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BrainsyK

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Re: Stories of extreme frugality in biglaw

Post by BrainsyK » Thu Apr 04, 2019 6:05 pm

jjjetplane wrote:
objctnyrhnr wrote:
Anonymous User wrote:
BrainsyK wrote:
Anonymous User wrote:
Anonymous User wrote:Four years in biglaw, about $400k in savings not including 401k, plus paid off $80k student loans. I don’t drink and my wife makes great food.
Can someone please explain the math on saving $400k in biglaw over 4 years? I'm just not seeing how this adds up... Is this the aggregate of you and your wife?
Cravath scale pays ~$650k post-tax stub through year 4. OP saved ~$500k, leaving $150k in expense over 4.25 (counting stub months), which is ~$35k a year COL. While probably not pleasant to live on, is doable. This isn't even taking into account investment and biglaw's fringe benefits. ~$35k is ~$50k pre-tax. Many in NYC live on less.
I'm not sure where you're getting such a high post-tax number, especially because when that poster started in biglaw, NYC was still at $160k.

Edit: accidental anon
Believe the poster was adding up 4 years of that salary
Still not sure the numbers work post-tax.
Stub Year: 47.5k-->36
1st Year: 205-->130
2nd Year: 225-->141
3rd Year: 270-->164
4th Year: 320-->190

Total of 662 by my count. I said 650 because I accidentally factored in healthcare as an an above the line deduction.

This includes bonuses obviously. OP spent 2 years on the 160k scale, a year on 180k and probably a year on 190k so it may be a bit less, but the 650 is in the ball park and should be more assuming 7% return on investments. Punch it in yourself and find out https://smartasset.com/taxes/new-york-t ... IIPBzSy4oO.

Lotsa money.

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Yugihoe

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Re: Stories of extreme frugality in biglaw

Post by Yugihoe » Thu Apr 04, 2019 6:09 pm

BrainsyK wrote:
jjjetplane wrote:
Still not sure the numbers work post-tax.
Stub Year: 47.5k-->36
1st Year: 205-->130
2nd Year: 225-->141
3rd Year: 270-->164
4th Year: 320-->190

Total of 662 by my count. I said 650 because I accidentally factored in healthcare as an an above the line deduction.

This includes bonuses obviously. OP spent 2 years on the 160k scale, a year on 180k and probably a year on 190k so it may be a bit less, but the 650 is in the ball park and should be more assuming 7% return on investments. Punch it in yourself and find out https://smartasset.com/taxes/new-york-t ... IIPBzSy4oO.

Lotsa money.
I think the confusion is that if the person has been in big law for 4 years, that they're a 5th year now. Additionally, as hinted to above, their salaries for Stub year - 2nd year would've been on the OLD old cravath (160) scale and for 3rd and half of 4th year would be at the old cravath scale before the bump from 180 to 190.

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Re: Stories of extreme frugality in biglaw

Post by Anonymous User » Thu Apr 04, 2019 7:35 pm

nealric wrote:
Anonymous User wrote:
nealric wrote:
Anonymous User wrote:I’m curious to hear from anyone who has approached FIRE by real estate or other private business investing (or franchises) with success.
I wouldn't count on real estate as a magic bullet with regard to FIRE. It's probably a better post-FIRE strategy as a retirement activity rather than a means to getting to FIRE. Although some people get really lucky with real estate (usually a product of being in the right time a the right place), for the most part, keeping a stable of rental houses is just a relatively low-paid part time job. I wouldn't expect returns all that much higher than the stock market from just rental income. I don't think too many folks in Biglaw have the time to devote to significant side businesses like that. For what it's worth, I had a colleague some years ago (not biglaw) who was let go in part because he was so involved in his real estate side businesses that it was hurting his work performance.
One of the RE anons from about. I agree and disagree with this. It's really not that much work to be honest. I probably spend like 3-7 hours a month on it, if I'm honest with myself. The part that's great is if you are good, you find deals and then figure out ways to take your money out the deal. Basically, you buy, rehab, renovate, then refi out your money. In theory, you're left with an investment property, some equity in that property, and used none of your money.

