Hi. Mr. SixFiguresUnder here. Stephanie will be back later this week, but it seemed appropriate for me to cover this topic.
This month marks a major change in our family finances. I have changed jobs. Twice actually. Those of you who have been following for a while know that for the last three years, I’ve worked at a small firm where I earned a commission on actual fees received from my clients each month. It was enjoyable work with good people, and until recently, I even had income-stabilizing draw system to temper the ups and downs of commission work. I also had the potential to earn quite a lot as my monthly revenue trended upward. In the last several months, we’ve seen the amount of revenue increase, and the next few months were going to see several large jobs finally begin to pay out.
Even so, for a number of reasons, it was time to move. So I did. As of September, I’m working as an attorney with the state of California. That’s one change.
Over the last two years, many people have urged in comments or emails, for me to get a second job, delivering pizzas, cleaning buildings, something to increase our family income. Because I enjoy private practice, and some of my clients didn’t want to say goodbye, I also opened my own part-time law office. I’m working with a small number of estate planning, real estate, and business clients, and will likely take a few more in the future. That’s the second change.
This isn’t something we stepped into lightly. In addition to making sure it was both legal and ethical for me to work for myself while working at the state, it takes a substantial amount of time and money to get this started.
It’s an exciting time though. At the state, we’ll be able to rely on higher consistent income at a job where I won’t spend much more than 40 hours a week. At the same time, we can enjoy some of the upsides of my being a solo private practice attorney – choosing my clients, doing work I love and am good at, and paying myself a larger portion of the office’s income than I could ever make at a larger firm.
These are big changes and will have some dramatic effects on our finances and in our family.
Changes in Income
The most apparent change will be the size and regularity of monthly paychecks. At a new salary of $70,000 per year, the checks from the state will be larger than my draw amount at the old firm, although not as large as some of my higher-revenue months I’ve had recently. They will, however, be consistent every month. They will also be, I’d like to repeat, based on about 40 hours of work (and 15 hours of driving) each week.
In addition, I’ll receive income on the side. I’m finishing a few items up for the old firm, and will have some income trickle in there. Other than that, my own office will generate income based on how well I do at taking care of the clients I have. This side income will be wildly inconsistent each month, depending on what kind of work I’m doing and when I get paid for it. We are excited to see exactly what those income numbers look like over the next few months.
Changes in Expenses
These changes will come with some substantial expenses.
1. Health Insurance. While the state offers health insurance, the percentage of premium it pays for the first year is low, leaving us with a much larger insurance bill than we’ve had in the past. For the last nine months we’ve been on a private plan purchased through the California insurance exchange, receiving a substantial subsidy on our premiums.
Sadly, even on the insurance plans through the state that almost exactly mirror our current private plan, the premium is almost $700 higher than our current premium. I don’t really understand that, except that maybe our young, healthy family, is less risk to the insurance company than the aggregate families of all state employees, and so it costs more to buy the same coverage as part of the state employee group.
After the first year, and then again after the second, the percentage of premium paid by the state goes up, so eventually, our premium payments through the state-offered insurance will be closer to those we pay now.
2. Travel Costs. Because the job is a little further away, and in a direction with more traffic, I’ll spend more time on the road each day and our gas bill will increase. In addition, for the first time in my life, I’ll be paying for parking. Even though the state has a program allowing me to pay parking fees with pre-tax dollars, it’s a bitter pill to swallow.
3. Business Expenses. Opening a law firm has some costs of its own. I am very fortunate to have a no-cost venue for an office, so I will pay no rent. I’m also able to pay a portion of the cost of a shared photocopier/printer/scanner, which will keep that expense down.
Even so, malpractice insurance, liability insurance, continuing legal education, banking fees, software, postage, paper, binders, and other office supplies add up to a substantial expense profile. Some of these, like insurance, will be fixed no matter how much work I do at my own office in a month. Others, like postage, paper, and office supplies, will more closely track the amount of work I’m actually doing, so they should be lower in months where my income is lower.
