Stories of extreme frugality in biglaw Forum

[Anonymous User]

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.

Curious if you think the cruel hours in Asia are worth it for the financial reward. Also did you ever calculate how much NW you would have had you stay in the US?

[Anonymous User]

Agreed. 401K contributions will not get you to 2M in 8 years in biglaw. But those contributions combined with the other points I mentioned will (or at least are on track to - not there yet). The main point was to provide encouragement that even if you graduate with massive debt, you can become very affluent working in biglaw without becoming a partner/counsel. Whether you end up with a net worth of 1.5M or 2M by year 8 doesn’t change that fact.

[Anonymous User]

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.

Curious if you think the cruel hours in Asia are worth it for the financial reward. Also did you ever calculate how much NW you would have had you stay in the US?

I don’t find the hours in Asia that cruel. I usually go home by 7 (occasionally by 9 or 10pm, with a couple all nighters each year). Once home, a few times a week I may send a few emails. Weekend work is not normal but it happens. 95% of the time, weekend work can be done at home and doesn’t take a full day.

A while back I calculated the difference in savings compared to 4 US cities (NYC, LA, Austin, Chicago). I don’t remember the figures, but I recall the difference with NYC and LA being dramatic and the difference with Austin and Chicago being more moderate. For fun, I compared with Sydney and London as well and those were awful.

One big advantage that working in Chicago or Austin offers is that you can buy a nice home to live in while working. This way your accommodation expenses are building equity. My rent payments in Asia don’t do anything for me which is why I try to keep them to a minimum. If I were starting out in Austin/Chicago or any secondary market, I would try to find the cheapest home I could stand living in, pay off the mortgage as quickly as possible, then move and use that home as a rental property. That kind of thing is more challenging in an expensive city.

[Anonymous User]

A while back I calculated the difference in savings compared to 4 US cities (NYC, LA, Austin, Chicago). I don’t remember the figures, but I recall the difference with NYC and LA being dramatic and the difference with Austin and Chicago being more moderate. For fun, I compared with Sydney and London as well and those were awful.

One big advantage that working in Chicago or Austin offers is that you can buy a nice home to live in while working. This way your accommodation expenses are building equity. My rent payments in Asia don’t do anything for me which is why I try to keep them to a minimum. If I were starting out in Austin/Chicago or any secondary market, I would try to find the cheapest home I could stand living in, pay off the mortgage as quickly as possible, then move and use that home as a rental property. That kind of thing is more challenging in an expensive city.

Whats your rent like in HK? I get a few emails from recruiters for Asia and I'm considering (just in my head for now) whether I would lateral and try to do 2 years there. I'll become a 3rd year in NYC in September when the class of 2019 starts at my firm.

Though it sounds like you're saying moving to a market closer to home, i.e. Dallas or Houston, comes out close in terms of $$$.

[Anonymous User]

I didn’t say (or not say) I was in HK. I don’t want to be more specific than Asia. If you are thinking about doing biglaw in Asia, check out rental property sites and get a sense of what you can get at different locations/housing quality.

I’ve never been to Texas, but just by looking at the taxes there and browsing real estate, it seems like a great place to live at least from a financial perspective. But this will be true anywhere that has low taxes and low housing costs, while still paying at least NY rates.

[Anonymous User]

I didn’t say (or not say) I was in HK. I don’t want to be more specific than Asia. If you are thinking about doing biglaw in Asia, check out rental property sites and get a sense of what you can get at different locations/housing quality.

I’ve never been to Texas, but just by looking at the taxes there and browsing real estate, it seems like a great place to live at least from a financial perspective. But this will be true anywhere that has low taxes and low housing costs, while still paying at least NY rates.

What do you plan to do after quitting biglaw?

[jdoe12345]

My people! I'm so happy these threads are popping up.

I've been in Biglaw for 3.5 years, $630k in savings ($506k taxable, $124k pretax). I've modeled out my future earnings, and I think I can hit over $2m if I make it through 8 years. Work in TX .

A few thoughts:

1. If you are a junior, and are able to invest, DO IT!! Compound interest is an amazing thing. You may look at someone who saved $1.5m over 10 years and think it's impossible, but the truth is that associate probably saved $50k his first year and >$300k his last year. Be patient, and don't get scared over small dips. Sit down, STFU, and chuck your money at VTSAX until it hurts.

2. Investment property is amazing for lawyers. About $100k of the taxable amount is from RE and it has done much more for me than equities. I know that it is not truly "passive," but a property manager does almost everything for me and the returns are still phenomenal. If you work in NYC/CA, you are a high OI income earner in a high-tax state, which means the deductions are truly valuable. Our income trend is very strange, but banks will love you while you make the big bucks, so take advantage of a RESPONSIBLE amount of leverage. Also - I would not buy a home, given the large costs associated with maintaining a property, but I know it does work out for some folks.

3. Focus on the big items. Yes, you can pack lunch from home but the real difference will come from saving $$ on rent, taxes (see RE above), and transportation.