I just think it's really a better wealth building strategy and you can sort of snowball after you're out of biglaw. I did it because I wanted properties and a set amount of money to utilize the above method. I now have both and would really feel comfortable making like 60k a year because I can still find deals and acquire more properties with my war chest. It is something that really takes money to make money.
I think it's a very YMMV sort of situation. If you are in a good market and are savvy with deals, it's a lot better situation than the opposite. It's also much more difficult for an NYC associate- there simply aren't cheap rental properties nearby and your strategy would be quite difficult to do remotely.

The easiest way is just do the boring 80/20 stock/bond index fund approach. It isn't sexy, but it should get you around 8-9% annually on your capital (averaged over time), and you don't have to do anything to manage it.
Agreed with everything you said this time around. I purposely went to a cheap secondary market. Sometimes I kick myself because it looked like a way better deal before NYC went to 190 and the bonuses that proceeded those raises, all of this happened after I was locked into my cheap secondary. All in all, I’m happy with my decision, and I really like real estate investing, better than law actually.

239840

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Re: Stories of extreme frugality in biglaw

Post by 239840 » Thu Apr 04, 2019 9:51 pm

Have you guys found staying relatively fit and eating healthily doable as Big Law associates?
Last edited by QContinuum on Thu Apr 04, 2019 11:17 pm, edited 1 time in total.
Reason: Outed for anon abuse.

objctnyrhnr

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Re: Stories of extreme frugality in biglaw

Post by objctnyrhnr » Fri Apr 05, 2019 2:00 pm

239840 wrote:Have you guys found staying relatively fit and eating healthily doable as Big Law associates?
Yes. Try to be healthy and quick for breakfast (eggs milkshake, but make it yourself to avoid all grease). Workout during/right before you eat lunch during slower times. This entails leaving work at the earlier possible lunch time like a tad before noon, and returning at the latest possible lunch time ending time maybe 230. That way anybody who’s looking for you (if implied FaceTime requirement) will assume you’re at lunch and not fault you. When it gets busier, eat lunch late so you don’t get too hungry before workout if you work late and then bang out a workout between 9 and 10. Yes you’ll have an abbreviated dinner situation, but it’s actually dinner that makes you fattest anyway. So if your schedule incentivizes you to turn dinner into a snack, you’ll benefit from that from a staying skinny perspective.

Or at least that’s how I do it.

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Neff

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Re: Stories of extreme frugality in biglaw

Post by Neff » Wed May 08, 2019 8:25 pm

OP here. I had a brutal April, billing 255 hours. It was so bad I plowed all of my $15,000 post-tax salary (minus rent and food) into savings and swore up and now and renewed my vows to not buy into the bullshit consumerist lifestyle. Every time I get stressed out because of a partner's email, I transfer $1,000 to my "FU" index fund. I cannot wait to retire by my 7/8th year of biglaw.

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Re: Stories of extreme frugality in biglaw

Post by Anonymous User » Fri May 10, 2019 6:56 pm

BrainsyK wrote:
jjjetplane wrote:
objctnyrhnr wrote:
Anonymous User wrote:
BrainsyK wrote:
Anonymous User wrote:
Anonymous User wrote:Four years in biglaw, about $400k in savings not including 401k, plus paid off $80k student loans. I don’t drink and my wife makes great food.
Can someone please explain the math on saving $400k in biglaw over 4 years? I'm just not seeing how this adds up... Is this the aggregate of you and your wife?
Cravath scale pays ~$650k post-tax stub through year 4. OP saved ~$500k, leaving $150k in expense over 4.25 (counting stub months), which is ~$35k a year COL. While probably not pleasant to live on, is doable. This isn't even taking into account investment and biglaw's fringe benefits. ~$35k is ~$50k pre-tax. Many in NYC live on less.
I'm not sure where you're getting such a high post-tax number, especially because when that poster started in biglaw, NYC was still at $160k.

