Associates in the Trenches

No ‘$60,000 Millionaires’

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When Erica l. Salmon Byrne graduated from law school three years ago, money seemed to be no object.

With a big-firm job waiting for her at the end of the summer, she blew $6,000 before her start date by taking an extended tour of New Zealand and Australia with a friend. “Both of us had the attitude that we’re going to come back, and we’re going to work really hard and make a bunch of money,” says Byrne, now an associate in Washington, D.C. True, she’d probably never get that much vacation time again, but she was already staring down the barrel of $120,000 in student loans.

But Byrne insists she was not alone. “Every single friend of mine in law school was living large until the [student loan] grace period expired,” she says.

According to U.S. News & World Report, most of the law school class of 2005 graduated with upwards of $60,000 in student loans. The number soars past $90,000 for graduates of private schools such as Georgetown University Law Center, Byrne’s alma mater. And that doesn’t include credit card debt. But regardless of how many IOUs newly minted J.D.s rack up during school, the reality is that once they start drawing regular salaries, they’re often tempted to continue spending—and spending and spending.

“Young lawyers need to be so careful not to adjust their lifestyle spending to their higher income,” warns financial planner Thomas Haunty of North Star Resource Group in Madison, Wis. He is the ABA Journal’s Life Audit financial expert and the author of Real Life Financial Planning for Young Lawyers, due out later this year. “The greatest asset all young lawyers have is their income. Without it, they lose the ability to compound savings into wealth.”

Luckily for new associates, Haunty believes the first year of employment is actually the best time to start developing good spending, saving, investing and debt reduction habits. Creating a budget where more money comes in than goes out may sound simple, Haunty says, but a shocking number of young lawyers just can’t resist the lure of spending all their cash. While associates’ budgets will vary, Haunty says every plan to pay down debt and contribute to savings and retirement accounts should start with a direct-deposit arrangement. Automating savings, he says, will serve as a sort of automatic budget.

First-years should also consider protecting their incomes with private disability insurance, he says, which is cheaper and easier to obtain for young, healthy lawyers. From there, associates should gradually increase their savings, investments and debt reduction contributions each year to correspond with pay raises, he says.

Tough Love

Budgeting is often easier said than done, and a group of senior lawyers in the Dallas office of Baker Botts has recognized this. For the past few years, they have held an annual event informally known as the Grim Reaper lunch to help aspiring lawyers understand debt and savings.

The lunch is held every fall for the pre-law clerks, mostly college students thinking of attending law school. The message? “Don’t live like a $60,000 millionaire,” says program founder Steven G. Schortgen.

At the meeting, the lawyers present school loan and monthly payback estimates along with personal war stories. “For the first four years, I still had a 13-inch television,” Schortgen says. “But it meant I paid my school loans off in five years.”

Schortgen graduated from Cornell Law School in 1995 with more than $100,000 to pay off. So he prioritized his creditors by interest rate, then paid off the credit cards, unsubsidized loans and, finally, the subsidized ones.

“My internal rule,” he recalls, “was until I could fully fund my 401(k), that luxuries like a new car were going to be wants, not needs.”

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