4. The job gets SO MUCH CHILLER once you have money in the bank. You don't feel bad turning down work or going to bed at a reasonable hour. Every time I get a little stressed, I look at my savings and the mountain of emails I get from recruiters and it makes me feel better.

5. Comparison is the thief of joy. I know I'm lucky but there are still days I look at the Wachtell folks and the Susman folks or the VC/PE/HF bros or tech bros and wonder what I'm doing with my life. I know that some people may look at these posts and feel bad, but use them as motivation! You can do amazing things, with both patience and persistence!

Best of luck!

[spyke123]

My people! I'm so happy these threads are popping up.

I've been in Biglaw for 3.5 years, $630k in savings ($506k taxable, $124k pretax). I've modeled out my future earnings, and I think I can hit over $2m if I make it through 8 years. Work in TX .

A few thoughts:

1. If you are a junior, and are able to invest, DO IT!! Compound interest is an amazing thing. You may look at someone who saved $1.5m over 10 years and think it's impossible, but the truth is that associate probably saved $50k his first year and >$300k his last year. Be patient, and don't get scared over small dips. Sit down, STFU, and chuck your money at VTSAX until it hurts.

2. Investment property is amazing for lawyers. About $100k of the taxable amount is from RE and it has done much more for me than equities. I know that it is not truly "passive," but a property manager does almost everything for me and the returns are still phenomenal. If you work in NYC/CA, you are a high OI income earner in a high-tax state, which means the deductions are truly valuable. Our income trend is very strange, but banks will love you while you make the big bucks, so take advantage of a RESPONSIBLE amount of leverage. Also - I would not buy a home, given the large costs associated with maintaining a property, but I know it does work out for some folks.

3. Focus on the big items. Yes, you can pack lunch from home but the real difference will come from saving $$ on rent, taxes (see RE above), and transportation.

4. The job gets SO MUCH CHILLER once you have money in the bank. You don't feel bad turning down work or going to bed at a reasonable hour. Every time I get a little stressed, I look at my savings and the mountain of emails I get from recruiters and it makes me feel better.

5. Comparison is the thief of joy. I know I'm lucky but there are still days I look at the Wachtell folks and the Susman folks or the VC/PE/HF bros or tech bros and wonder what I'm doing with my life. I know that some people may look at these posts and feel bad, but use them as motivation! You can do amazing things, with both patience and persistence!

Best of luck!

Thx for sharing. To clarify on 2, so you still pay rent for the place you live in? Is that what you meant by "i would not buy a home"? Im assuming you do own homes you rent out to others. Doesnt that mean you have to pay for maintenance costs?

[Anonymous User]

My people! I'm so happy these threads are popping up.

I've been in Biglaw for 3.5 years, $630k in savings ($506k taxable, $124k pretax). I've modeled out my future earnings, and I think I can hit over $2m if I make it through 8 years. Work in TX .

A few thoughts:

1. If you are a junior, and are able to invest, DO IT!! Compound interest is an amazing thing. You may look at someone who saved $1.5m over 10 years and think it's impossible, but the truth is that associate probably saved $50k his first year and >$300k his last year. Be patient, and don't get scared over small dips. Sit down, STFU, and chuck your money at VTSAX until it hurts.

2. Investment property is amazing for lawyers. About $100k of the taxable amount is from RE and it has done much more for me than equities. I know that it is not truly "passive," but a property manager does almost everything for me and the returns are still phenomenal. If you work in NYC/CA, you are a high OI income earner in a high-tax state, which means the deductions are truly valuable. Our income trend is very strange, but banks will love you while you make the big bucks, so take advantage of a RESPONSIBLE amount of leverage. Also - I would not buy a home, given the large costs associated with maintaining a property, but I know it does work out for some folks.

3. Focus on the big items. Yes, you can pack lunch from home but the real difference will come from saving $$ on rent, taxes (see RE above), and transportation.

4. The job gets SO MUCH CHILLER once you have money in the bank. You don't feel bad turning down work or going to bed at a reasonable hour. Every time I get a little stressed, I look at my savings and the mountain of emails I get from recruiters and it makes me feel better.

5. Comparison is the thief of joy. I know I'm lucky but there are still days I look at the Wachtell folks and the Susman folks or the VC/PE/HF bros or tech bros and wonder what I'm doing with my life. I know that some people may look at these posts and feel bad, but use them as motivation! You can do amazing things, with both patience and persistence!

Best of luck!

Why do you advise against owning a house? I'm thinking about going to Texas and one of the big reasons is that we can get in a home for relatively cheap, quickly recover transaction costs, and accrue equity. If you rent, don't you still pay for the maintenance costs, plus management fees, plus profit margin for the owner? I'm sure I'm missing some consideration, but I'm not sure what.

[Anonymous User]

My people! I'm so happy these threads are popping up.

I've been in Biglaw for 3.5 years, $630k in savings ($506k taxable, $124k pretax). I've modeled out my future earnings, and I think I can hit over $2m if I make it through 8 years. Work in TX .

