Wednesday, May 15, 2019

Unpopular Facts: On Biglaw and Biglaw-ish Financial Trajectories

Did you notice and hate this graphic when it went viral via CNBC's twitter account recently? I felt that way too, but maybe for different reasons from the norm.

Eagle-eyed individuals using certain RSS feed readers may have noticed that, for just a minute a few weeks ago, I accidentally published a half-finished draft of this entry. I'd only ever made that specific mistake once before, on another post I also thought could be a little controversial. I'm terribly embarrassed, in part because, as it turns out, I actually wanted to approach this topic very differently than how my half-finished draft originally did. 

Recently, CNBC regurgitated, with little critical analysis, a somewhat infamous graphic from a certain personal finance blogger who shall not be named. Among many other things, this person had recently been known to gleefully and repeatedly revel in their own ignorance during the recent "manifesto" kerfluffle I alluded to, so theirs is, let's just say, not a blog I'd ever recommend. Here's an archive.is link to the original source, so that we may all refrain from giving it page-views. People hated this graphic, and all that it implied, and one understands their reasons. I hated it too, though for maybe slightly... nontraditional... reasons, ones that may turn out even more unpopular. 

Specifically, I think it slanders (in the colloquial sense, not the legal one) the good name of attorneys like me, attorneys who started off with substantial student loans, who are now inching into their early 30s, and who have been in biglaw or biglaw-ish for most of their relatively brief careers thus far, as this purportedly real couple allegedly is*. (Please note that, throughout this post, I make the assumption that both halves of the couple earn roughly equal shares of their alleged $500,000/year household income.)

Just about the only thing the graphic gets right is that we're all very lucky and financially privileged. We work hard for that, and often take out a jaw-dropping total in student loans to get there, which gets difficult sometimes. Nonetheless, it would never be cute for any of us to complain about our finances too much. 

But this supposedly real account gives unrealistic views of too many important things, from actual student loan payoff timelines, to typical family planning decisions in my cohort, to sensible approaches towards car ownership, and so on. And that's just the things I can speak intelligibly about, before even getting into nitty-gritty details about the actual numbers associated with the cars, the house, childcare, and so on! I also suspect the tax numbers are a bit off. (My own effective tax rate in 2018, making in the general ballpark of half of this alleged couple, was ~31.8%, including federal, state, and NYC city taxes, fairly far off from 40%. Though of course, tax laws change frequently, and I don't know much about what taxes look like for my peers who are married with children...) So many of the most important details are so implausible, so incapable of passing the "sniff test", that I don't think there's any way there wasn't tons of rounding up, rounding down, or wishful thinking involved, most likely in the service of making up some clickbait, such that there's no way the graphic and accompanying post are a particularly accurate or helpful picture of much.

I'm totally being overly dramatic. And I'm also totally doing that thing again where I'm overthinking something, likely devoting far more time, effort, and energy than the original author probably did in the first place. But really, it hurts my feelings to see people like me so misrepresented! There's many a complaint or somewhat typical for our demographic negative trait that can be laid at our collective doorsteps, but not this annoying fairytale, no sir. 

If you caught my half-finished draft last week, you'll have seen that I was originally going to approach this analysis very differently, to go through it line-by-line and point out numbers and other features I thought were absolutely wrong. Since then, particularly when drafting my response to the discussion that Kathy initiated, I've rethought that approach, in large part because I don't actually know enough about most of the line items for that type of analysis to be meaningful. 

Also, I eventually realized that some of the features that jumped out at me the most as being potentially wrong were, upon further reflection, not necessarily inaccurate. Three vacations a year, for instance, is consistent with my experience, provided that "vacation" is defined broadly to include any personal trip, including to visit family out-of-state for a long weekend, or for the Christmas Eve through New Years' holiday period, when the vast majority of biglaw attorneys I know are away from the office (but may still work full-time hours nonetheless). After adding all that in with the travel needed to attend friends’ weddings and bachelor or bachelorette parties, most of my more junior associate colleagues have actually been “vacationing” more than three times in any given year. 

Instead, it's more the "feel" or “spirit” of this accounting that's all wrong to me, to the point where it's actually rather pointless to go through the numbers or other features line-by-line. In truth, after sitting on this post for a few weeks now, I’ve run out of patience to go through it in great detail, but here are a few key points:

Just by virtue of choosing to own two cars while living and working in NYC (this point is particularly unlikely, I can’t think of a scenario where a couple living and working here would think this choice, as opposed to owning one car, adds any noteworthy benefit to their life, much less enough to justify the related costs) and having two children by their early 30s, there’s no way this two-attorney couple could see themselves as anything resembling “average”. Very few early 30s attorneys with a significant stint in biglaw already have two children, and many of the ones that do have a non-attorney significant other, i.e. someone who didn’t take on the same student loans.

