Post-Law School Finances
What about my post-law school finances generally?
Make a Budget
You can’t know how to get to your destination unless you know where to begin. Taking the time to make a budget helps you to truly understand the current state of your finances, and will prevent you from making decisions that can cause some major headaches! Take the time to do it right the first time, then expend a minimal effort to update your budget annually, or as needed. (like when you get that new job with the big salary!)
Be sure to include a realistic notion of your bills and expenses. ALL of your bills. Everyone knows to account for car payments, student loans, electricity, rent, phone and cable, but don’t forget the smaller expenses too. (I always forget dry cleaning). Make a liberal estimate of your expenses so you don’t get caught short. Gas, groceries, nights out with your friends….all need to be accounted for.
Pay off credit cards
OK, now that your budgeting is done, you know how much of your money is truly discretionary income. What’s next? Get rid of that credit card debt! Credit cards usually carry the highest going rate of interest . When you carry a balance from month to month, you are paying those bank executives a nice healthy bonus. Trust me, they don’t WANT you to pay it off, so they only ask for a small payment. You will end up paying many times more than the amount you borrowed. Also, credit card interest, unlike that on other loans, is not tax-deductible!
Once you pay them off, try to only use them for convenience, and only use what you can pay off that month. Get a card with airline miles or some other reward, and use it to pay off bills if you can. But PAY OFF YOUR CREDIT CARD EVERY MONTH!
Get the loan monkey off your back
If you’re like most of us, you have a considerable amount of debt from school. As painful as it is, keep your spending under control and get these loans off your books as fast as you can. And make sure you take the tax deduction at the end of the year for all that interest you’ve paid!
You’re not getting any younger
Set up a retirement plan. The time will pass MUCH faster than you think. If you start saving at 35 rather than 25, you will have about ONE HALF as much at retirement as you would have!
If your firm offers a 401(k), take advantage of it! If they offer matching, even better! Be sure to contribute enough to maximize that matching. If not, you are giving away FREE MONEY! If your employer doesn’t offer a plan, open an IRA (Individual Retirement Account) at your bank, or even online. DO NOT pay a fee. There are plenty of free plans out there. If you’re still under 40, open a Roth IRA. The advantage of the Roth is that you pay taxes now. Huh? That’s an advantage? Absolutely! In a Roth, you pay tax now, on all the payments you put in, but you DON’T pay tax when you withdraw the money in retirement! That means all the growth (which will be the lion’s share) is tax free! There are some income limitations on contributing to a Roth IRA. For 2013, a single contributor can make up to $127,000. Married couples can make up to $188,000. If you can’t do the Roth, everyone can always contribute to a regular IRA.
Set up a ‘911’ account
Before you take that trip to the Bahamas, put money in an emergency fund. Set aside at least three months gross income. And don’t touch it! With the economy today, you never know when you might need it!
Set this fund up in a series of short term CD’s. Divide your fund into quarters. Deposit a quarter of your emergency fund each in a 3 month, 6 month, 9 month, and one year CD. This is called a CD ladder. When the first CD matures, you redeposit that money in another one year CD. The maturities keep rolling toward you, and you always have one CD less than 3 months out, one at 6, etc. BUT, after the first year, they are ALL one year CD’s with maturities 3 months apart. This way, you get the highest interest but keep the funds available and at low risk. You will sacrifice the interest if you pull the money out, but that incents you to leave it alone!
What is the 411 on loan repayment?
When will you start paying?
Your repayment period for student loans will likely begin about six months after graduation. Because repayment is likely to begin soon after you get your bar exam results and while you are still trying to get acclimated to a new job, it is important that you are proactive with regard to your student loans.
What about debt consolidation?
You will be bombarded with offers for consolidation of your student loans, some of which sound (and likely are) too good to be true. Consolidation of student loans is basically a refinance of the various student loans you have into one loan with one monthly payment to one lender, often with a longer repayment period. You may also have the opportunity to structure your payments in a way that is less burdensome to you. There are numerous lenders interested in consolidating student loans and they will be in touch with you.
A great place to learn about repayment methods and options is through the Department of Education’s website. At http://studentaid.ed.gov you will find answers to many of your questions about repayment and/or consolidation. You can even consolidate through the Department of Education using an online application. There are many options and a good deal of repayment flexibility concerning your student loans. A little online research and proactive work on your part can go a long way toward making student loan repayment less stressful.
Do I need to keep copies of those loan documents?
It is important that you keep accurate records of all loans you receive during your enrollment in law school. You should also keep accurate and up to date files for promissory notes and all correspondence. Accurate records will help you manage your repayments. The amount of your monthly payment will vary depending on the amount you borrow, the type of loan, and the interest rate. Also, be diligent in notifying your student loan lenders about changes of address and other contact information. These lenders can be fairly flexible if they truly believe you intend to pay and are being diligent about your financial responsibilities.
Types of Jobs
What if I don’t want to practice law in the conventional sense? What other types of jobs are available to me after I graduate from law school or if I decide to change career directions in the future?
Here are just a few careers to consider:
- Corporate/Private Sector - Work for a company in areas such as management, finance, human resources, regulatory compliance, risk management, and corporate communications.
- Non-Profit - Manage all aspects of the operation of a nonprofit, including grants, fundraising, and operations.
- Higher Education - Work as an educator or in administration.
- State/Federal Legislative – Run for public office. You may also work as a policy analyst, committee staff, or staff member for an elected official.
- State/Federal Agencies - Provide policy analysis, track legislation, manage divisions, or work in the agency's General Counsel's office.
- Consulting - Provide both legal and non-legal consulting to law firms, corporations, non-profits, and governmental agencies.
- Journalism - Become a writer or publisher, especially in law-focused areas.
- Lobbyist - Provide legislative and policy analysis, track legislative developments, and provide guidance to businesses, industry trade groups, and non-profits.
- Law Firm Management - Become an administrator in a law firm and oversee financial matters, tax and regulatory compliance, media or public relations, professional development, ethics training, and human resources.
- Legal Support Industry - Work in sales or business development for a company that supplies products and services to the legal industry.