A few thoughts:

1. If you are a junior, and are able to invest, DO IT!! Compound interest is an amazing thing. You may look at someone who saved $1.5m over 10 years and think it's impossible, but the truth is that associate probably saved $50k his first year and >$300k his last year. Be patient, and don't get scared over small dips. Sit down, STFU, and chuck your money at VTSAX until it hurts.

2. Investment property is amazing for lawyers. About $100k of the taxable amount is from RE and it has done much more for me than equities. I know that it is not truly "passive," but a property manager does almost everything for me and the returns are still phenomenal. If you work in NYC/CA, you are a high OI income earner in a high-tax state, which means the deductions are truly valuable. Our income trend is very strange, but banks will love you while you make the big bucks, so take advantage of a RESPONSIBLE amount of leverage. Also - I would not buy a home, given the large costs associated with maintaining a property, but I know it does work out for some folks.

3. Focus on the big items. Yes, you can pack lunch from home but the real difference will come from saving $$ on rent, taxes (see RE above), and transportation.

4. The job gets SO MUCH CHILLER once you have money in the bank. You don't feel bad turning down work or going to bed at a reasonable hour. Every time I get a little stressed, I look at my savings and the mountain of emails I get from recruiters and it makes me feel better.

5. Comparison is the thief of joy. I know I'm lucky but there are still days I look at the Wachtell folks and the Susman folks or the VC/PE/HF bros or tech bros and wonder what I'm doing with my life. I know that some people may look at these posts and feel bad, but use them as motivation! You can do amazing things, with both patience and persistence!

Best of luck!

Why do you advise against owning a house? I'm thinking about going to Texas and one of the big reasons is that we can get in a home for relatively cheap, quickly recover transaction costs, and accrue equity. If you rent, don't you still pay for the maintenance costs, plus management fees, plus profit margin for the owner? I'm sure I'm missing some consideration, but I'm not sure what.

Not anon, but I recently bought a home and am in TX. I’m guessing that anon pays for maintenance and things, but the management company handles all the logistics (calling a contractor, making sure it’s done, handling request from tenant, etc). That’s a much smaller hassle than doing it all yourself in the home you live in.

With that said, I disagree with anon about not buying your own home to live in for a variety of reasons. Primarily though is that my living expenses are now building equity in an asset that should appreciate rather than making money for my landlord. In a non financial sense, it’s also satisfying to have the sense of accomplishment and freedom to do with it what I like (renovations, etc) and the stability to know i won’t be moving apartments every year or two anymore.

[Anonymous User]

Why do you advise against owning a house? I'm thinking about going to Texas and one of the big reasons is that we can get in a home for relatively cheap, quickly recover transaction costs, and accrue equity. If you rent, don't you still pay for the maintenance costs, plus management fees, plus profit margin for the owner? I'm sure I'm missing some consideration, but I'm not sure what.

Not anon but there's several studies from what I've read on bogleheads that often the rate of return on your primary residence does not beat out an index fund (say 7% return for fairly more liquid / versatile holdings) and depending on the market you're in, renting can be cheaper and more flexible. Owning a home is a luxury that you pay for with your sweat equity too if you don't pay for maintenance. Also note in Texas that you pay high property taxes (to make up for the lack of state income tax).

[jdoe12345]

My people! I'm so happy these threads are popping up.

I've been in Biglaw for 3.5 years, $630k in savings ($506k taxable, $124k pretax). I've modeled out my future earnings, and I think I can hit over $2m if I make it through 8 years. Work in TX .

A few thoughts:

1. If you are a junior, and are able to invest, DO IT!! Compound interest is an amazing thing. You may look at someone who saved $1.5m over 10 years and think it's impossible, but the truth is that associate probably saved $50k his first year and >$300k his last year. Be patient, and don't get scared over small dips. Sit down, STFU, and chuck your money at VTSAX until it hurts.

2. Investment property is amazing for lawyers. About $100k of the taxable amount is from RE and it has done much more for me than equities. I know that it is not truly "passive," but a property manager does almost everything for me and the returns are still phenomenal. If you work in NYC/CA, you are a high OI income earner in a high-tax state, which means the deductions are truly valuable. Our income trend is very strange, but banks will love you while you make the big bucks, so take advantage of a RESPONSIBLE amount of leverage. Also - I would not buy a home, given the large costs associated with maintaining a property, but I know it does work out for some folks.

3. Focus on the big items. Yes, you can pack lunch from home but the real difference will come from saving $$ on rent, taxes (see RE above), and transportation.

4. The job gets SO MUCH CHILLER once you have money in the bank. You don't feel bad turning down work or going to bed at a reasonable hour. Every time I get a little stressed, I look at my savings and the mountain of emails I get from recruiters and it makes me feel better.

5. Comparison is the thief of joy. I know I'm lucky but there are still days I look at the Wachtell folks and the Susman folks or the VC/PE/HF bros or tech bros and wonder what I'm doing with my life. I know that some people may look at these posts and feel bad, but use them as motivation! You can do amazing things, with both patience and persistence!

