TDot’s Tips: Tips for the pre-L’s on $$$

Posted by T. Greg Doucette on May 29, 2010 in TDot's Tips | Subscribe

Judging by some of the search queries bringing folks here to law:/dev/null, those of you accepted into the Class of 2013 are scurrying around online looking for law school advice before orientation starts in a couple months.

First, CONGRATULATIONS! :D I was just in your shoes not too long ago, I remember what it was like, and I’m excited for you!

Second, chill out ;) See this post from Law School Ninja — use this summer to relax, not to try and prepare for law school. Preparation is not gonna make a lick of difference, I assure you :)

Third, assuming you’re going to ignore that previous paragraph, use the summer to learn how to manage your finances. I’ve met a lot of law students from a lot of law schools who barely know how to balance their checkbooks.1  Law school is stressful enough without being worried about money.

Here are a few tips I’ve put together that might be able to help you in your first year:

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1) CREATE A BUDGET
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A simple sample budget

This one probably seems like common sense, but it’s probably the most important thing you can do financially — make sure you’ve got a decent idea of how much money you’ve got coming in, and how much you’ll have going out.

I’ve seen simple budgets sketched out on a piece of notebook paper; I’ve seen needlessly complex budgets using crazy functions in Microsoft Excel that I didn’t even know existed :beatup:

No matter what level of complexity you use, the important thing is to try and stick to the budget whenever possible.

To the right is a sample budget I put together for this blog entry, which I’ll probably end up using for the upcoming year. The main thing is to have an easy-to-reference sheet where you can see your major expenses and income sources.

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2) SET ASIDE $$ IN SAVINGS
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You might notice in that sample budget that I’ve included “Deposit to Savings Account” as an expense.

One of the weird things about 1L life is that you’re strongly strongly strongly discouraged from having any outside employment at all.2 That means if something unexpected happens, you don’t have the option of working overtime or extra shifts to make the $$ for it.

So if you’re living off student loans like most of us, your financial aid refund is all you get for the entire semester. Set aside a chunk of it early (I’d suggest 10%) into a savings account or some other safe spot, before you get tempted to spend it.

That way if something unexpected does happen, you’re covered. And if not, you’ll have extra money to use on whatever you want later on :)

And put it explicit in the budget so you actually remember to set it aside, rather than forgetting it’s supposed to be saved and then inadvertently spending it on something. Like highlighters ;)

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3) RENT THE LEAST EXPENSIVE PLACE YOU’RE COMFORTABLE LIVING IN
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Most of the expenses you’ll have in a given month will be in the sub-$100 range, and a good chunk of them (e.g. cable TV, fast food, etc) can be given up if you get into a real financial bind mid-semester.

That’s not the case with the rent ;)

As you’re searching around your new city for an apartment, make sure to do a comprehensive comparison among your options — then pick the least expensive place you’re still comfortable living in.

I’ve got a classmate who I’ll leave nameless, but who definitely isn’t stupid. When he signed his lease back in August, he picked a newer apartment complex up the road from me with all kinds of fancy amenities — gated entrance, nice pool, nicer gym, detached garage, etc etc. A really swank place, about $75/mo more than mine.

Then when late November got here, he was running short on his funding and was stressed out trying to figure out how to cover his December bills… right as he had to start studying for final exams :beatup: Luckily for him everything worked itself out, but you don’t need that pointless stress.

For that $375 he paid more than me over the 5 months of Fall semester, he used the nice pool all of 0 times, went to the nice gym just the first month before studying took up his free time, and spent a good chunk of his life at the law school while his detached garage was empty. Plus his summer internship is in another town so he’s trying to find someone willing to sublease for just a couple months (thus far no takers).

Now if a potential apartment just screams to you “LIVE HERE!“, then by all means go with it. Preferably after getting psychiatric help for thinking your apartment is screaming to you :* But if you can handle a smaller pool or gym, or forgo the entrance gate, consider giving up those amenities for the $$ you’ll save over the course of the year.

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4) USE YOUR REFUND TO PAY DOWN YOUR CREDIT CARDS
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By the time folks reach law school, odds are good they have at least one credit card. An April 2009 study found graduating students on average have 4.6 cards carrying $4,100 in debt.

Despite the high interest rates many credit cards charge, they can provide an invaluable level of financial flexibility. I’ve had to use mine on more than one occasion for textbooks or tuition when financial aid didn’t stretch far enough.