Edit: accidental anon
Believe the poster was adding up 4 years of that salary
Still not sure the numbers work post-tax.
Stub Year: 47.5k-->36
1st Year: 205-->130
2nd Year: 225-->141
3rd Year: 270-->164
4th Year: 320-->190

Total of 662 by my count. I said 650 because I accidentally factored in healthcare as an an above the line deduction.

This includes bonuses obviously. OP spent 2 years on the 160k scale, a year on 180k and probably a year on 190k so it may be a bit less, but the 650 is in the ball park and should be more assuming 7% return on investments. Punch it in yourself and find out https://smartasset.com/taxes/new-york-t ... IIPBzSy4oO.

Lotsa money.
Original poster (this got long). So first, we're on the west coast. Second, we lived in an apartment that rents out at $1500/ month for three years. My wife paida third of that, so it's $1k/month rent. Third, half of my savings are invested, and we sold a bunch after the election and reinvested when the economy tanked again. Four, we don't travel except to her parent's house once a year -- my folks are within driving distance. Finally, we spend time outdoors when we're free -- jogging, hiking, going to the beach. None of that's costly.

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Re: Stories of extreme frugality in biglaw

Post by ThrowawayName » Sun May 12, 2019 11:00 am

I'm over 9 years out so I was on the $160k scale while in biglaw. In three years, I saved $400k. I didn't have any law school debt and spent about $26k per year.

I stayed in biglaw longer than that but my records after that aren't useful because I got married and combined assets. I married a low earner but super saver with $200k in savings. Our combined net worth progression was:

Class year... Investments... Home equity
4...748k...0
5...615k...300k
6...814k...380k
7...890k...480k
8...1,000k...800k (killed mortgage)
9...1,332k...1,00k
Current...1,722k...1,200k

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Re: Stories of extreme frugality in biglaw

Post by BigLawer » Mon May 13, 2019 12:32 pm

ThrowawayName wrote:I'm over 9 years out so I was on the $160k scale while in biglaw. In three years, I saved $400k. I didn't have any law school debt and spent about $26k per year.

I stayed in biglaw longer than that but my records after that aren't useful because I got married and combined assets. I married a low earner but super saver with $200k in savings. Our combined net worth progression was:

Class year... Investments... Home equity
4...748k...0
5...615k...300k
6...814k...380k
7...890k...480k
8...1,000k...800k (killed mortgage)
9...1,332k...1,00k
Current...1,722k...1,200k
You win

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Re: Stories of extreme frugality in biglaw

Post by Anonymous User » Mon May 13, 2019 9:33 pm

BigLawer wrote:
ThrowawayName wrote:I'm over 9 years out so I was on the $160k scale while in biglaw. In three years, I saved $400k. I didn't have any law school debt and spent about $26k per year.

I stayed in biglaw longer than that but my records after that aren't useful because I got married and combined assets. I married a low earner but super saver with $200k in savings. Our combined net worth progression was:

Class year... Investments... Home equity
4...748k...0
5...615k...300k
6...814k...380k
7...890k...480k
8...1,000k...800k (killed mortgage)
9...1,332k...1,00k
Current...1,722k...1,200k
You win
Just chiming in to say that something close to this savings progression is quite possible on one biglaw income ( though probably outside NYC or CA). I’m finishing up my 6th year in biglaw and am not far off from this savings (I had a little over 100K in loans). You’ll need to begin investing early and have those investments do reasonably well (but we are not talking PE level multiples - I mean market or slightly above market gains). I also don’t think I would hit $3 million after 4 more years, but somewhere around $2.5 or 2.6 million in 10 years can be done while living a comfortable life.

I am assuming that in the final two years of biglaw you are still an associate who earns at least the same as an 8th year and that sometime in the next 2 years there is an increase in compensation comparable to the increases that came before. But even if these assumptions are off base, you can save a lot in 10 years of biglaw (if you are willing to suck it up for that long - which I may not be able to)

ThrowawayName

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Re: Stories of extreme frugality in biglaw

Post by ThrowawayName » Mon May 13, 2019 11:45 pm

Anonymous User wrote:
BigLawer wrote:
ThrowawayName wrote:I'm over 9 years out so I was on the $160k scale while in biglaw. In three years, I saved $400k. I didn't have any law school debt and spent about $26k per year.