4. Forced Retirement Contributions. While we maximized (or nearly maximized) contributions to our IRAs and my 401(k) for the first few years of our marriage, since going back to school and beginning to incur, then pay off, student loans, we’ve made no further contributions. We are now breaking that seven-year fast. As a state employee, nine percent of each paycheck is taken out automatically and contributed to the employee pension fund. This will reduce our take-home pay each month, but will also force us into retirement savings again.
It’s actually kind of a relief. I’ve been very uncomfortable going this long without adding to our retirement funds, and now, since we don’t have a choice, we’ll be contributing again.
Changes in Taxes
With Stephanie’s blog and Etsy income, and my own firm income, the amount we earn outside of my W2 will be going up. Our total tax liability will grow substantially, at least, I hope so. I don’t really like paying taxes any more than you, but I appreciate that a larger tax bill means, at least in part, that we’re earning more.
To avoid having to make quarterly estimated payments, we’ll need to set withholding from the state’s monthly paycheck at an amount calculated so that our actual withholdings over the year roughly match our actual taxes due for the year. Self-employment income, which is heavily taxed, will make this a challenge.
It’s further complicated by the fact that we’ve been receiving insurance subsidies for most of 2015 based on one prospective annual income amount, but in April 2016 we’ll report that we actually earned a substantially higher amount. (I hope!) Some of those subsidies may need to be repaid. That could leave us with a hefty bill in April instead of a refund. We’ll be holding some funds aside for that purpose.
Changes in Time
On Friday of last week, I made it home about 7:30. It was still light outside, and the kids were still up. My three-year old tromped down the stairs from visiting my parents and saw me. His eyes went wide, and he jumped down the last two stairs to climb into a hug, with a “Dad! How did you get home so early?!”
As some of the start-up work on my own firm gets finished, I hope to spend more time at home than I did even when working just one job at my prior firm. I’ll certainly be spending less time at the state than I did at the old firm. Carefully choosing which work I take, and how much of it, will help me keep my time at my own firm to a reasonable level. Thankfully, I have Stephanie and four adorable kids to remind me if I start losing sight of our goal for me to be home a little more.
And that’s that.
This should make our next few monthly reports more interesting. I’m looking forward to getting to the end of the next few months to see how real life finances stack up to our expectations. I’m also looking forward to being home for dinner more than occasionally.
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Wow, that is wonderful for you and your family! Congratulations on the exciting changes!
Question about your higher insurance premium costs – is there anything preventing you from keeping your current insurance plan rather than paying into his group plan if your current costs are so much lower? Or do they force him to participate in the group plan? Just wondering – I have a colleague that still gets his insurance through the marketplace and it’s cheaper for him than the coverage through our workplace group plan.
We currently get a subsidy for our ACA plan, which we won’t qualify for at his higher income. Also, with the Covered California (ACA) plan we had before, the kids had to be on Medi-Cal (we tried to get them on our plan, but they would not let us have them on our plan at our income level), so at our new income level they would be added in. I think the employer starts to cover more of the cost after he has been working there longer (at least I think that’s what I remember my husband telling me).
Thanks for the thoughts Jen!
My friend is a lawyer for the state and he loves it. Congrats on getting in, it’s a great long-term job to have.
Thanks Steph! We’re happy with it so far!
Congratulations to Mr. Six Figures Under! I bet it’s nice to be able to plan for a stable income. And Jen O., my husband graduated from law school during a steep recession, many decades ago. That reception was considered one of the worst in modern history and was accompanied by a stock market crash. Although he was not fighting the bias against hiring people with different challenges, he did not find a job for quite a while. I can still remember the frustration of that time. It wasn’t as long as you two have been going through this, and my heart goes out to you. I’m going to assume that you are both smart and driven people who are doing all you can do, so I’m not going to make suggestions. Instead, I just wish you both well.
Thanks Linda. And thanks for sharing your experience and spreading encouragement.