But that doesn’t mean you can’t trim the amount of interest you’re paying for that flexibility :D

If you get a financial aid refund, throw it all at your highest interest rate credit card(s). You’ll end up using your cards throughout the semester for basic purchases and paying bills, but you’ll be paying less in daily interest than if you kept the $$ in your checking account while making minimum payments on the credit card(s).

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5) “YOU’RE A LAW STUDENT, NOT A LAWYER”
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No matter how you handle your finances, or whether you follow any other money-related tips you come across, remember: you’re a law student, not a lawyer ;)

The mansion, home theater, luxury car, yacht and all the other accoutrements of being an attorney will come to you in due time. But that time isn’t going to be the 3 years while you’re in law school3

Live like a lawyer now and you’ll end up like my friend, stressing over cash flow when you need to be studying for Contracts. Live frugally and you’ll still have the resources to still enjoy yourself :spin:

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That’s all I’ve got for this post — hopefully you’ll find at least one of these tips useful!

Good luck to all of you, and congratulations again on your acceptance! :) If you have any questions on anything, let me know! :D

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Past TDot’s Tips entries:

  1. It’s even more amazing considering some of these folks will be managing finances for their law practices… []
  2. To underscore the point, the ABA actually has a rule saying you can’t work more than 20 hours a week :surprised:  []
  3. Unless you hit the lottery. Don’t hold your breath. []

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5 Comments

Ricky Nelson
May 30, 2010 at 9:28 AM

I think I agree with everything you said except for rent. If you are from out of state of the school you are going to chances are you aren’t going to know anything about reliable management companies and your knowledge of safety is going to be poor compared to your later years. For the first year, a swanky place could pay particularly if the more expensive place comes bundled with utilities. A more expensive place that includes heat and water may be worth it more than the cheap place that forces you to pay those utilities month-to-month.

There’s also maintenance and security to worry about. Although the place I’m staying in is more expensive than other places, it is also more secure. There’s a person at the front desk watching the front area near 24/7 and there is a maintenance staff on-site so there is someone who will fix any problems quickly. Perhaps the best perk with my place is that although it is a privately-owned property, they only lease to graduate students; a proof of graduate school admission is needed for your application to be accepted. This means that noise level won’t be as much as a worry than other places.

My place comes with a lot of other shameful perks as well, but I didn’t pick it for those reasons. The difference between me and your friend is that I know that I can afford this place from tracking my previous spending habits in college. For the first year, I think you should rent the best place you can afford, not the cheapest place you can tolerate. Obviously you have to balance if the increased cost is worth it, but in some cases it might be.


 

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Va.
May 30, 2010 at 2:24 PM

Yeah, on the rent situation I fall somewhere in between you & Ricky Nelson. I don’t think you should get the best place you can afford (For example, why would you need granite countertops or stainless steel appliances? It’s not like you own it….), but you should definitely distinguish between necessities and aesthetics/amenities. And necessity depends on the particular situation — I love my 1100 sq. ft apartment, but I also share the space with a spouse, cat & a dog, so I need more space and have someone else contributing on rent. Security is really important, so the gate or the guard may be worth it, particularly if you live alone or are a woman. You’ll be coming in late a lot of nights, both from bar reviews & parties and from studying, paper-writing, journal work, or clinic work. And for people moving from a high-rent area to a lower cost of living area (NY/LA/Boston to NC, for example), they may feel that they can live it up because they’re used to housing consuming a much higher percentage of their budget. They tend to rent higher-end places that are overpriced for the market.

One add’l piece of advice: you should calculate whether upon graduation you will need less debt or more cash. I know a lot of people who used their summer paychecks to minimize the loans they took out or were super-frugal, and now some of them are deferred, unemployed or waiting on firm reimbursement checks. They’re also simultaneously trying to support themselves, pay security deposits, move, etc. It’s annoying to have the additional loans, but it is better than racking up much higher interest loan on credit cards. So while using loan money to put into a savings deposit, as you recommended, may seem counter-intuitive, if the alternative is credit card debt, you should choose student loan debt instead.

Also, I pay off all of my credit cards every month–high interest & late fees are unnecessary expenses. And don’t buy a brand new car before law school. Drive a shitbox into the ground.


 
TDot
May 30, 2010 at 11:53 PM

Good points re the security of the apartment. It’s an angle I didn’t really consider thoroughly, partly because I’ve seen so cars tailgate behind legit residents and figured a gated community wasn’t that much more secure. But I guess it’s better than the alternative of anyone being able to roll up to your door :beatup: :)


 

[…] figure out where I can save. The last part is the real biggie, and there’s some great advice out there on how to get started. I’m also (planning) on moving into my place in July so I have time to learn the area well. […]


 

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