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For many law students, summer-associate jobs hand them more money than they’ve ever earned before. At a big firm, the salary can be about $2,400 a week — the equivalent of $125,000 a year. That flood of income is understandably a welcome change from the financially tight lifestyle of many full-time law students. But sudden money, particularly to those unaccustomed to it, is always double-edged, creating both opportunities and risks. For summer associates, the opportunity can be to reduce debt, pay tuition, and develop habits that lead to financial independence. The risk is to grow too fond of the money, to indulge in a high-consumption lifestyle, and to put oneself on a work-and-spend hamster wheel. Law firms, of course, are filled with lawyers who are selling off their lives, billable hour by billable hour. It is easy for the summer associates to look at the partners as role models, particularly when the human cost of law firm life is at least partially hidden in that golden summer. It is harder to follow a financial path different from that of your peers. In this column, I wish to explore that narrow path, comparing it to the wide highway that so many lawyers go down by default. And I will show ways young associates can step onto it, psychologically and financially. This financial road may not be well traveled, but it is eminently walkable, and the ultimate destination is far more rewarding than even a senior partner’s summer home. THIS TOO CAN BE YOURS As summer associates know, the firm’s courtship begins in law school, when meals in fine restaurants during the recruiting season provided respite from the student cafeteria. When summer associates actually arrive at the firm, the treats multiply. Yes, there’s work, stress, and the pressure to impress, but assignments are interesting, billable hours aren’t critical, entertainment abounds, and the lunches are free. And then there are the special events to showcase what your future life could be. I remember one dinner in particular, which was held at a senior partner’s mansion in a Virginia suburb. The next day, a worldly-wise associate joked to me that this was the firm’s “this too can be yours” outing. In many ways, the summer-associate experience works as intended. Many summer associates are tempted to conclude that law firm life is for them. Of course, the harsh realities will become apparent soon enough, and I won’t dwell upon them here. But it is important to recognize how all that money can trap lawyers at the law firm. The golden fetters bind in more subtle ways than the initial need to pay off student loans. Some attorneys feel a need to reward themselves with what they perceive to be a lawyer’s lifestyle — luxury apartments, fancy cars, bespoke tailoring, high-end electronics, and the myriad of other ways to blow your salary. Rationalizations are easy: You deserve this for all the stressful work and long hours. And the longer such spending habits persist, the more the thought of changing them feels like genuine deprivation. Spending also tends to perpetuate itself: Acquisitions have follow-up costs (your upscale apartment needs appropriate furniture), recreation becomes increasingly costly (and attracts friends and romantic partners who enjoy high-dollar activities), and the money soon begins to color how you evaluate your (and others’) value as people. All of that can make a law firm hard to leave, even if the beasts of legal practice are devouring your life. OTHER OPTIONS Is there an alternative to an economic model that keeps a lawyer in the work-and-spend cycle until age 65? Sure, and it can be tailored to your individual situation. The foundation is to adopt frugality. The word may sound old-fashioned and intimidating, but it’s really just the habit of spending no more than is necessary to meet one’s needs and reasonable wants. Summer associates are already accustomed to a graduate student’s standard of living, and for the most part, it is no great hardship. You probably live in at least a private room and perhaps even a full apartment. You have cash for restaurants, books, and some new clothes. And you probably don’t have to spend much more than $25,000 a year on personal needs. If you keep this level of spending even for a few years after graduation from law school, you shouldn’t feel particularly deprived, given that your material standard of living hasn’t changed. And your potential for savings is significant. As a rough estimate, if you live on less than $30,000 a year out of a $125,000 starting salary, you might be able to save at least $50,000 a year, even with the huge loss to taxes. Your student loans can rapidly disappear, and you can accumulate investments and assets. And that’s just the first year. Your spending-to-savings ratio will get even better with raises. Escaping from debt and creating a nest egg will soon create a variety of financial options and open up a world of freedom. Some choices may be fairly conventional, such as taking a lower-paying government job or having the savings to leave the work force to raise young children. Other options may be more unusual, such as working only part time to meet one’s modest expenditures. And for the