Between being in law school, generally until one’s mid-20s (and the significantly reduced or nonexistent income during that time); the mental burden of the student loans hanging over one’s head (for which aggressive payments leaving little wiggle room in the budget might be happening until at least one’s late 20s); unpredictable difficult periods at the office (it doesn't take long before even basic household tasks like cooking a Hello Fresh meal become onerous burdens); and the sense that taking parental leave (for biglaw associates, there’s typically 12 to 14 weeks paid leave available for primary caregivers and 4 weeks paid for non-primary caregivers, with the caveat that non-primary caregivers may actually be expected to take significantly less at some firms) or being a parent could threaten your career trajectory, it’s just extremely difficult for all the cards to fall just right to allow a double-attorney couple to have had two children by their early 30s. Maybe by one’s mid-30s…

Admittedly, though, what I think actually would be typical, or more likely to be true, might not make attorneys somewhat like me any more popular than this story did. Isolated pieces of the story are more plausible than I initially wanted to give it credit for. Many of the details in the purported budget are possibly true for a pair of NYC biglaw-ish attorneys (again, it’s only the ownership of two car, where even just one household car would likely get no weekday use at all, that strikes me as a completely laughable impossibility), including line items many non-NYC-dwellers found preposterous and almost offensive in their extravagance. As I said over at Kathy’s, as half of a “DINK” couple, I routinely spend more than my fair share of the food and clothing budgets in the graphic on myself. It’s more the total combination of line items in the graphic that, when put together, sound completely wrong. 

Actually, and this is likely to be the most unpopular part: To the extent that the source of the viral graphic implied that both halves of the couple are each earning roughly equal shares of their $500,000/year, this accounting of their budget might significantly understate the total household income a real couple in their shoes would have attained by their early 30s. It also may dramatically understate the lifestyle that such a couple would realistically have built by the time they have multiple children (which is most likely to be by their mid or late 30s), provided that the plan seems to be for them to remain in their high-powered private sector careers and to continue living in NYC. 

At the same time, the viral graphic also overstates the lifestyle that real couple would have by their early 30s. For instance, K and I are both 30 this year, and on the current biglaw salary and bonus scale (even factoring in my significantly below-market bonuses), we’re in the ballpark of what the couple in the graphic makes. I think you can easily infer from what I write here that our lifestyle doesn’t look anything like their hypothetical one! "Ella's" reply to my comment over at Kathy’s gave what I thought was a much more realistic accounting of the trajectory such a couple might actually be on (by their early 30s, they had one child and fully paid off student loans with robust savings). One should keep in mind that it’s somewhat rare to find double-attorney couples where both halves are equally capable of, and also interested in, attaining partnership at large law firms. (Although we're early in our careers yet, it's somewhat safe to say that K and I are definitely not one of them.) They should be applauded for walking that long, hard road!

Which brings me to the error that offends me the most: The implied student loan payoff timelines stretching out 10 or 20 years. By their early 30s, a pair of attorneys dedicated enough to saving to max out their 401(k)s has probably handled their student loans well enough to be close to paying them off entirely, if they’re not already done. An accurate explanation of their finances would require, even demand, some notation about how the student loans component of their budget will go away soon. Either that, or there’s a small chance that they might be doing something like PAYE or REPAY, the income-based repayment programs for those not working in public service, in which case, that also bears explaining. Regardless, the lack of detail about the student loans (what's the interest rate? have they been refinanced? when's the actual projected payoff date?) is, by itself, incredibly unrealistic and cause for extreme suspicion about the truth of the graphic. 

Without ever refinancing to a lower interest rate, K finished paying off his slightly more than $150,000 of law school student loans in their entirety after around 45 months of aggressive payments. And if we only count the time I’ve spent repaying my student loans in earnest, beginning after I started my current job in the fall of 2017 with a total balance of ~$180,000 for law school, ~$190,000 including undergraduate loans** (excluding the periods of time where I was clerking, i.e. making career decisions that might only make financial sense for those whose parents could significantly subsidize the cost of law school in some way), it’ll take me a little less than five calendar years total.

And all this while we were both still living an oftentimes-indulgent lifestyle, in which we totally pay more than we need to in rent (in part so that we can enjoy the unspeakably extravagant-for-NYC luxury of in-unit laundry), eat out all the darn time (and almost never cook), splurge a fair bit while traveling, and while I shop a lot! We've also been saving a significant amount for retirement, though generally nowhere near as much as a "true" FIRE adherent would in our shoes, and we've also hoarded overly aggressive emergency funds in excess of six months of living expenses as well.

Working backwards from typical law student ages upon graduation and that estimated four to five year timeline for aggressive, but not extreme, repayment after starting (and staying) in biglaw-ish most people in the viral graphic couple's shoes could easily have their loans fully taken care of by their early 30s. That is, admittedly, assuming that one does not have significant financial outlays during that time, whether to start raising a child, for significant medical expenses, or by having certain financial obligations to parents or extended family (that last thing, in particular, is not especially common at our current ages, but I know it happens sometimes). 

