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Congratulations! You survived law school, passed the bar and got a job. By now you’re somewhat settled in. Some partners have learned your name, and you’ve received a few paychecks.
So, what will you do with the steady earnings?
Since it is far easier to start your financial life on the right foot than be forced to adjust bad habits decades later, here’s a checklist covering what to do and what to avoid as a new attorney.
Before we dive in, please note that the following items are presented for educational purposes only. Nothing here is or should be considered specific financial advice for you. As your situation is undoubtedly nuanced, you should seek the advice of financial and tax professionals before using the strategies mentioned.
Sometimes called “lifestyle creep,” this personal finance villain snares countless lawyers, and it is especially prevalent among those whose incomes have recently jumped. Newly minted associates are particularly susceptible.
Lifestyle creep might covertly enter your post-law school world as a few nicer things here and there … nothing too extravagant. The occasional nicer dinner with friends, a car that regularly starts, and a vacation to a local beach or lake. At this point, everything is fine.
With blinding speed, however, those “nicer things” can morph into German autos, Italian leather goods, a seven-figure home, and vacations to places seen by most only on the Travel Channel.
Why does this matter? In a word, freedom. Living at the level of your income and routinely spending every dollar that enters your bank account will shackle you to your job. Once you become accustomed to a certain standard of living, it’s tremendously difficult to adjust your spending and lifestyle downward. Lifestyle creep will cripple your professional and personal flexibility.
Eventually going part-time, starting your own firm, entering public service, returning to school, and in some cases, even going in-house, are all out of the question. Your lifestyle simply won’t afford any downward adjustment in income.
How do you not live at the level of your income? Aim to live like (or almost like) you did in law school during your first few years of practicing. While this might be tough to do, you’ll be glad to discover in a couple of years that your credit card debt is gone, you’ve saved some money, and you are free to explore career options.
Realistically, you’ll need to upgrade a few things once you’ve started working, and that’s OK. Just do it discerningly.
Young lawyers run into trouble when they’re not cognizant of how much comes in and how much goes out of their bank accounts each month. Lack of awareness leads to spending everything that comes in (and not saving), or worse, spending too much and running up credit card balances.
How do you avoid overspending?
Get familiar with your weekly figure. Your options for boosting it: slashing expenses, or earning more money (or both).
Over time, earning more money has a far greater impact. But you can’t realistically renegotiate your pay six months into your first year. So instead, look to cut expenses.
Look first at reducing your fixed expenses. Renegotiating a cable bill, changing utility providers and rebidding your car insurance can often yield savings without disrupting your lifestyle. From there, look at cutting back on your variable expenses — the restaurants, groceries, shopping and entertainment, and so on.
Regardless of what you choose to adjust, awareness of your cash flow will drive better decisions.
Get organized and confront credit card and student loan debts head-on and you’ll find them less daunting.
For credit cards, visit each card’s website to find your current balance, interest rate and required minimum monthly payment. Enter this info into an Excel or Google spreadsheet to get organized. Focus your efforts and dollars to pay off one card at a time. Choose either the “snowball” method (lowest balance first) or the “avalanche” method (highest interest rate first) and stick with your choice to pay off your debts. Here’s a more in-depth discussion of credit card paydown strategies.
With federal student loans you have two main paths:
Analyzing these choices is too complicated and nuanced to responsibly discuss here. Take a look at the Student Loan Planner’s blog for several in-depth student loan discussions.
If your employer matches your retirement plan contributions up to some level, then contribute up to that level. That’s free money.
Seriously, increase your contributions today to take full advantage of any matching dollars. You’ll be amazed how fast this increases your savings. To gauge the impact of increasing your retirement plan contributions, use ADP’s paycheck calculator.
That’s right. A variety of taxes devour a material portion of your gross (pretax) income. Understanding how much you pay, and why, will serve you well for the rest of your professional career and beyond.
Start by preparing and filing your own taxes for a few years. This isn’t nearly as complicated as it sounds and will provide you with a good basic tax education.
Yes, calls from recruiters can be disruptive and tend to come at the worst times — like when you’re waiting for a partner, an opposing counsel, or a client to call.
However, when you do need a recruiter, you’ll want to have the relationship already established. While this may be more relevant for Biglaw attorneys considering lateral moves, a good recruiter can help you benchmark your salary based on your experience and the geography in which you’re practicing — even if you’re at a smaller firm.
Also, many jobs are never posted publicly. Recruiters network constantly and are often better informed than your colleagues about which firms are hiring. And if you’re considering a move to a business-oriented, nontraditional legal role, a recruiter can do wonders to package and present your skillset in a way that lands interviews for you.
Read our updated 30-page downloadable ezine, packed with expert advice on business development for new lawyers. Show them you’re a keeper.
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It sucks when clients take advantage of us and don't pay their bills.January 15, 2019 0 0 0