I stayed in biglaw longer than that but my records after that aren't useful because I got married and combined assets. I married a low earner but super saver with $200k in savings. Our combined net worth progression was:

Class year... Investments... Home equity
4...748k...0
5...615k...300k
6...814k...380k
7...890k...480k
8...1,000k...800k (killed mortgage)
9...1,332k...1,00k
Current...1,722k...1,200k
You win
Just chiming in to say that something close to this savings progression is quite possible on one biglaw income ( though probably outside NYC or CA). I’m finishing up my 6th year in biglaw and am not far off from this savings (I had a little over 100K in loans). You’ll need to begin investing early and have those investments do reasonably well (but we are not talking PE level multiples - I mean market or slightly above market gains). I also don’t think I would hit $3 million after 4 more years, but somewhere around $2.5 or 2.6 million in 10 years can be done while living a comfortable life.

I am assuming that in the final two years of biglaw you are still an associate who earns at least the same as an 8th year and that sometime in the next 2 years there is an increase in compensation comparable to the increases that came before. But even if these assumptions are off base, you can save a lot in 10 years of biglaw (if you are willing to suck it up for that long - which I may not be able to)
This is definitely possible in 10 years of biglaw - I was in biglaw for fewer than 5 years and our household income has never exceeded $300k (and we live in CA/NY). Keeping expenses in check and investing early were key for us.

BigLawer

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Re: Stories of extreme frugality in biglaw

Post by BigLawer » Tue May 14, 2019 11:53 am

ThrowawayName wrote:
Anonymous User wrote:
BigLawer wrote:
ThrowawayName wrote:I'm over 9 years out so I was on the $160k scale while in biglaw. In three years, I saved $400k. I didn't have any law school debt and spent about $26k per year.

I stayed in biglaw longer than that but my records after that aren't useful because I got married and combined assets. I married a low earner but super saver with $200k in savings. Our combined net worth progression was:

Class year... Investments... Home equity
4...748k...0
5...615k...300k
6...814k...380k
7...890k...480k
8...1,000k...800k (killed mortgage)
9...1,332k...1,00k
Current...1,722k...1,200k
You win
Just chiming in to say that something close to this savings progression is quite possible on one biglaw income ( though probably outside NYC or CA). I’m finishing up my 6th year in biglaw and am not far off from this savings (I had a little over 100K in loans). You’ll need to begin investing early and have those investments do reasonably well (but we are not talking PE level multiples - I mean market or slightly above market gains). I also don’t think I would hit $3 million after 4 more years, but somewhere around $2.5 or 2.6 million in 10 years can be done while living a comfortable life.

I am assuming that in the final two years of biglaw you are still an associate who earns at least the same as an 8th year and that sometime in the next 2 years there is an increase in compensation comparable to the increases that came before. But even if these assumptions are off base, you can save a lot in 10 years of biglaw (if you are willing to suck it up for that long - which I may not be able to)
This is definitely possible in 10 years of biglaw - I was in biglaw for fewer than 5 years and our household income has never exceeded $300k (and we live in CA/NY). Keeping expenses in check and investing early were key for us.
Wait, I am confused. How was your household income not over $300k but some years your total went up by over $250k? one year almost $500k when you paid off your mortgage and the next year over 500k. Even with 10% returns on investment, this is crazy. I just assumed you were an 8th year making $450 with bonus and spouse had an income as well.

