’t say what type of student loan debt he started with, but you can see that he couldn’t have made much progress on his loans if he opted to drive a Porsche. A young, 20-something associate that goes out and buys a Porsche is telling me that they don’t understand how extraordinary that income is. And when you don’t value it, you’ll end up wasting the opportunity that’s right in front of you.
What Can We Learn?
- Understand Big Law Attrition Rates. If you’re starting out in big law, you’ve got to understand that your income isn’t guaranteed. You never know how long you’ll be able to last. If you come to rely on that big law income, you’re setting yourself up for trouble later on.
- Give Yourself Options. Given how unstable big law can be, the key then is to always give yourself options. Get rid of that $1,000 or more per month student loan payment, and suddenly, you’ll have a lot more you can do with your life.
- Live Like A Student. When you start your first big law gig, do whatever you can to live like a student. There’s a golden opportunity here to clear out your debt and save some money. But it can only happen if you aren’t spending it all by looking and acting like a big shot lawyer.
Leaving big law is a transition for anyone. But it shouldn’t be a financial struggle. Depending on how long you last in big law, you stand to make $500,000 to $1 million in just a few years of work. Many people will still be in their 20s while making this type of money. You’ve got a golden opportunity to put yourself in a great financial position all before you’re 30 years old.
I’ll leave you with this last tidbit from the article:
About nine months before he struck out on his own, he started saving heavily, he said.
Nine months of heavy saving isn’t enough time. That big law salary is extremely special. You need to treat it that way from day one. If you do that, you’ll find that if (or more likely when) you leave big law, the financial struggle won’t be real.
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Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.
Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.
Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:
- SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $250 if you complete a direct deposit.
- US Bank Business. US Bank is currently offering new business customers a $500 signup bonus after opening a new account and meeting certain requirements.
- M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $100 for opening an account.
- DCU. Digital Federal Credit Union (DCU) is a free, nationwide credit union that I recommend to readers for two reasons. First, DCU has a $20 referral bonus if you open a free DCU checking account with a referral link. Second, DCU has a savings account that gives you 6.17% interest on your first $1,000.
- Personal Capital. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.
Feel free to send Kevin a message here.
These are clear examples that school can teach you a lot, but nothing about life. I really believe that in universities where students can expect a huge increase of income after graduating, there should be financial advising and psychology classes. Money can be hard to dealt with from both perspective…
That’s probably not a bad idea. No one teaches that stuff to us at all when we finish up school. We’re just sort of sent out there and told to figure it out on our own.
Great point about realistic education. I wanted to be a psychologist early in my college career (like every freshman ever). Fortunately for myself I took an advanced Psych class focused on the graduate experience and realistic career issues. After taking the class I realized, “Why would anyone want to live like that?”
Good for you psychologists, not for me. Best class I ever took. Changed my life. 🙂
Great post and counsel. It is interesting to note how many people scorn professional athletes for acting like their salaries are in perpetuity, but you see the same thing played out (albeit on a smaller scale) in any profession. Big Law sounds like a painful experience for most of the attorneys I’ve known – if you have to go through that tour of duty, the least you can do is set yourself up financially for the rest of your life.
Interesting point, but very right. A lot of lawyers get that big time start and think that the gravy train will never end. It’s an easy recipe to lead to struggling later on.
I see this so much in tech as well. I would say that tech is even worse about this because the student debt is much smaller. My husband, for example, had around $20-30k in student loans when he graduated (while I had none) and both of our starting incomes the first year out of college were $100k. He knocked those student loans out pretty quickly!
I remember going to a presentation that touched on how to prepare yourself financially for doing your own startup and the presenter said that they saved up two years of expenses as runway before they quit their full-time job. It seems crazy to me to only start saving then.
I see people spending their stock vests before they get them and then being upset if the stock price drops. I see people complaining that mortgage lenders won’t consider their “guaranteed” future stock vests when considering how much mortgage to approve them for.
My husband and I met in a college town where I was paying $250/month in rent and him I think about $450/month which seemed absurdly high to me…to me paying $1300/month in rent when I first moved here and him paying $1500/month. It’s hard to find the right balance of niceness and frugality on housing in a higher cost of living area, though I do think we’ve kept a reasonable balance of generally spending very little of our incomes on housing – in 2016 our actual housing costs (ignoring mortgage principal) were around 4% of our combined gross income.
