200 | Celebrating 200 Episodes! Q&A Part 1: Money Questions

You asked; I answered! In celebration of reaching 200 episodes, I’m answering all of your questions.

Because of the number of questions I received, I’m splitting my answers across two episodes. This episode answers all your questions about money.

In this episode, let’s talk about retirement, making money moves when you don’t have a Biglaw salary, debt strategies, and the best way to use a Biglaw salary to reach financial freedom.

• • setting yourself up for retirement
  • how much to save for retirement
  • whether it’s possible to make money moves when you’re not in Biglaw
  • the best strategy for paying off debt
  • how to use a Biglaw salary to reach financial freedom

You’re listening to Wealthyesq. We are a community of lawyers who believe that true wealth is having control of our time. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Rho
Hey friend. Welcome back to the show. I hope you’re doing well and having an amazing day so, far. Today we are celebrating 200 episodes of this podcast. I cannot believe that we’ve already hit this milestone. And I remember starting this podcast back in 2020 and feeling so, nervous and like so, just unsure how people will receive it and all of that. And so, I am just really grateful for you being here for you supporting the podcast and all of that. And in honor of reaching 200 episodes, this episode is dedicated to you. So, I am answering all of the questions that you’ve sent in over the past few weeks, and to help me do that I’m bringing on my sister Nesha she is going to stand in for you and ask your questions and we’re gonna just have a conversation about all of these things that you are asking me about. So, Nesha welcome to the show.

Nesha
Hey! I’m excited to be here, and I am so proud of you and the Wealthyesq podcast for reaching 200 episodes. What?!

Rho
Well, I’m excited to have you. I appreciate you being here to help out with this episode. And I am looking forward to answering some questions. So, let’s get into it.

Nesha
Alright. Let’s get to it. I’m excited to hear these answers. Alright.

So, the first question says, “I am 44. I have worked for 18 years
12 as an independent contractor through my local public defender’s office. I only have 24,000 in a simple IRA that was established during my last position, which I left last year due to burnout. I’m currently unemployed and living off of savings. I have no other retirement money and this is starting to freak me out. What steps should I take now to set me up for retirement, so, I don’t have to work the rest of my life.

Rho
Well, first, I’ll say I am so, sorry to hear about all that you’ve dealt with the burnout and all of that. I hope that you are on the road to recovery and you’re feeling better.

I’ll also say as I was listening to your story, I didn’t go to the retirement piece, so, I didn’t expect that to be the question at the end. So, before we get to the specifics of what to do to set yourself up for retirement, I just want to talk about what’s going on currently and it could be that you already have, you know, what’s going on currently together. You already know what’s going on. You already have a plan, but I just wanna make sure that we do at least address it.

So, with you living off of your savings, we wanna make sure that you know what your monthly expenses are and how long the savings are gonna last you and all of that. And then you also wanna be looking at like what’s your plan for bringing in income, whether that’s getting a job, or getting more clients as an independent contractor, because all of that is gonna play into how you set yourself up for retirement.

So, then getting into the retirement piece, you mention that you have 24,000 in a simple IRA
One thing that I want you to make sure of is that you’ve got that money invested. So, with retirement accounts like IRAs 401k’s, that kind of thing, they’re almost like a basket and you are buying investments within that basket. Right?

So, you can contribute money to your retirement account and not have that money invested. And I actually know people personally that this has happened to. And I heard a story recently of a woman who had been investing with her employer’s retirement account for like 10 years and she’d been putting this money in there, but she never actually invested it. She didn’t buy any investments with it. So, she had just been contributing the money but it wasn’t growing it wasn’t earning her any money because she didn’t invest it.

So, we wanna make sure that the money in your IRA is invested. And then with respect to setting yourself up for retirement, like once you are in a position where you’re bringing an income and all of that again, then you wanna make sure that you’re looking at how much your life costs.

So, how much are you gonna be spending each year and you can kind of project that for the future. And this is something that you might talk with a financial planner or someone like that about because they’ll be able to help you come up with a specific plan for your situation. But you’re looking at what are you going to be covering in those retirement years and then backing into what investments you wanna be making so, that you can get to that amount of money that you need to cover your living expenses in retirement.