Congratulations on the new job! I can appreciate how much your being at home means to your family! Will Mr.SFH be eligible for loan forgiveness programs now that he’s a civil servant?
Hi Eleanor! He would be eligible for loan forgiveness, but that’s not the direction we want to go. Our plan is to have all the student loans paid off by the end of 2016. I wrote about the risks and considerations of public service loan forgiveness program here.
Congratulations on the job change! My husband is working as an attorney for the state of Kansas – our salary is lower, but so is our cost of living, so I guess it all washes out the same. I found myself nodding my head at the additional expenses, like retirement contributions, health insurance, etc. I am really impressed that you are working an extra practice on the side with a 1.5 hr commute each way. I will be curious to read the upcoming budget reports to see what it costs to run your own practice financially. My husband has been looking for ways to generate income on the side, and I don’t know why this did not occur to us. And we don’t have the challenge of a long commute – he works within 2 miles of our home.
Wow! Two miles from work sounds like a dream!
I’m excited to see what it costs to run the practice too. He has the benefit of having built his own clientele for the past three years. With plenty of matters already in the works (and new clients in the wings), being profitable shouldn’t be a problem. Still, it will be interesting to see how it all works out!
Congratulations to you and your family! This is so exciting!
Thanks Tracie! 🙂
This is great! It sounds like things are moving in a good direction. Lots of income streams is always a good thing!
Yes! I have high hopes with this change!
Congratulations for this new job ! It’s always difficult to find a suitable job, unfortunately… I hope everything will be fine for you…
Big news. Excited to keep following along on this next phase of the journey.
Thanks Jennifer! 🙂
Congratulations! I also work a 40-hour per week job (not as an attorney, but in a position where my law degree is a ‘plus’) and have a side job where I do legal work for an estate planning attorney. The side job isn’t dependent on me getting clients (I would be terrible at that!) but the attorney sending me work for when I am able to do it. I don’t have kids, but there are still some weeks feel like I don’t have any free time. Regardless, it’s been very rewarding for me to have both positions.
When I started my 40 hour per week job my husband and I also had to start putting quite a bit aside for next years taxes, despite the fact we’d each been claiming 0 allowances all year! It did put a damper on how quickly I thought we’d be able to pay off my student loans when I took the job since, in my excitement, I was just looking at the new salary along and forgot about the whole marriage penalty thing (how quickly you forget the things you learn in law school when you don’t use them regularly. . . )
My commute is 2 hours every day (on public transit) to my 40 hour per week job. Can you listen to CLE’s on your drive and get credit for them? I know that’s allowed in some states. Just a thought!
I’d love to hear how this will impact your expected loan payoff date (knowing it is dependent on the whole variable income thing, of course)! Thanks for sharing – I’m nowhere near as disciplined as you guys are but it still helps keep me motivated to read about your experiences!
That’s nice that you can commute on public transportation, but I’m sure it still feels long! He has listened to some CLEs that are non-participatory on his commute. He listens to lots of audio books and podcasts too. And we talk on the phone. 🙂
I’m excited to see how the change will help speed our payoff! I have high hopes that it will have a big impact!
Congratulations to you on the new job! A job, especially one that pays so well, is an absolute blessing. My husband graduated from law school back in 2013, top of his class, but still has not been able to find a job. It is absolutely heart breaking watching him apply for jobs, go to interviews and network with people but nothing ever comes of it. My husband is legally blind and thought that law would be a career he could practice but nobody seems to be willing to give him the chance. Now we are also six figures under and I am chipping away at it a little at a time. I really wish you and you family the very best and I will pray for your success in your new endeavors.
Oh Jen! That is so hard! We have friends who are going through similar challenges finding jobs after graduating from law school. It’s really frustrating and, like you said, heart-breaking to see your husband go through that. Your family will be in my prayers. Linda P also shared some encouragement below (in case you missed it).