The frugality has been so helpful since I was laid off in September and I’ve been able to put myself through an expensive MS program that I was financially prepared to pay for myself. My husband’s financial philosophy has basically been that so long as he likes his job and it is paying him quite well, he should stay at it and bank most of his income.
A friend mentioned at a party once that they try to keep their rent under 50% of their income and I responded that I try to keep all of my expenses under 50% of my income. My comment was not particularly welcome… It really drives me crazy when friends who have been working in tech for a long time feel like they can’t afford to take a sabbatical and feel trapped in their careers because that’s the opposite of how I’ve set up my finances.
I never even thought about it in tech, but I imagine you’re right. You’ve got 20-somethings earning ridiculous sums of money and not understanding how special that income really is.
You make a good point about how that frugality helped you during your transition period. One of the reasons leaving big law wasn’t hard for me was because I’d already been living on so much less. I actually found out I was able to save as much as I had been saving in big law just because of how much less I lived on. The gravy train isn’t guaranteed to last forever.
The 50% rent thing is crazy. I had a colleague who did the same thing. He had a penthouse apartment and literally spent 1 whole paycheck each month on rent. It’s crazy and you’re really setting yourself up for some potential problems if you live large like that.
Yup – I had a coworker who spent $36,000/year on housing for just him. It boggled my mind how that was possible as that is currently my entire budget for the year including my half of a wedding reception but on my side I am working without a mortgage payment which is quite lovely!
I think the trick must be to get the message to people before their spending inflates to catch up with their salaries. Because there are so few that decide to change their spending habits in the other direction (and spend less) once they’ve gotten used to spending so much. -Aaron
Exactly right. The amazing thing that you’ve got right out of school is that you’ve already been living lean as a student. It’s not so hard to just keep living lean for a few years out of school. It’s not like you’re used to the big income yet!
Back when I was living in LA, I knew women who were miserable as big-law lawyers who didn’t save or pay off their loans because they said that in order to be successful they had to look successful– they had to have the fancy car (on lease) and top of the line suits and shoes and so on and if they’d bought a Prius, they’d be thought to be doing poorly as lawyers.
(Even if that was the case, if I were in that situation, I would make a big deal about being an environmentalist and, at that time, get a Prius anyway– today probably a SmartCar, or I’d pretend to be a classic car buff and get a used classic car that I didn’t have to change out every two years.)
It drove me nuts because they were always complaining about money and I was making a quarter of what they were by themselves (and my DH was making next to nothing) and they were always saying things like, “You wouldn’t understand, you HAVE savings. You paid off your loans. etc.”
We’re a one car household and have a prius and honestly it’s like the perfect car. It’s not flashy so people don’t think you’re rich, but it’s also not a junker so people don’t think you’re broke. It lends an air of mystery.
And right, those lawyers lost their perspective. They forgot that most people make much less money!
Loved it! This reminded me of John Grisham’s “The Firm.” Specifically when first hired, the main character is encouraged to overspend on a new house and expensive car so he was “owned” by the firm.
This also reminded me of a post I wrote once on “would you rather be a rich cop or a poor lawyer.” Again, any long term big law attorney will CRUSH the public sector salary. But, if you have high spending and a quick burnout, the steady growth and pension benefits are not to be underestimated!
Just looking at the average income of people in the US can be a humbling experience and remind you to be grateful for whatever you are able to make. Most people live with less!
Those public sector benefits are way underestimated. I don’t get a legit pension like you do, but I do get a defined contribution pension, which is basically just an extra retirement account that only state employees get to have. It can really up your ability to save even more when you get access to an extra tax-advantaged retirement account like that. I’ll need to check out that post of yours!
Thanks! Due to your expertise on the far side of the equation, I’d love your input!
It’s a shame. These people have such a golden opportunity by making that much money that early in life. Making $135,000 – $250,000 a year for 6 years could set you up for life. She could have paid down all her debt and left with a significant chunk of change already saved up by the time she was 30. Or work a few more years and then retire. Crazy they don’t realize the opportunity they have.
