By Jeena Cho • January 31, 2014•Writers in Residence
Recently, I taught a CLE on discharging student loans in bankruptcy. As I prepared for the class, I realized that the thing I wish I had known was how challenging it would be to get out from under student loan debt. When I started college at 17, it felt as though money was this abstract thing that was promised at the end of law school. The price of admission was 7 years of really hard work and 6-figure debt. It seemed obvious - of course, I would take on the debt. Of course, I would succeed. Of course, I would land that 6-figure job.
The thing I didn’t realize was that there was no 6-figure job (or any job) waiting at the end of the rainbow. No pot of gold. No one told me that my plan had major flaws, such as the possibility of failing the bar on my first try. When I finally landed my first job, earning just shy of the 6-figure mark, I didn’t realize how little I’d net after taxes, insurance, and other deductions.
The most surprising thing that I didn’t realize was how much I would hate my first job.
It was bad enough that I’d suffer from insomnia everyday, but I would dread every Monday morning and lived for Friday evenings. The worst part was the feeling of hopelessness. I couldn’t quit because in addition to the law school debt, I had a mortgage and a car payment. I felt completely and utterly stuck.
It’s been 10 years since I graduated from law school. I spent almost half of those years working with people with various financial problems. As a bankruptcy lawyer, I’ve seen people go from riches to rags. And to come back on top again.
Here are a few things I wish I had known about money at 17.
Save first. The old adage “pay yourself first” is true at any age. Even if you’re living on borrowed money, save something regularly. Come up with an amount you can afford on a weekly or monthly basis and commit to saving it. Build a cushion - start NOW. There is never an ideal time to start saving. So, just start today.
Underestimate income. Don’t assume you’ll clear $160,000 as a first year associate. Even if you do land one of those BigLaw jobs, there’s no guarantee that it will last - or that you’ll actually want to keep it. Assume you’ll live on much less than what you’ll earn. Also, calculate your net income by subtracting 40 - 45% from your gross income. Yes, between Federal, State, City tax, Social Security, various insurance and retirement contribution, you’d be shocked at how small your paycheck actually is.
Overestimate expenses. Everything will go over budget. Especially, variable expenses such as food, dining out, entertainment, etc.
Keep your housing cost low. Most people spend 30 - 50% of their income on housing. Keep this cost as low as possible. This will give you more disposable income, and more flexibility.
Pay back your student loan as quickly as possible. Don’t make the mistake of upgrading your lifestyle by buying the house, the car, the wardrobe. I know so many lawyers that hate their job but can’t quit because they’ve voluntarily put on the golden handcuffs.
Learn about money. Get into the habit of reading magazines or books on money. Most people are never taught basic personal financial skills. This is especially true for women.
Be honest about money. The #1 mistake I see people make is being in denial or dishonest about their financial situation. Avoiding doing your budget because you know you’re overspending will lead to more pain down the road.
Talk about money. Studies show that women are far less likely to discuss investments strategies or other financial matters with their peers as compared to men. When’s the last time you talked about your 401(K) or your IRA investment with your girlfriend? (Or anyone?) I firmly believe we need to change this in order to empower women.
Explore emotional issues around money. Most of us carry around negative or unhealthy relationship with money. Oftentimes, we learn and adopt our parent’s view of money. Consider what you believe - consciously or subconsciously around money. This can be around beliefs on how much you should (or can) earn, or associating earning certain dollar amount to your definition of “success.”
It’s just money. Money can stop us from doing the thing we love. I often meet with incredibly bright women who are so afraid of money - not being able to earn enough, or fearing failure. Don’t be afraid of taking calculated risks.
The best and the scariest thing I’ve ever done was to take the plunge into opening a law firm with my now husband (then boyfriend). We did our best to run financial projections, kept our costs low, and minimized our expenses then went for it. It’s definitely the best decision I’ve ever made.