Are you a HENRY?
Imagine Whippersnapper Winston, a 7th-year BigLaw associate who makes $425k a year, drives a fancy car, sports a shiny Patek and makes it rain at 3 Michelin star restaurants. Without any further insight into his financial situation, most of us will assume that a high-roller like Whippersnapper Winston must be rich. If we are, however, told that he also spends $425k a year, then most of us will also correctly recognize that Whippersnapper Winston—despite his massive salary—is living paycheck to paycheck.
Enter Prudent Penny—also a 7th-year BigLaw associate making $425k a year—who diligently saved somewhere around 20% of her income each year. With her 20% savings rate, Prudent Penny paid off her $150k in law school debt, amassed $100k in home equity, and parked another $100k in her 401(k). Prudent Penny not only grew her net worth by $350k (from -$150k to +$200k): she also plans to continue saving 20% through the rest of her BigLaw career. Good for her for being so financially prudent, we say, and that’s fair. After all, 20% is substantially more than the 10%-15% that financial advisors typically prescribe.
While Prudent Penny is obviously much better off than Whippersnapper Winston, they are both what personal finance literature refers to as HENRYs or ‘high earners, not rich yet.' HENRYs are white-collar professionals who earn significant paychecks, but for a variety of reasons, be it a penchant for lavish spending or poor understanding of finances, are not wealthy and—here’s the real kicker—may never become wealthy. This is because the true measure of wealth is not a question of how much, but how long. True wealth has little to do with how much you make—that’s just your spending power.
The best measure of wealth is the amount of time that you would be able to maintain your preferred lifestyle without having to work for a paycheck.
A HENRY, therefore, is a high-earning, high-spending professional who is unlikely to experience true wealth before their sixties or seventies, if ever.
It should be obvious that Whippersnapper Winston is a HENRY. But why is Prudent Penny, with her $200k net worth, a HENRY as well? Because she’s a member of the so-called ‘Working Rich’ class.
The Working Rich are those destined to keep working a high-income, high-stress job for many decades to come in order to sustain their spending habits and social status.
While Prudent Penny’s 20% savings rate is obviously much better than not saving at all, it still means that she is spending 80% of her massive income and will therefore need to work for nearly 4 decades in BigLaw in order to be able to retire.
While the Working Rich is still a pretty good place to be all things considered, it’s far from perfect. The expensive lifestyle of the Working Rich is perpetually on the line. This results in feelings of financial precarity that typically manifest in stress, burnout, class anxiety and job dissatisfaction.
Most BigLaw attorneys—from associate all the way up to equity partner—are HENRYs who either have no wealth to speak of (like Whippersnapper Winston) or set aside the bare minimum of 10-20% (like Prudent Penny), which virtually guarantees they’ll be walking a financial tight-rope through the BigLaw pressure-cooker for many decades to come. That is no way to live, particularly when you don’t have to.
Everyone in BigLaw can migrate from the Working Rich to the Actually Rich
What does it mean to be Actually Rich? To be truly wealthy, you must be financially independent. Financial independence may sound like a millennial soundbite, but it essentially boils down to this: you don’t have to work for a paycheck in order to maintain your preferred lifestyle for the rest of your life. Becoming financially independent is not a choice—everyone has to attain financial independence, ideally before they’re 65, if they have any hope of retiring.
While many of the Working Rich confuse themselves with the Actually Rich, the truth is that the two groups don’t have too much in common. The Working Rich get up earlier than they otherwise would, to go where they would rather not go, and perform tasks they would not otherwise do. The Actually Rich get up when they want, to go where they want, and do what they want, with whom they want.
One great thing about BigLaw is that you can graduate from the Working Rich to the Actually Rich in a reasonably short period of time. If you increase your savings rate to 65% rather than a mere 20%, then your mandatory BigLaw career is now down to 10 years instead of 40. Many Americans are not able to save at all, and those who can are lucky to be able to set aside 10% as financial advisors prescribe. But as BigLaw attorneys, we’re uniquely privileged: we make so much that we can conceivably afford to save the majority of our income, thereby reducing our mandatory work careers and setting ourselves up for spectacular financial success. Indeed, every BigLaw attorney should strive to achieve financial independence as early as they can.
Law school debt and high cost of living are not the reason why you’re a member of the Working Rich
Why do so many BigLaw attorneys have trouble saving? Because they’re saddled with debt, the popular wisdom goes. Yes, the average law student graduate in 2020 carried $145.5k in debt, but, if you’re in BigLaw, having law school debt is a very poor excuse for not investing and accumulating wealth. First-year BigLaw associates who started their career in 2020 will earn, between base compensation and bonuses, a total of $2.64M over the first 8 years of their career (using the BigLaw associate pay scale as of Q1 2021). Take out about a third for taxes, which is roughly accurate for a Boston-based BigLaw attorney, and you’re still left with an after-tax total $1.76M. (Run your own numbers for your specific location.)
$1.76M in after-tax pay: what a completely ridiculous amount! You get where this is headed: you simply cannot use your law school debt as an excuse to be a HENRY.
Even if you have $250k in debt, that still leaves you with approximately $1.5M of net income over your associate years, and that’s a lot of money that you can both use to have a great life and allocate a significant chunk towards building long-term wealth.
High cost of living in cities where BigLaw jobs are concentrated is another excuse we’ve heard all too often as a reason why BigLaw attorneys are unable to save. We always find this to be out of touch and insensitive to the many Americans who can’t even dream of BigLaw-scale incomes, yet make do in the very same high-cost-of-living areas. If you feel like the cost of living in your area is what keeps you in the HENRY ranks, we recommend being as introspective as possible and truly understanding how your spending habits might be holding you back. Did you feel poor back when you were making a first-year salary? Unlikely. Coming out of law school, you probably felt like you had hit the jackpot. What changed so that a first-year salary is no longer enough?
While everyone’s circumstances vary, one thing is for sure: BigLaw pays a lot of money and most people should not need to spend to the brink in order to to live a happy and fulfilling life. Most of us can, and should, save and invest our way out of the Working Rich class. Just think of that $1.76M net BigLaw associate payday. At the end of your 8 years as a BigLaw associate, you’ll want all the stress and all-nighters to have been worth it; you’ll want to be proud of the wealth you’ve built rather than full of regret over the immense opportunity wasted.