It’s hard to believe when you add it all up and think about how much she earned during those years, and yet how little she has to show for it. Anyone making $1 million in half a decade shouldn’t have any student loans left unless they’re actively not thinking about how much they’re spending on other things.
As a fellow lawyer, I totally get what you mean! Most junior associates are, unfortunately, not very financially literate.
Honestly, I started out the same way. I had no idea what my 401k was or how to invest or really do anything with my money. Main thing though was I didn’t let that money get to my head!
I genuinely feel so much stress watching my friends falling into this trap. I understand though, feeling like you have worked really hard through school for a lot of years and wanting to be able to enjoy your money. It can be hard to not feel entitled that way. However, like you said, you really paint yourself into a corner that way. There aren’t a lot of options when you owe so much (as we well know, with $600k of debt, ha).
Honestly, since we decided to aggressively pay off our student loan debt, it has been a little hard watching similarly financially situated friends living WAY more comfortably than we live. This post was a great reminder for me today 🙂
It’s tough because I’d see my colleagues doing this and just wanted to be like, what are you doing!? Rent a normal apartment and pay off that debt! I’m not super frugal by any means – I go out to eat all the time (and I need to cut that out for sure), but I think if most people just sort of realize that they’re upgrading their life without reason and remember where they were before, they can really make a big difference with their finances.
I’ve always worked in the public sector so it’s hard for me to comment on the spending habits of those in Big Law. I can see how it might be hard to bring your own lunch when all your colleagues are going out to eat, to skip happy hour if they’ll be there, to wear nicer suits, etc, etc… I was always frugal and sometimes would get teased by some friends but I’m not constantly surrounded by the spendy mindset.
Now that I’m in the public sector, I see people living large just a little bit less. Although, there are still people who do it too. Definitely much harder to do in big law, and really, just a wasted opportunity if you fall into that trap.
I was very fortunate to have paid off my $110k or so in student loans in about a year and a few months after I started in big law. I didn’t know too much about money at the time, but I guess I was blessed in that I didn’t give a crap what other people thought of me, so the temptation to live at the level I could have with my salary (i.e., buying stupid-expensive cars and condos) was never there.
A few months after I started working, I was driving with a few of my coworkers to lunch, and we drove by the area I lived (Culver City in LA), and a mid-level associate pointed out the window and told me that now that I was making so much money, I should be happy that I would never have to live in a place like that. (No joke, that really happened.) It was bizarre because she had no idea I lived there. I told her I actually lived right next to where she pointed, and secretly laughed at how little she probably had to show for her 6-7 years of big law.
Haha, that story is awesome! And paying off the $110k in student loans is amazing! Did you start out at $160k salary?
You might want to see if you could make money doing finance CLE for lawyers. I watched a great 2 hour video (that counted for California bar CLE) about mistakes lawyers make with their money. Didn’t talk about debt, but talked a lot about luxury homes and car loans. Does MN have CLE requirements? And I don’t know if there’s actually money in this, or if people do it for “exposure”
Me, 10 years Big Law, 4 years tech company law. By avoiding lifestyle inflation and by not having kids (plus no debt – law school tuition was my divorce settlement), retiring from law this year.
And maybe more photos of financial pup in the blog? Who doesn’t like dog pictures?
That’s an interesting idea – never thought about that. If I ever go fully non-anonymous, that is something I could definitely do. There’s a new lawyer conference every year here and I’ve got the connections to get on that schedule. It’d be a volunteer thing (our primary CLE organization is a non-profit), but could definitely use it as a marketing thing.
And that’s awesome – so a 14 year or so legal career? Are you retiring from the law, or retiring from work completely?
Great post, FP! I could not have imagined making that much money straight out of college. Then again, I didn’t pursue a JD.
I’ve always been a saver, so something tells me: 1) That much debt would have driven me nuts, and 2) I would have done everything in my power to crush it!
Now, I’m FIRE and even though I’m financially independent, I still love going out and making some side hustle cash to continue to throw at ETFs!
Debt is so crushing long term, but hopefully those folks realize sooner rather than later!
That’s one thing about FIRE – all of us that are driven to FIRE aren’t just going to sit around and do nothing. We’re going to end up doing something else that makes money.