Best of luck!

Thx for sharing. To clarify on 2, so you still pay rent for the place you live in? Is that what you meant by "i would not buy a home"? Im assuming you do own homes you rent out to others. Doesnt that mean you have to pay for maintenance costs?

Correct. Sorry if I was unclear - by "home" I mean "primary residence." I rent, but I keep my rent costs low.

There are maintenance costs associated with the rental properties, but they are usually covered by the rent and are tax-deductible. This is the big driver behind investment properties - the gov. takes off about 30% for almost all expenses.

[jdoe12345]

My people! I'm so happy these threads are popping up.

I've been in Biglaw for 3.5 years, $630k in savings ($506k taxable, $124k pretax). I've modeled out my future earnings, and I think I can hit over $2m if I make it through 8 years. Work in TX .

A few thoughts:

1. If you are a junior, and are able to invest, DO IT!! Compound interest is an amazing thing. You may look at someone who saved $1.5m over 10 years and think it's impossible, but the truth is that associate probably saved $50k his first year and >$300k his last year. Be patient, and don't get scared over small dips. Sit down, STFU, and chuck your money at VTSAX until it hurts.

2. Investment property is amazing for lawyers. About $100k of the taxable amount is from RE and it has done much more for me than equities. I know that it is not truly "passive," but a property manager does almost everything for me and the returns are still phenomenal. If you work in NYC/CA, you are a high OI income earner in a high-tax state, which means the deductions are truly valuable. Our income trend is very strange, but banks will love you while you make the big bucks, so take advantage of a RESPONSIBLE amount of leverage. Also - I would not buy a home, given the large costs associated with maintaining a property, but I know it does work out for some folks.

3. Focus on the big items. Yes, you can pack lunch from home but the real difference will come from saving $$ on rent, taxes (see RE above), and transportation.

4. The job gets SO MUCH CHILLER once you have money in the bank. You don't feel bad turning down work or going to bed at a reasonable hour. Every time I get a little stressed, I look at my savings and the mountain of emails I get from recruiters and it makes me feel better.

5. Comparison is the thief of joy. I know I'm lucky but there are still days I look at the Wachtell folks and the Susman folks or the VC/PE/HF bros or tech bros and wonder what I'm doing with my life. I know that some people may look at these posts and feel bad, but use them as motivation! You can do amazing things, with both patience and persistence!

Best of luck!

Why do you advise against owning a house? I'm thinking about going to Texas and one of the big reasons is that we can get in a home for relatively cheap, quickly recover transaction costs, and accrue equity. If you rent, don't you still pay for the maintenance costs, plus management fees, plus profit margin for the owner? I'm sure I'm missing some consideration, but I'm not sure what.

I think that's a good question. The primary reason is that most people underestimate the costs associated with owning a home. You have property taxes, maintenance, insurance, etc. I know people see renting as "throwing money away" but none of the items just mentioned go towards building equity either. Heck, even if you have a mortgage, the first few years primarily consist of interest payments. If you took the difference between the costs associated with buying a home and renting, and invested it in most cases you would come out ahead in the latter route. This assumes you rent cheaply and aren't too conservative/aggressive with investments.

With respect to your second question - are you referring to expenses associated with the rental property, or that I pay as a renter? I still build equity, but it's through the rent received (so someone else builds it for me). The costs are usually covered by the rent, and they are tax deductible.

As a renter, my landlord takes care of the expenses. I don't get billed individually for repairs, but I'm sure the cost is built into my rent.

[jdoe12345]

My people! I'm so happy these threads are popping up.

I've been in Biglaw for 3.5 years, $630k in savings ($506k taxable, $124k pretax). I've modeled out my future earnings, and I think I can hit over $2m if I make it through 8 years. Work in TX .

A few thoughts:

1. If you are a junior, and are able to invest, DO IT!! Compound interest is an amazing thing. You may look at someone who saved $1.5m over 10 years and think it's impossible, but the truth is that associate probably saved $50k his first year and >$300k his last year. Be patient, and don't get scared over small dips. Sit down, STFU, and chuck your money at VTSAX until it hurts.

2. Investment property is amazing for lawyers. About $100k of the taxable amount is from RE and it has done much more for me than equities. I know that it is not truly "passive," but a property manager does almost everything for me and the returns are still phenomenal. If you work in NYC/CA, you are a high OI income earner in a high-tax state, which means the deductions are truly valuable. Our income trend is very strange, but banks will love you while you make the big bucks, so take advantage of a RESPONSIBLE amount of leverage. Also - I would not buy a home, given the large costs associated with maintaining a property, but I know it does work out for some folks.

3. Focus on the big items. Yes, you can pack lunch from home but the real difference will come from saving $$ on rent, taxes (see RE above), and transportation.