Nesha
Awesome. Alright, so, let’s move on to the next one.

“Hi Rho, Love the show. I’m a big law equity partner about 12 to 15 years from retirement or sooner. There seems to be contradictory and confusing information out there about what we should be aiming for in retirement. We likely don’t need to receive equivalent current comp each month. So, what percentage should I aim for? 50% of current monthly comp? More? Less?

Rho
Well, thank you for supporting the show. I appreciate you and I am so, glad that you’re enjoying it. It’s interesting that you have a retirement question, as well.
And just like I mentioned with the last question you wanna be thinking about how much your life costs or how much your life will cost in retirement.

So, there is a rule of thumb that says that you need 25 times your annual expenses invested to live off of in retirement. And that comes from a study where they looked at a bunch of different retirement accounts, and they looked at different withdrawal percentages, and all of that. And they decided that you could safely withdraw 4% of your account each month without running out of money. Some people bump that up, they’re like you know I think 4% is a little bit too much. So, they’ll bump it up to where you have enough that you could withdraw say 3%. Right?

So, maybe you aim for 33 times your monthly or your annual expenses, but the the main thing is that it’s not so, much tied to your income it’s more so, tied to your expenses. I think the typical retirement calculators and all that kind of stuff they talk about your income, and you know, you wanna have this percentage and whatever else. I don’t think that there is a specific percentage. It’s gonna be based off of this is how much I live on. I wanna make sure that this money lasts into retirement. So, I’m gonna make sure that I have enough that I can withdraw 4%, 3% whatever that percentage, is that feels good for you. And then that’s how you decide how much you need to have.

And just like I mentioned with the last person, if you reach out to a financial advisor or someone like that, they can guide you and coming up with a specific plan for your situation.

Nesha
Oo. I have a question. When should you start saving for retirement?

Rho
I don’t think there is a specific time to start, but the sooner you can start, the more time you have to allow compound interest to work for you.

So, like the money that you save earlier on starts earning more money. And then that money starts earning money. Like that’s what that’s how compound interest works. Right? So, like the sooner you’re able to start the more time you have to allow that compound interest to work for you.

And there’s an example that was going around that looked at like if this person started contributing at 25, and they contributed for like 10 or 15 years and then stopped, and then this other person started contributing at 35 and they contributed for 30 years because of the compound interest, the person that started at 25 even though they stopped earlier would end up having more money. And don’t quote me on the specifics, like the specific numbers and all of that.

But the main point was that they were trying to show that compound interest is gonna work for you even if you’re still putting in money longer.

So, like the person at 35 put in more money, by like the total amount that they contributed, but the person at 25 had compound interest on their side.

Nesha
Because they had longer?

Rho
Exactly.

Nesha
I never knew that. Alright. Let’s go on to the next one.

“I am curious about best practices for lawyers as far as money management is concerned who opt out of Biglaw. Is it possible to effectuate big money moves outside of the salaries typical for Biglaw?”

Rho
Absolutely, I have worked with people in Biglaw, but then also outside of Biglaw. So, in boutique firms, and mid-size firms, in house, and government and it’s all the same because it’s not about the amount that you make, it’s about what you do with that money.

So, if you are in Biglaw, and you spend everything that you make, or you spend more than you make, then you’re not gonna be able to make big money moves. If you’re in one of these other settings and maybe you don’t make as much as someone in big law, but you are managing your money better, you’ve got a gap between the amount that you make in the amount that you spend. Then, you’re able to use that money that you’re not spending to effectuate those big money moves that you just mentioned.

Nesha
And I love that. And I can just speak to that myself cause I remember probably about 10 years ago, I had a job where I was getting paid next to nothing, and I started working with you managing my money, cause she’s been doing this a long time, you guys. I’m just saying. And I remember just how much money, obviously it’s not as much money I can as I can save now, but how much money I ended up saving keeping the gap between my expenses and my income. And I originally told you before we even started like there’s no way I can save money at all cause I just don’t make enough. And you were like- let’s find it. And we did. I’m not in law, but I can only imagine if I was working that job, you know, getting paid next to nothing what you could do even outside a big law.