the truly adventurous, a very early retirement is possible. Check out www.retireearlyhomepage.com, which is published by John Greaney, a former engineer who retired at age 38. Greaney enjoys a life of golf and travel — not bad — and young lawyers could also devote their lives to family, intellectual interests, and pro bono work. Wouldn’t that be a great way to spend a life? I suspect that if summer associates followed Greaney’s example, many of them also could retire in their 30s. WALKING THE NARROW ROAD Taking the frugal road to freedom does require certain psychological and financial skills. Psychologically, a degree of mental independence is necessary to adopt thrift as an alternative lifestyle. You have to recognize what you really want, even if it is unconventional, and then move steadily toward that goal while rejecting (most) temptations. It helps to have friends who aren’t prone to engage in spending competitions. Participation with religious groups, book clubs, or volunteer associations may help you find friends who don’t think that people’s worth consists of the abundance of their possessions. It also avoids many problems if your romantic partner has similar financial values. Beyond the psychological aspects, certain financial steps are necessary so that law students can start leveraging those summer law firm earnings as well as possible. Begin by paying off any credit card debt. There’s almost no better way to obtain a risk-free financial improvement than to get out from under the wrong side of compounding interest. After that, law students may want to pay off some law school tuition, but also should think about starting a Roth Individual Retirement Account, which will let you withdraw earnings tax-free in retirement. The time in which you can contribute to this type of investment account may be short because a full law firm salary likely will push lawyers over the income restrictions, so summer and first-year associates should get money into a Roth while they can. The conventional wisdom for a young person might be to invest that Roth IRA chiefly in stocks because of the IRA’s long holding period and stocks’ historically high returns. This isn’t bad advice. If you’re starting to invest at age 25, your investment time period may be more than 60 years. This length of time creates the opportunity for awe-inspiring gains from growth compounded over decades and decades. A good alternative, however, particularly for those leery of stocks, would be to use the Roth IRA to invest in Treasury Inflation-Protected Securities, which are federal bonds with a guaranteed return over inflation. In general, individual TIPS are best kept in a tax-sheltered account to avoid annual income tax on the phantom income from inflation adjustments. And even with TIPS mutual funds (an easy way to invest in these bonds), if inflation really takes off or taxes increase, the withdrawals won’t take the tax hit at retirement that they would in a traditional IRA. (And I fear that tax increases and significant inflation are not remote possibilities over our lifetime, particularly given the massive future costs of underfunded entitlement programs such as Medicare and Social Security.) Putting these inflation-indexed bonds into a Roth IRA while investing stocks in taxable accounts also lets you enjoy the lower tax on capital gains when you sell stock to fund your retirement. This isn’t possible if you put your stock holdings into a traditional IRA or a 401(k) because withdrawals from these types of accounts are taxed at the higher rates for ordinary income. More generally, summer associates should start educating themselves about investing. It’s a subject that is easily as important as most law school classes, and it will almost certainly prove far more lucrative. Becoming a competent investor will put your legal earnings to efficient use, protect you from the dark side of the financial services industry, and enable you to manage a portfolio, the task that may be your primarily economic activity for decades in retirement. If you’re new to investing, The Four Pillars of Investing (2002), by William Bernstein, is a great place to start. The author has targeted the book to a liberal-arts audience, and he sets forth the fundamentals needed for a successful approach to investing. Beyond that, Your Money or Your Life (1999), by Joe Dominguez and Vicki Robin, offers help with voluntary simplicity and the psychology of thrift. Dominguez also retired in his 30s, and his book provides a systematic way to align your spending with your values and to track progress toward financial independence. But a caution: The book’s investing advice is primitive, and almost no one else would recommend an entire retirement portfolio of long-term Treasury bonds. For summer associates, this summer’s flood of cash is a chance to establish a solid financial foundation. Use the money wisely and keep your heart in the right place — even while enjoying those law firm lunches.
With this issue of Legal Times , associate opinion editor Robert L. Rogers begins a personal finance column, “Legal Tender.” E-mail [email protected] with questions, comments, or suggestions for future columns.

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