4. The job gets SO MUCH CHILLER once you have money in the bank. You don't feel bad turning down work or going to bed at a reasonable hour. Every time I get a little stressed, I look at my savings and the mountain of emails I get from recruiters and it makes me feel better.

5. Comparison is the thief of joy. I know I'm lucky but there are still days I look at the Wachtell folks and the Susman folks or the VC/PE/HF bros or tech bros and wonder what I'm doing with my life. I know that some people may look at these posts and feel bad, but use them as motivation! You can do amazing things, with both patience and persistence!

Best of luck!

Why do you advise against owning a house? I'm thinking about going to Texas and one of the big reasons is that we can get in a home for relatively cheap, quickly recover transaction costs, and accrue equity. If you rent, don't you still pay for the maintenance costs, plus management fees, plus profit margin for the owner? I'm sure I'm missing some consideration, but I'm not sure what.

Not anon, but I recently bought a home and am in TX. I’m guessing that anon pays for maintenance and things, but the management company handles all the logistics (calling a contractor, making sure it’s done, handling request from tenant, etc). That’s a much smaller hassle than doing it all yourself in the home you live in.

With that said, I disagree with anon about not buying your own home to live in for a variety of reasons. Primarily though is that my living expenses are now building equity in an asset that should appreciate rather than making money for my landlord. In a non financial sense, it’s also satisfying to have the sense of accomplishment and freedom to do with it what I like (renovations, etc) and the stability to know i won’t be moving apartments every year or two anymore.

Correct, the property manager handles everything and I have to pay for it. These costs (including the property manager's fee) are usually covered by the rent, and are tax deductible. I still have to look over expenses to make sure I'm not getting screwed, but it really is only about an hour a month.

I also build equity. It's just that a tenant builds it for me. There are many expenses associated with buying a home (property taxes, maintenance, insurance) that do not go towards building equity. If you look at how a mortgage is structured, you don't really build equity until you are a few years in anyway (it's mainly interest until that point). All the expenses I mentioned are there with a rental property as well, but they are tax-deductible, and the rent which should hopefully cover most, if not all, of the costs.

I guess in a nutshell, if you look at Return on Investment (ROI), your "I" is much higher for a personal residence than a rental property, which is something most people don't understand. Once I put a down payment on a rental, I'm (hopefully) done with my investment. If you buy a house, you have massive liquidity obligations every month. You can buy 1 house for $500k, and make payments every month, or you can buy 4 houses for $100k each (you need to put down 25% for a rental, instead of 20%) but your assets make you money every month. In the latter situation, you would be renting, but the rent from your 4 homes should cover your personal rent. All the expenses would be deductible, and you would still be building equity in the rental homes.

On the non-financial point, I have the freedom to not work a job I don't like. If I wanted to travel for a year, I would still be collecting rent and building equity from anywhere in the world. I do not NEED the job (although I really like my firm, so I'll stay as long as they'll have me), which actually makes me a better lawyer because I'm not as stressed. If I were to buy a personal residence, and for some unfortunate reason I were to lose it, it would probably lead to a big hassle for me. But if I buy a rental and it doesn't work out, my day-to-day won't change. I can also make any renovations I want to my rental properties, but I wouldn't need to worry about contractors disturbing me while I'm at home, or needing to stay in a hotel for a week for major renovations, etc.

[jdoe12345]

Why do you advise against owning a house? I'm thinking about going to Texas and one of the big reasons is that we can get in a home for relatively cheap, quickly recover transaction costs, and accrue equity. If you rent, don't you still pay for the maintenance costs, plus management fees, plus profit margin for the owner? I'm sure I'm missing some consideration, but I'm not sure what.

Not anon but there's several studies from what I've read on bogleheads that often the rate of return on your primary residence does not beat out an index fund (say 7% return for fairly more liquid / versatile holdings) and depending on the market you're in, renting can be cheaper and more flexible. Owning a home is a luxury that you pay for with your sweat equity too if you don't pay for maintenance. Also note in Texas that you pay high property taxes (to make up for the lack of state income tax).

Yup, and rates of returns on rentals beats out both of those (although it requires slightly more work than an index fund). I should mention that my rentals are not in TX.

[Citizen Genet]

Why do you advise against owning a house? I'm thinking about going to Texas and one of the big reasons is that we can get in a home for relatively cheap, quickly recover transaction costs, and accrue equity. If you rent, don't you still pay for the maintenance costs, plus management fees, plus profit margin for the owner? I'm sure I'm missing some consideration, but I'm not sure what.

Not anon but there's several studies from what I've read on bogleheads that often the rate of return on your primary residence does not beat out an index fund (say 7% return for fairly more liquid / versatile holdings) and depending on the market you're in, renting can be cheaper and more flexible. Owning a home is a luxury that you pay for with your sweat equity too if you don't pay for maintenance. Also note in Texas that you pay high property taxes (to make up for the lack of state income tax).

This states the theory on why many FIRE/intense-finance people recommend against owning a home (or against paying cash for a home when you can get a mortgage with a below-5% interest rate.) The big key is that if you can put your money into an index fund and let it ride for 30 years, you will likely (much more likely) earn more on that money than if you put it in a home (along with all its attendant costs).