ThrowawayName

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Re: Stories of extreme frugality in biglaw

Post by ThrowawayName » Tue May 14, 2019 1:35 pm

BigLawer wrote:Wait, I am confused. How was your household income not over $300k but some years your total went up by over $250k? one year almost $500k when you paid off your mortgage and the next year over 500k. Even with 10% returns on investment, this is crazy. I just assumed you were an 8th year making $450 with bonus and spouse had an income as well.
We live in an area with insane real estate appreciation so a lot of the net worth increase in recent years comes from that. The $532k total net worth increase between years 8 and 9 came from:

Gross income… $255k
Home appreciation… $200k (Crazy but true - I went to the open houses on my block and saw the comps)
Investments appreciation, including dividends… $169k (17% return on $1 million portfolio; the US market returned over 25% during that period but we got a lower return since we diversify)
Less:
Taxes… $54k
Expenses… $38k

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BigLawer

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Re: Stories of extreme frugality in biglaw

Post by BigLawer » Tue May 14, 2019 3:13 pm

ThrowawayName wrote:
BigLawer wrote:Wait, I am confused. How was your household income not over $300k but some years your total went up by over $250k? one year almost $500k when you paid off your mortgage and the next year over 500k. Even with 10% returns on investment, this is crazy. I just assumed you were an 8th year making $450 with bonus and spouse had an income as well.
We live in an area with insane real estate appreciation so a lot of the net worth increase in recent years comes from that. The $532k total net worth increase between years 8 and 9 came from:

Gross income… $255k
Home appreciation… $200k (Crazy but true - I went to the open houses on my block and saw the comps)
Investments appreciation, including dividends… $169k (17% return on $1 million portfolio; the US market returned over 25% during that period but we got a lower return since we diversify)
Less:
Taxes… $54k
Expenses… $38k
Wow, congrats! Not only on the home appreciation but on the investment return. I also can't comprehend your expenses since I spend double that (at least) and consider myself to be pretty frugal (my mortgage is about $38k/year - but very high property taxes). I suppose this is doable, but has to be a very rare case of saving rate. You could retire already!

ThrowawayName

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Re: Stories of extreme frugality in biglaw

Post by ThrowawayName » Tue May 14, 2019 4:02 pm

BigLawer wrote:
ThrowawayName wrote:
BigLawer wrote:Wait, I am confused. How was your household income not over $300k but some years your total went up by over $250k? one year almost $500k when you paid off your mortgage and the next year over 500k. Even with 10% returns on investment, this is crazy. I just assumed you were an 8th year making $450 with bonus and spouse had an income as well.
We live in an area with insane real estate appreciation so a lot of the net worth increase in recent years comes from that. The $532k total net worth increase between years 8 and 9 came from:

Gross income… $255k
Home appreciation… $200k (Crazy but true - I went to the open houses on my block and saw the comps)
Investments appreciation, including dividends… $169k (17% return on $1 million portfolio; the US market returned over 25% during that period but we got a lower return since we diversify)
Less:
Taxes… $54k
Expenses… $38k
Wow, congrats! Not only on the home appreciation but on the investment return. I also can't comprehend your expenses since I spend double that (at least) and consider myself to be pretty frugal (my mortgage is about $38k/year - but very high property taxes). I suppose this is doable, but has to be a very rare case of saving rate. You could retire already!
Thanks! If we were paying market rent for our home, our expenses would probably be similar to yours (about $75k).

We’re getting ready to retire next year, in our mid-30s. Getting emotionally ready to pull the trigger is harder than I anticipated.

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Re: Stories of extreme frugality in biglaw

Post by Anonymous User » Wed May 22, 2019 7:04 am

Anyone have similar stories of massive savings in biglaw whilst having crippling student debt? I’m trying to stay positive that FIRE is possible for me even with 200k+ of student loan debt :(

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Re: Stories of extreme frugality in biglaw

Post by Anonymous User » Wed May 22, 2019 8:50 am

Left law school with about 150K in debt and maybe 3k in savings. On track to quit law after 8th year with nearly $2 million net worth. Fingers crossed that I can make it to that mark....

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Re: Stories of extreme frugality in biglaw

Post by Anonymous User » Wed May 22, 2019 10:22 am

Anonymous User wrote:Left law school with about 150K in debt and maybe 3k in savings. On track to quit law after 8th year with nearly $2 million net worth. Fingers crossed that I can make it to that mark....
How is this possible? I have a spreadsheet to track my big law and NW progression/estimates and don't see how you can hit 2M from 150k in debt in big law in 8 years without including your spouse.