And yes, I did once link an article from The American Lawyer about people for whom “When Leaving Biglaw, the Financial Struggle is Real”, which made many references to individuals who, by their 30s, hadn’t fully paid off their loans and were feeling some significant financial crunch post-biglaw. But note that a majority of the individuals profiled were entrepreneurs, whether by starting their own law firms or another type of company, and there were also some other unusual circumstances reported. 

Truly, I do have an utterly bizarre complex about things I think are misleading about my profession, and about typical student loan payoff timelines. You should hear me grouse about how I think the sizable sample of biglaw-ish Refinery29 Money Diaries over the years provide a dramatically over-inflated sense of the likelihood of graduating law school without significant student loans due to winning extraordinarily generous scholarships from top law schools with strong biglaw placement rates! Basically all law school scholarships are merit-based, there’s no substantial need-based financial aid around that I’m aware of. Fairly substantial scholarships, such as my own half-tuition-slash-third-of cost of attendance scholarship (that's ~$75,000 total) are not especially uncommon for applicants with good grades and LSAT scores. But full cost of attendance, living expenses included scholarships allowing for near-zero student loans are extremely rare at top law schools.

Anyway, for more realistic takes on what an early-30s biglaw or biglaw-ish attorney's finances might look like, you have my blog (we’re almost exactly like the purported couple in age and total income between the two of us; though of course we’re still very differently situated because we’re childless, unmarried, and own no property or cars). There have been quite a few biglaw-ish Refinery29 Money Diaries that I found fairly plausible, except, as I mentioned above, to the extent that their sample maybe overstates the likelihood of graduating without notable student loans due to scholarships. Biglaw Investor did a realistic-ish hypothetical first-year associate budget (at that point, the average associate is somewhere between age 25, if they went straight to law school, or around age 27, if they worked for a while beforehand) under a more recent, post-2015 salary scale, which gives a starting point for inferring what such an attorney, or a pair of them, might realistically accomplish a few years down the line if they stayed on the same trajectory.

Well, this has turned out to be a strange post! I really do have this odd chip on my shoulder when it comes to what I deem to be misleading portrayals of people in my super-specific category of law students and attorneys (people who attended law schools with strong biglaw placement rates after taking on six figures in student loans and who started out in biglaw). It's such a small category of people nationwide that it really is silly of me to care about so much about "us" and how "we" are depicted, but well, it is my life, so I take these things a little personally.

Part of the reason for my strong feelings is that, looking back to when I started law school, I had no idea what repayment of my student loans would actually look like, no idea of any of the concrete numbers involved, whether my expected post-tax compensation or even my actual student loan balance upon graduation (that interest that accrues while you're in school is sneaky). In my opinion, unrealistic stories that make law school student loan repayment sound more difficult than it is (no, you don't need to wear decade-old shoes with holes in them to pay off your loans) or like a much longer road than it actually is (to the extent that the tweet that started me on this particular ramble implies they're on a 10 to 20 year repayment term) are actively harmful because they could discourage anyone but people with the expectation of significant financial support from their parents or extended family from entering the legal profession.

Similarly, I also get grouchy about things that make it sound easier or more common than it is to graduate with nearly no student loan debt due to winning scholarships or choosing the "right" school, as that's not particularly helpful either. And yes, I take that kind of thing personally too, as it may imply that I made an irresponsible or incorrect decision for myself. With my own law school application cycle, the lowest-ranking school I was willing to go to that would still give me a reasonably likely, but probably noticeably more difficult, path to biglaw barely gave me $30,000 more than the much higher-ranked school I attended. That's significant, around nine months' worth of my current student loan payments (out of my expected five years of "active" repayment, and seven years of time actually spent), but it would also have come with a lot of other opportunity costs, and would almost certainly have made it less likely for me to get my clerkship and the job I have now.

*Assuming that they both earn roughly equal shares of the $500,000/year total, and taking into account the major housing and car-related expenses they’ve allegedly chosen to take on (which implies, to an extent, that they’ve been earning very good salaries for quite some time), the claimed total salary makes it unlikely they didn't start each of their careers with at least a few years' stint in biglaw. Based on when the original post was first generated, their biglaw years were likely all under this exact salary scale and in the ballpark of this bonus scale, for however long it was.

**Despite my best efforts and not-insubstantial-for-me payments (particularly while I was briefly in biglaw) in the nearly two and a half years between law school graduation and when I started that job, my student loan balance had still inched its way back to more or less exactly where it was when I graduated, ~$190,000, the vast majority of it for law school, but including some lingering tiny pieces of 5% interest rate loans from undergrad. Clerking has big opportunity costs, including by making it less wise to refinance with a private lender for a lower interest rate (and losing the income-based repayment options available for federal loans) before or while clerking. And those standard interest rates for federal graduate school loans, ~7.2% in my case when averaged out over my entire balance, are really quite extreme! 

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