But owning a home still has its own advantages and may still be right for some people's financial profiles. For instance, owning a home is a bit lower risk than investing. Real estate is far less volatile than stock markets are.* So if you have to radically alter life and liquidate your investment (i.e., your home or the money you alternatively stuck in an index fund) it is less likely that a house will catastrophically lose value. Owning and paying off a home can also minimize mandatory monthly expenses compared to renting. Once paid off, your home insurance, taxes, and repairs should cost less than rent payments for a comparable home/apartment. For people who are planning to leave BigLaw and take a pay cut, that can be incredibly helpful for cash flow purposes, even if it doesn't get you to financial independence earlier. Another reason home ownership can be helpful are for the tax benefits** and, in many states, homestead protections that prevent un-secured creditors from reaching your home's value in the case of litigation or bankruptcy. (Of course no one plans on litigation or bankruptcy, and if you're thinking through this stuff, you're almost certainly less likely to hit those potholes. But car accidents and cancer don't really care what your plans are.)

*Even during the 2008 meltdown, home prices on average lost less than the stock market as a whole. NASDAQ dropped about 40% of its value, while home prices on the whole dropped about 20-25%.
**Even with the SALT reduction in the 2017 tax reforms, people are still entitled to up to $10,000 in tax deductions on federal taxes. That's between $2,400 and $3,700 back in the pocket of the typical BigLaw attorney who owns a home. (Of course that number overstates things a bit because there's income or sales tax that you could deduct otherwise in some places.) Though it's not as great as before when you could claim all of it, it's still a benefit that renters do not get to claim. And then there's whatever your paying in mortgage interest on loans up to $1m (MFJ) or $500k (individual). Realistically, that's another $1,000+ in pocket.

[Anonymous User]

Why do you advise against owning a house? I'm thinking about going to Texas and one of the big reasons is that we can get in a home for relatively cheap, quickly recover transaction costs, and accrue equity. If you rent, don't you still pay for the maintenance costs, plus management fees, plus profit margin for the owner? I'm sure I'm missing some consideration, but I'm not sure what.

Not anon but there's several studies from what I've read on bogleheads that often the rate of return on your primary residence does not beat out an index fund (say 7% return for fairly more liquid / versatile holdings) and depending on the market you're in, renting can be cheaper and more flexible. Owning a home is a luxury that you pay for with your sweat equity too if you don't pay for maintenance. Also note in Texas that you pay high property taxes (to make up for the lack of state income tax).

How is rent cheaper if you are getting an identical property? That is, how can you pay for a management company and landlord's profits for cheaper? Unless interest rates have just shot up and rent prices haven't adjusted I'm not seeing how that's possible.

[Anonymous User]

My people! I'm so happy these threads are popping up.

I've been in Biglaw for 3.5 years, $630k in savings ($506k taxable, $124k pretax). I've modeled out my future earnings, and I think I can hit over $2m if I make it through 8 years. Work in TX .

A few thoughts:

1. If you are a junior, and are able to invest, DO IT!! Compound interest is an amazing thing. You may look at someone who saved $1.5m over 10 years and think it's impossible, but the truth is that associate probably saved $50k his first year and >$300k his last year. Be patient, and don't get scared over small dips. Sit down, STFU, and chuck your money at VTSAX until it hurts.

2. Investment property is amazing for lawyers. About $100k of the taxable amount is from RE and it has done much more for me than equities. I know that it is not truly "passive," but a property manager does almost everything for me and the returns are still phenomenal. If you work in NYC/CA, you are a high OI income earner in a high-tax state, which means the deductions are truly valuable. Our income trend is very strange, but banks will love you while you make the big bucks, so take advantage of a RESPONSIBLE amount of leverage. Also - I would not buy a home, given the large costs associated with maintaining a property, but I know it does work out for some folks.

3. Focus on the big items. Yes, you can pack lunch from home but the real difference will come from saving $$ on rent, taxes (see RE above), and transportation.

4. The job gets SO MUCH CHILLER once you have money in the bank. You don't feel bad turning down work or going to bed at a reasonable hour. Every time I get a little stressed, I look at my savings and the mountain of emails I get from recruiters and it makes me feel better.

5. Comparison is the thief of joy. I know I'm lucky but there are still days I look at the Wachtell folks and the Susman folks or the VC/PE/HF bros or tech bros and wonder what I'm doing with my life. I know that some people may look at these posts and feel bad, but use them as motivation! You can do amazing things, with both patience and persistence!

Best of luck!

Why do you advise against owning a house? I'm thinking about going to Texas and one of the big reasons is that we can get in a home for relatively cheap, quickly recover transaction costs, and accrue equity. If you rent, don't you still pay for the maintenance costs, plus management fees, plus profit margin for the owner? I'm sure I'm missing some consideration, but I'm not sure what.