I had 0 debt and 50k in savings when I started in fall of 2017. Currently at a NW of 286K and hope to hit 350k NW by end of my second year (2 full calendar years + stub year) if the market returns 4% (more than the current YTD return). But I have a savings rate of 50% of my gross income which is very frugal considering taxes eat up like 35%. I only spent 28k in 2018 which is 14.3% of the 195k gross income I had last year.

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Re: Stories of extreme frugality in biglaw

Post by Anonymous User » Wed May 22, 2019 10:43 am

I was the anon that posted about the 2M. Several points:
1. US citizen, but do big law abroad so I receive a COLA, which increases my income.
2. Although US citizens pay federal income tax on worldwide income, they pay less overall tax than if they worked in the US so I have a lower tax burden (this is only true of course if you work in country with lower overall taxes than the US - working in Sydney, for example, would not be beneficial from a tax perspective).
3. Many things abroad are cheaper than in major US cities so my expenses are quite low.
4. It didn’t make financial sense for me to buy property in the foreign city where I work, but I invested in several rental properties in the US and Canada after repaying my school debt. Those properties have increased in value.
5. Depending on your firm’s offerings, there are ways to invest up to about $53K in a 401K. I have set 401K investments to 100% equities since I don’t plan to touch that money for several decades. (For taxable securities accounts that I may draw on in the near future, I’m much more conservative). Equities have done well over the past 5+ years.

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Re: Stories of extreme frugality in biglaw

Post by spyke123 » Wed May 22, 2019 10:51 am

how are people in this thread saving like 140k per year?....

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Re: Stories of extreme frugality in biglaw

Post by Anonymous User » Wed May 22, 2019 11:14 am

Anonymous User wrote:I was the anon that posted about the 2M. Several points:
1. US citizen, but do big law abroad so I receive a COLA, which increases my income.
2. Although US citizens pay federal income tax on worldwide income, they pay less overall tax than if they worked in the US so I have a lower tax burden (this is only true of course if you work in country with lower overall taxes than the US - working in Sydney, for example, would not be beneficial from a tax perspective).
3. Many things abroad are cheaper than in major US cities so my expenses are quite low.
4. It didn’t make financial sense for me to buy property in the foreign city where I work, but I invested in several rental properties in the US and Canada after repaying my school debt. Those properties have increased in value.
5. Depending on your firm’s offerings, there are ways to invest up to about $53K in a 401K. I have set 401K investments to 100% equities since I don’t plan to touch that money for several decades. (For taxable securities accounts that I may draw on in the near future, I’m much more conservative). Equities have done well over the past 5+ years.
Thanks this makes a lot more sense. If you can put away 53k into tax deferred accounts, this would greatly increase your annual savings/savings rate, not to mention the geographical arbitrage you discussed. Yes, firms who offer "mega" contribution options are a godsend, we should make a list of such firms on TLS instead of the other "benefits" thread that lists dumb stuff.

To the other poster who asked how it's possible to save like $140K -- really depends on your housing situation. I'm the anon in the prior post with the 50% savings rate. I spent a little under $12K total in housing in 2018 thanks to roommates and commute. About $4K on vacation/travel and the rest (around 12K) on food/going out, ect.

ETA: Even then 140k in savings/year is crazy. As a second year, at best I hope to save 120k this year but it's possible as a mid level.

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Re: Stories of extreme frugality in biglaw

Post by Anonymous User » Wed May 22, 2019 2:50 pm

Anon poster working in Asia big law - are you a US citizen? Don't Americans need to pay income tax globally (net of any local taxes paid)? Just wondering if the 15% income tax in a market like HK really does put you in a way better place if you still hold a US passport (not taking into account any COLA packages).