Wow! Big news. Is this what prompted the September no spend challenge even though it was a high income month?
So between the two of you, you have four jobs and four kids!!
Do you think this change will speed up the loan repayments?
1.5 hours commute each way? Ugh. Glad you don’t have to worry about snow.
The no-spend month didn’t really have anything to do with the job change. I just thought it was about time to have a no-spend month and wanted to make sure we didn’t splurge on anything just because we had a much higher-than-normal income to budget in sept.
We have high hopes that this change will speed up the debt repayment. Ever since we set the goal to be done by the end of 2016, the numbers have looked impossible. We know it is a matter of earning more. The money he can earn on the side will make a huge difference.
Ahh, the necessary requirement of malpractice insurance-almost the same price if you have 1 client or 20 clients and no lapses in coverage allowed. I can relate!
Congratulations Mr. Six Figures Under on your exciting new adventures! 🙂 I can’t wait to read the next income report and see how things play out. Y’all are such an amazing inspiration to so many!
Thanks Jessi! We’re excited to see how it plays out too! It won’t show up on our next budget update (coming on Friday) since he’s only been paid for a few days so far. He gets his checks at the beginning of the month, so the first real check will be on next month’s report. 🙂
Congratulations on the job change!
it is really interesting reading about taxes and health insurance etc. I live in Canada so our system here is quite different. I would imagine that health care is more for state employees because the toll both physically and mentally would be more perhaps resulting in more claims?
A thought about the parking- is there no small town nearby you could park at and commute in from?
I made the same suggestion about parking– that he could park at a free lot and take public transportation in, but that just eats up a lot of time (and flexibility), which is one of the perks of the job (40 hour a week really sounds glorious compared to what he was doing before). We’re not giving up the idea though, we’re just factoring time into the equation too.
Not to mention the IRS allows much less pre-tax allowances on public transit than they do for parking. I take public transit each month and it costs me $144 per month; the IRS only allows $130 or so to be deducted pre-tax. But for driving and parking? I think it’s $250 pre-tax. I wish they didn’t incentivize driving so much over public transit, but you might as well take advantage of it!
When my husband was working in NYC, we paid almost $1000 per month in insurance. It was ridiculous! When we moved to SLC, we thought there would be a huge drop in premiums because of the cost of living drop, however, it only went down to $750, which was disappointing! Hopefully the pay increase makes up for the extra expenses! Congrats on the new job!
Yeah, you would think the difference would be greater! It will be interesting to see what an actual paycheck looks like with all the different taxes and things taken out. He’s only had one paycheck so far, but it was just for a few days.
Congratulations on the new job with the state and taking the leap to work for yourself at the same time! My husband just recently left his full time job to work for himself. October is going to really be the first month where we’ll feel it. He was paid for his last two weeks of work, and then for his vacation time, so it’s like he was paid for the whole month of September. Thankfully, business has been good for him so far, and we’ll make adjustments along the way. I’m sure you all will figure it out too!
Congrats to you guys too Amy! That’s good to hear that things are going well so far, and it’s nice to have the vacation time paid out! What field is he in (if you don’t mind my asking)?
Congratulations!
Thanks Lizzzy! 🙂
Congratulations on your new job! It sounds like you will be quite busy for awhile, but I know that it will bring you all closer to your goal of eliminating the debt. Well done and good luck!
Thanks Sarah! Right now things are a little crazy with getting some of the matters that carried over from the firm taken care of, but things should calm down soon.
Huge congratulations. Your hard work over the years is being rewarded!
I’m in the UK, so the term State Attorney ( is that correct?) isn’t familiar here but it sounds wonderful. I’d have loved to have studied law but it wasn’t to be and I became a teacher instead.
Just be careful— don’t burn yourself out working so hard.
A well deserved promotion and again Congratulations.
Thanks Pauline! He is a hard worker– I will make sure he doesn’t get burned out. The crazy thing is that having a 40-week and a part-time firm seems to still be less time and stress than what he was doing before.