I think that's a good question. The primary reason is that most people underestimate the costs associated with owning a home. You have property taxes, maintenance, insurance, etc. I know people see renting as "throwing money away" but none of the items just mentioned go towards building equity either. Heck, even if you have a mortgage, the first few years primarily consist of interest payments. If you took the difference between the costs associated with buying a home and renting, and invested it in most cases you would come out ahead in the latter route. This assumes you rent cheaply and aren't too conservative/aggressive with investments.

With respect to your second question - are you referring to expenses associated with the rental property, or that I pay as a renter? I still build equity, but it's through the rent received (so someone else builds it for me). The costs are usually covered by the rent, and they are tax deductible.

As a renter, my landlord takes care of the expenses. I don't get billed individually for repairs, but I'm sure the cost is built into my rent.

Maybe I'm misunderstanding. The only difference in costs would be transactional costs. Then it is cheaper every month than renting (assuming you rent an identical property to what you buy). So you pay up front, but then get back a monthly return in addition to equity. You certainly pay lots of interest on a mortgage and hence why you want to pay as little as a down payment as possible and invest the rest, but the equity is not trivial. Are you saying the counterfactual investment returns on the transaction costs/down payment on a home outweighs the monthly cost savings and equity? I want to be clear. I am not challenging that statement, just calrifying that that is what you are saying. In a later post you mention the tax benefits of owning a home as well, so those would have to be added in because if you rent you don't get those.

Want to be clear because above I wasn't. I love the idea of owning rental investment properties, so when I say rent, I mean rent the residence in which you live.

[Anonymous User]

My people! I'm so happy these threads are popping up.

I've been in Biglaw for 3.5 years, $630k in savings ($506k taxable, $124k pretax). I've modeled out my future earnings, and I think I can hit over $2m if I make it through 8 years. Work in TX .

A few thoughts:

1. If you are a junior, and are able to invest, DO IT!! Compound interest is an amazing thing. You may look at someone who saved $1.5m over 10 years and think it's impossible, but the truth is that associate probably saved $50k his first year and >$300k his last year. Be patient, and don't get scared over small dips. Sit down, STFU, and chuck your money at VTSAX until it hurts.

2. Investment property is amazing for lawyers. About $100k of the taxable amount is from RE and it has done much more for me than equities. I know that it is not truly "passive," but a property manager does almost everything for me and the returns are still phenomenal. If you work in NYC/CA, you are a high OI income earner in a high-tax state, which means the deductions are truly valuable. Our income trend is very strange, but banks will love you while you make the big bucks, so take advantage of a RESPONSIBLE amount of leverage. Also - I would not buy a home, given the large costs associated with maintaining a property, but I know it does work out for some folks.

3. Focus on the big items. Yes, you can pack lunch from home but the real difference will come from saving $$ on rent, taxes (see RE above), and transportation.

4. The job gets SO MUCH CHILLER once you have money in the bank. You don't feel bad turning down work or going to bed at a reasonable hour. Every time I get a little stressed, I look at my savings and the mountain of emails I get from recruiters and it makes me feel better.

5. Comparison is the thief of joy. I know I'm lucky but there are still days I look at the Wachtell folks and the Susman folks or the VC/PE/HF bros or tech bros and wonder what I'm doing with my life. I know that some people may look at these posts and feel bad, but use them as motivation! You can do amazing things, with both patience and persistence!

Best of luck!

Why do you advise against owning a house? I'm thinking about going to Texas and one of the big reasons is that we can get in a home for relatively cheap, quickly recover transaction costs, and accrue equity. If you rent, don't you still pay for the maintenance costs, plus management fees, plus profit margin for the owner? I'm sure I'm missing some consideration, but I'm not sure what.

Not anon, but I recently bought a home and am in TX. I’m guessing that anon pays for maintenance and things, but the management company handles all the logistics (calling a contractor, making sure it’s done, handling request from tenant, etc). That’s a much smaller hassle than doing it all yourself in the home you live in.

With that said, I disagree with anon about not buying your own home to live in for a variety of reasons. Primarily though is that my living expenses are now building equity in an asset that should appreciate rather than making money for my landlord. In a non financial sense, it’s also satisfying to have the sense of accomplishment and freedom to do with it what I like (renovations, etc) and the stability to know i won’t be moving apartments every year or two anymore.

Correct, the property manager handles everything and I have to pay for it. These costs (including the property manager's fee) are usually covered by the rent, and are tax deductible. I still have to look over expenses to make sure I'm not getting screwed, but it really is only about an hour a month.

I also build equity. It's just that a tenant builds it for me. There are many expenses associated with buying a home (property taxes, maintenance, insurance) that do not go towards building equity. If you look at how a mortgage is structured, you don't really build equity until you are a few years in anyway (it's mainly interest until that point). All the expenses I mentioned are there with a rental property as well, but they are tax-deductible, and the rent which should hopefully cover most, if not all, of the costs.