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Re: Stories of extreme frugality in biglaw

Post by PMan99 » Wed May 22, 2019 3:26 pm

Anonymous User wrote:
Anonymous User wrote:I was the anon that posted about the 2M. Several points:
1. US citizen, but do big law abroad so I receive a COLA, which increases my income.
2. Although US citizens pay federal income tax on worldwide income, they pay less overall tax than if they worked in the US so I have a lower tax burden (this is only true of course if you work in country with lower overall taxes than the US - working in Sydney, for example, would not be beneficial from a tax perspective).
3. Many things abroad are cheaper than in major US cities so my expenses are quite low.
4. It didn’t make financial sense for me to buy property in the foreign city where I work, but I invested in several rental properties in the US and Canada after repaying my school debt. Those properties have increased in value.
5. Depending on your firm’s offerings, there are ways to invest up to about $53K in a 401K. I have set 401K investments to 100% equities since I don’t plan to touch that money for several decades. (For taxable securities accounts that I may draw on in the near future, I’m much more conservative). Equities have done well over the past 5+ years.
Thanks this makes a lot more sense. If you can put away 53k into tax deferred accounts, this would greatly increase your annual savings/savings rate, not to mention the geographical arbitrage you discussed. Yes, firms who offer "mega" contribution options are a godsend, we should make a list of such firms on TLS instead of the other "benefits" thread that lists dumb stuff.
AFAIK contributions over the normal 401k limit aren't pretax, so it shouldn't increase one's saving rate that dramatically, especially if someone is just buying and holding.

Anonymous User
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Re: Stories of extreme frugality in biglaw

Post by Anonymous User » Wed May 22, 2019 7:23 pm

US citizens benefit from low tax jurisdictions like HK despite being taxed on worldwide income. US citizens are subject to federal tax (and often FICA tax, depending on firm), but not state tax or city tax (because you aren’t resident there). US tax laws also give you some tax breaks when you work abroad so your taxable income is lower.

As for the 53K 401k, while it’s true that you don’t reduce your taxable income by contributing more than $19,500 (I think that’s the limit), it still is beneficial to contribute additional money to your 401k if you can because that money grows without being taxed. The dividends on 53K in a taxable account are taxed each year. This is not true in a 401k so the money grows more. In my opinion, all firms should offer this, but only some do. I’ve found that if you ask for it as an option, firms can be receptive.

PMan99

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Re: Stories of extreme frugality in biglaw

Post by PMan99 » Thu May 23, 2019 12:44 am

Anonymous User wrote:US citizens benefit from low tax jurisdictions like HK despite being taxed on worldwide income. US citizens are subject to federal tax (and often FICA tax, depending on firm), but not state tax or city tax (because you aren’t resident there). US tax laws also give you some tax breaks when you work abroad so your taxable income is lower.

As for the 53K 401k, while it’s true that you don’t reduce your taxable income by contributing more than $19,500 (I think that’s the limit), it still is beneficial to contribute additional money to your 401k if you can because that money grows without being taxed. The dividends on 53K in a taxable account are taxed each year. This is not true in a 401k so the money grows more. In my opinion, all firms should offer this, but only some do. I’ve found that if you ask for it as an option, firms can be receptive.
Deferring dividend taxes is always nice, but the 0.3% or so that it adds to the growth of an S&P fund isn't getting anyone to 2 million in 8 years. Someone who started in October 2011 would need to be putting in $12,500 a month into VFIAX (S&P) every single month from then until now to be at ~$1,850,000 today and on pace for $2 million by the end of the year (about $10,250 for a Nasdaq fund). That increases to something like $16,500 per month for the S&P fund and $14,000 for the Nasdaq fund assuming the start date is January 2013 (after a year of paying off $150k in loan debt, which in itself is impossible at the old salary/bonus rates, but whatever). This is during one of the best and most protracted bull markets in history (15-20% yoy growth for ~8 years for the two funds).

If you've been plowing money into TQQQ or some other speculative investment over the last 5 years, congrats, but let's not pretend like $300 a year in dividend tax savings is driving that growth.

Seriously? What are you waiting for?

Now there's a charge.
Just kidding ... it's still FREE!


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