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Your Income Does Not Always Go Up. The Importance of Living On Less.

One of the assumptions a lot of people make when thinking about their income is that it will always go up.  There’s this general belief that the amount you are earning today will just naturally increase.  Each year, you’ll do better at your job, you’ll get a raise, and you’ll just make more money.

The thing is, this isn’t always true.  Your income doesn’t stick to a single trajectory.  It can go up or down.  And heck, over the long term, there’s no guarantee that your income will rise.  Family obligations might move you to part time work.  You might get laid off.  You might get injured.  You might hate your job and decide to take a different career path.  Life gets in the way and we can’t know what the future holds.   I can almost guarantee that a total market index fund will be higher in 10 or 20 years than it is today.  I can’t guarantee that your income in 10 or 20 years will be higher than it is now.

This is one of the reasons its so important to live on significantly less than you earn.  You never know what the future might hold and there’s no guarantees that you’ll be making more next year or ten years from now.  If you’re living on less than you earn, you can ride out the volatility of your income and still reach your financial goals.

Your Income Might Not Last Forever.

I started my working career at a large law firm in the Midwest making $110,000 per year, eventually rising up to $125,000 per year in my third year of practice.  Like almost every young lawyer, I had a large amount of student loan debt too.  But who cares?  All I had to do was just keep working, my income would keep rising, and I could just keep paying my bills.  This gravy train is never ending right?

I saw this type of belief a lot at my law firm with my other young colleagues living it up and spending with the assumption that they would just keep making this type of salary forever.  I never understood this type of thinking.  You see, big law firms are well known for having a high attrition rate.  An entering class of new associates might number 20 people.  Only 1 or 2 of those people are realistically expected to become partners at the firm making the REALLY big bucks.

On the other hand, the typical big law associate (like myself) will move on to other work within the first 3-5 years of practice.  They might go in-house to work for a company, or they might move to another law firm, or they might move into the public sector.  One thing is pretty certain, when you leave the big law firm world, it’s pretty likely that your income will not keep rising at the same rate.  More likely than not, it will fall.  This is especially true if you decide to make the switch into public service, which is the route I ended up taking.

This is why it always confused me when I saw a young lawyer making six figures and also spending like they made six figures.  It didn’t make sense to me.  Why would you live like you were making big money when you know (or should know) that this type of salary probably won’t last forever?

You see this same type of thinking in other high income earning type fields.  Doctors and dentists enter the workforce and immediately buy the large house and spend up to what they are currently earning, hundreds of thousands of dollars per year, despite carrying huge mountains of debt.  NFL and NBA players, as has been well publicized, are notorious for going bankrupt soon after retiring.

Like I said, your income doesn’t always rise.

Living On Less Allowed Me To Handle My Own Income Volatility.

In June 2016, I left my law firm job of 3 years and took a position as a state lawyer.  I made the switch primarily for personal reasons.  I was having issues at work and saw an opportunity to do something that looked to be more satisfying to me from a professional standpoint.

Oh yeah, when I switched jobs, I went from making 125,000 per year to making $75,000 per year.  That’s a $50,000 pay cut!  From a pure money standpoint, the move probably didn’t make sense.

For me though, it made sense, even financially.  When I made the decision to search for a new job, I was already on track to pay off my student loans by June of 2016.  Rather than live the lifestyle of a person making six figures, I had lived as if I was making much less, knowing that my income could drop at any moment.  When my income dropped $50k, it didn’t matter to me.  I had been living on so much less that the extra money I had been earning had just been funneled into my student loans, which are now gone!  I didn’t need that extra $50k.  I was prepared to handle my income volatility.

Live On Less And You’ll Still Have a High Savings Rate If Your Income Drops.

Despite a $50,000 per year paycut, I still manage to maintain a high savings rate.  This was another benefit of understanding that my income would not always rise.  I could take the paycut and have absolutely no effect on my lifestyle at all.

In fact, despite taking a $50,000 paycut, my anticipated retirement savings for the year has dropped only $1925.  How is that possible?

  • Well, the first thing I did was pay off my student loans.  I knew that if I was going to start a new job, I wanted to start fresh with no student loan obligations.  $87k of student loans gone.  Poof!
  • In 2016, I was on pace to max out my 401(k), max out my Roth IRA, and max out my HSA, for a total of $26,850 saved towards retirement.  My big law firm gave us no match on our 401(k).
  • Despite my $50,000 pay cut, I’m still on pace to save $24,925 for retirement, or over $2000 per month into retirement.  The state gives us state employees a 6% match for our pension.  State law requires us to put in our own 5.5% into our pension.  That’s 11.5% the state requires us to save for retirement by law, which is pretty darn good actually.
  • I then did some math and added in another 10% of my income into a 457(b) plan.  I plan to increase this number at some point, but right off the bat, that’s 21.5% of my pre-tax income put away into tax advantaged retirement savings.
  • I made no changes to my Roth IRA or HSA – I’m still maxing them out at $5500 and $3350 respectively.  Add it all together, and I’m still saving a ton of money, despite taking the huge paycut.

My salary might have dropped significantly, but I’m still doing alright I think.

If You Understand That Your Income Can Be Volatile, You’ll Never Be Stuck.

When I left my job at the big law firm, I was doing really bad mentally.  My motivation was low. I was frustrated with the work.  I wasn’t satisfied.  And I was stressed and anxious.  I needed to make the change, and when I saw the opportunity to get out of there, I took it.

I wasn’t alone.  I don’t have any empirical measurements, but I’d guess the vast majority of my young colleagues felt the same way.  Everyone wanted out.  Or at least that’s what we’d all talk about when griping about another weekend lost or another night spent at the office.

The only thing is, not everyone could get out.  They’d set up their life with the assumption that their income was this certain high amount, and that it could only go up from there, or at least stay the same.  They had bills to pay now.  A rent or a big mortgage that they had taken out based on their income.  Student loans that hadn’t been paid because they knew they could just pay them later.  If they wanted to take a better job, they’d probably have to take the paycut too.  But most people weren’t in the position to take the paycut.  They were stuck.

I think that if you understand that your income is not guaranteed to always go up, and always live on less, you’ll find that you’re never stuck working for a certain level of paycheck.  The world will really open up.

What do you think?


  1. Completely agree. This is especially a problem for lawyers who work in the fancy law firms. You start at a high salary and after a few months everybody just assumes it will continue forever. I see plenty of young lawyers spend the first 1-3 of practice mishandling their money. It’s hard to completely blame them as it’s very stressful being a first and second year associate. You need to unwind and there has to be some balance to working all the time and actually enjoying life. So while I don’t advocate for those lawyers to go home and watch Netflix every night, I do try to point out that the gravy train may not last forever and that if they make smart decisions like living with roommates for the first few years they can make solid progress in setting up their financial future. Once you’ve done that, the world really opens up – just like when you decided to jump from the firm and take the state attorney job. Could you have done that if you had another $100K to pay off?

    • Definitely true. Biglaw is definitely one of those jobs where you have to anticipate that your income will probably go down at some point, assuming you aren’t the type that wants to stay in biglaw forever. Once I got that debt paid off, I really felt free to leave biglaw. Meanwhile, I have a ton of friends who are stuck. They complain about horrible biglaw is, but they can’t do anything about it.

      I’m in the midwest, so our biglaw market rate for 1st year associates was 110k, so it wouldn’t have been possible to pay off another 100k in the time I did. For anyone starting law school or considering becoming a lawyer, you need to carefully consider what sort of income you are expecting to make with your expected debt load.

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