I guess in a nutshell, if you look at Return on Investment (ROI), your "I" is much higher for a personal residence than a rental property, which is something most people don't understand. Once I put a down payment on a rental, I'm (hopefully) done with my investment. If you buy a house, you have massive liquidity obligations every month. You can buy 1 house for $500k, and make payments every month, or you can buy 4 houses for $100k each (you need to put down 25% for a rental, instead of 20%) but your assets make you money every month. In the latter situation, you would be renting, but the rent from your 4 homes should cover your personal rent. All the expenses would be deductible, and you would still be building equity in the rental homes.

On the non-financial point, I have the freedom to not work a job I don't like. If I wanted to travel for a year, I would still be collecting rent and building equity from anywhere in the world. I do not NEED the job (although I really like my firm, so I'll stay as long as they'll have me), which actually makes me a better lawyer because I'm not as stressed. If I were to buy a personal residence, and for some unfortunate reason I were to lose it, it would probably lead to a big hassle for me. But if I buy a rental and it doesn't work out, my day-to-day won't change. I can also make any renovations I want to my rental properties, but I wouldn't need to worry about contractors disturbing me while I'm at home, or needing to stay in a hotel for a week for major renovations, etc.

I did the same thing. I started with a duplex and lived for free. Now, I have four rentals in 3.5 years and am closing on my fifth home. I hope to get to ten rentals pretty soon. I had a huge setback on a rehab (contractor was a nightmare and stole money), but I'm still way ahead. And I'm not frugal like you guys are. I don't even check my bank account or budget really. I probably around 200k in equity in my properties and that continues to grow every year with loan paydown and appreciation. Real estate is pretty cool.

[Anonymous User]

I work with a 1st year who has saved $7,500/month so far in his 6 months in biglaw. He talks a lot about it actually. Single and no loans to pay. Takes home 10k-ish in his jurisdiction and describes it like this: 1k to rent/utilities (with two roommates), 1k to "stuff" like food, shampoo, Christmas cards, etc.; a few hundred to health insurance or other expenses (travel exclusively by bike or mass transit). $1.5k of that $7.5k goes to his 401(k) and I think the rest goes right into his Vanguard account.

He brings his lunch every day and gets the firm to pay for Seamless dinners a lot more than he probably should (no one cares). There are other little ways it's noticeable, like on the rare occasion he does go to a restaurant or a bar, or when we're discussing pop culture that costs money, like movies (or even things on Netflix, which he doesn't pay for - his entertainment source is an Internet connection with no paid subscriptions). And his commute is a lot longer than mine, which would drive me crazy, but he claims not to mind it and listens to a ton of podcasts.

It just strikes me as exhausting that he thinks about money so much when he doesn't need to. There are plenty of things to think about in biglaw and I consider one of the perks the fact that I never have to think twice about getting whatever I want for lunch or dinner, or getting tickets for a show for date night without having to check my balance first or even think about it.

I heard that people are either wired to be inclined to spend or save, almost on a genetic level.

It actually gives me a feeling of satisfaction to know that I saved on something. Sure, I might be making six figures... but those dopamine hits, man. It's not exhausting. It's actually pretty fun. In contrast, whenever I see those delivery fees on Postmates, it makes me cringe. Yes, I can afford a thousand delivery fees, but it's gotta be a conscious decision to pay for it.

My personal view is that just because you can spend doesn't mean you should. And that everyone does need to think about personal finance. It's not a sacrifice to save or pay yourself first.

[Anonymous User]

I'm a first year who saves 70% of my pay, net of taxes. I don't think its exhausting. It makes me feel tremendously powerful to know that I can take a 70% pay cut and still be happy. At the end of the day, the only reason that people are stressed out by this job is the fear of a job loss or underemployment. By saving aggressively, I am slowly taking that concern out of the equation.

[Anonymous User]

I'm a first year who saves 70% of my pay, net of taxes. I don't think its exhausting. It makes me feel tremendously powerful to know that I can take a 70% pay cut and still be happy. At the end of the day, the only reason that people are stressed out by this job is the fear of a job loss or underemployment. By saving aggressively, I am slowly taking that concern out of the equation.

Great point! There's a peace of mind in knowing that you can still live on a small income.

[Anonymous User]

I'm a first year who saves 70% of my pay, net of taxes. I don't think its exhausting. It makes me feel tremendously powerful to know that I can take a 70% pay cut and still be happy. At the end of the day, the only reason that people are stressed out by this job is the fear of a job loss or underemployment. By saving aggressively, I am slowly taking that concern out of the equation.

Pretty awesome. I've saved 45% of my gross income this year and hoping to end the year at exactly 50% (or 110k saved). I get a dopamine hit when I buy VTSAX to be honest. I feel like it's not even that super hard in big law if you keep your rent low (roommates) and keep you transportation costs down (subway). I feel like I still go out enough and have a good time.

It's given me tremendous peace of mind because I feel like I can even leave law if I want as a third year to take a paycut to a 100k job and just slowly pace my self towards FI or I can stick it out until 7th or 8th year and have a cool million in investments.