Rho
Yeah, yeah. And I love that you shared that. And for everyone listening I think I mentioned early on in the podcast that I used to like tell all of my family and friends all this stuff about money and they’re like, ‘okay girl like they didn’t really wanna hear it.’ Nesha was one of those people that I’ll be telling all the stuff about money and she actually listens.

Nesha
It’s true. It’s true. Alright, so, next question.

“What strategy do you recommend for paying off debt?”

Rho
My favorite strategy for paying off debt is the debt snowball, and that is the one where you pay your debts from smallest balance to largest balance regardless of what the interest rate is. That’s what my husband and I did. And like I’ve mentioned on here before, we had like $678,000 of debt, but the smallest debt was like 1500. So, the huge like total amount felt really overwhelming, but it’s like oh, I could do 15 or 2000, or you know, whatever the numbers were. And so, we tackled our debts that way and then as we got to the bigger five figure and six figure ones. We had so, much momentum behind us we felt like we could do it.

So, even though these debts were bigger, even though it was gonna take us longer, we had this track record of success where we had paid off a bunch of different loans. Because like my student loans, I have 14 different student loans just by myself. And then my husband had his student loan he had consolidated and then he also had a private one. And I had a car loan and then we had our mortgage. So, it was like all these different debts.

And so, by the time we got to the five and six figure ones, we had already paid off say half of the debts or something like that. And so, we had, you know, all of these things that we had done. We were like okay we can do this. And that’s the biggest reason why I like the debt snowball because you get those quick wins. And then you build your confidence as you keep going, and you’re paying off larger and larger debts, so, you don’t give up.

The other like main debt strategy that people talk about is the debt avalanche. And with that one
you pay from largest interest rate to smallest interest rate, but a lot of times some of the larger interest rate debts are also some of the larger balances. And so, like for us if we had started with largest interest rate we would have been probably with one of those five figure ones. Like I don’t have my debt sheet in front of me, but just off the top of my head I remember the bigger loans having bigger interest rates.

And so, it’s like we would have been chipping away, chipping away, but not really seeing that progress versus we paid off the 15 dollar loan we got a paid in full letter.
And it’s like oh, look at that, you know, like this is done. So, that’s why I like the debt snowball so, much because you get that the quick wins, the psychological wins of paying something off completely, being done with it, not having to owe that minimum payment anymore, and you can move on to the next thing.

Nesha
Okay, so, next question. What is the best way to use a Biglaw salary to obtain financial freedom? How much should one save or invest?

Rho
This goes back to something that we were just talking about with creating that space between the amount that you make and the amount that you spend because the more space you have between the amount you make and the amount you spend, the more progress you can make with your finances.

So, I don’t think that there is a certain percentage that you can say like you should save this amount, or you should invest this amount, or you know whatever that is. It’s gonna be personal to you because your expenses are gonna be personal to you.

I would say using that salary to your advantage is keeping your expenses as low as you can. And that’s not to say that you can’t spend, you can’t have, you know, a nice apartment or a nice house or anything like that, but the more payments that you add on, like the more things that you take on each month, the less money you have in that space to be able to put toward the things that you want.

And so, if you’re talking about financial freedom, then that means that you wanna have more space, you wanna have more money available to save and invest and pay off debt and all that kind of stuff. And that’s where making sure that you’re being intentional with how you’re using your money comes in because you make sure that you’re spending on the things that are important to you and you’re cutting back on the things that aren’t as important.

And so, all of that money that you don’t end up spending is stuff that you can use for your financial freedom goals.

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All right, I am going to cut the episode here because we’ve still got another almost 20 minutes of this conversation answering your questions. So thank you to everyone who submitted a question. I really appreciate it. I didn’t say it on the front end when we recorded but we grouped the questions into two categories. So questions related to your personal financial situation and about money in general, which is what I just answered. And then the other category was questions about my money situation and about me personally, so we will get into those questions next week.

In the meantime, please take a second and share this show with a friend. I really want more lawyers to learn about the show to be able to get access to this information to help them to improve their finances and again I appreciate your support.

As we close out friend, I pray that you take the information you learned here, apply it in your life and open up to the realization that wealth is available to you. As you do that consistently. Week after week. You’ll continue to take steps to regain control of your time, build wealth and live the life of freedom and choice you deserve. Talk to you later.