246 | My Top Money Advice for Lawyers (Especially First Years)

Too many lawyers struggle with their personal finances. But lawyers are in the perfect position to create financial stability and build wealth.

It just takes the right steps.

In this episode, let’s talk about the keys to financial success for lawyers with actionable insights that will transform the way you approach your money.

• • increasing your lifestyle
  • planning your spending
  • building a cushion for yourself
  • creating a strategy for your debt
  • taking advantage of firm benefits

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You’re listening to Personal Finance for Lawyers. 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.

Today I am bringing you my top money advice for lawyers, and this will be especially helpful for first years who are just getting into the workforce, so that you can set your finances up in a way that’s going to support you throughout your career.

But these tips are broadly applicable regardless of where you are in your career. So let’s get into them.

The first one is don’t increase your lifestyle too quickly.

One of the biggest things I see here is people wanting to get into a certain type of house that they believe that lawyers should have or a certain type of car or that kind of thing. You don’t want to take on those kinds of expenses too early. If your finances aren’t in a place yet to support them, then it’s just going to lead to a bunch of stress, a bunch of financial strain, a bunch of headaches. Right?

So instead of increasing your lifestyle super quickly, you want to increase it slowly. So I’m not suggesting that you should be living the same way that you were living when you were in law school. Maybe you’re in a nicer place, maybe you have a nicer car, but you don’t necessarily have as nice a place as the bank would lend you money for. You don’t have the highest level car or whatever that might be for you.

So make sure that when you’re thinking about increasing your lifestyle, when you’re thinking about those kinds of expenses, you’re also thinking about what other bills you have. You’re thinking about things that you want to do, the goals that you have, to make sure that all of it fits.

Because what happens is people increase their lifestyle really quickly and then they don’t have room for their goal, so they’re just kind of stuck in the same place.

One example of this is I talked with a lawyer who was very eager to get into a house. And so she was living on one of the coasts like California, New York or something like that. And she really wanted a house for her family.

Understandable, I completely get it. However, the issue is when she bought this house, it ended up being 70 percent of her take home pay. So that leaves her with only 30 percent for all of the other things that she needs, for the other things that she wants, and for any goals that she has. And she was under a lot of stress.

That is not what I want for anybody. Law is a stressful enough profession. We don’t need added stress with having purchases that are too big, that are eating up a bunch of money and not allowing us to live the lives that we want.

So that’s why I say don’t increase your lifestyle too quickly. You can increase it some, right? You’re going to live a little bit more, you might go to nicer restaurants, take some vacations, all of that kind of stuff.
But just make sure that you’re taking that holistic view of your finances and looking at the other things that you already have going on when you’re looking at lifestyle increase, especially major purchases like houses and cars and things of that nature.

The next tip, you already know I’m going here. Create a plan for your spending. So many people don’t have a plan. They are just getting their income, getting their paycheck and then they’re making spending decisions based on whether there’s money in the account.

That is not a way to manage your money and that often leads to a paycheck to paycheck cycle. It leads to a lot of stress, it leads to getting down to, you know $100 or so in your checking account and your sweating bullets waiting for the next payday.

Create a plan that means that on the front end, whether it’s at the beginning of the pay period, at the beginning of the month, however you want to do it, but you’re going to create a plan for how you’re going to use your money.

So I got X amount this pay period, or I’m going to get X amount this month, and I’m going to spend this much on these things. I’m going to spend this much on those things. I have these things that I need, these things that I want, these goals.

And so you’re looking at the amount of money that you’re expecting, and you’re allocating it to the different things that you have, the different categories that you’re spending on.

But creating that plan allows you to make sure that you have money for your needs, wants and goals.
You’re still able to spend on things that are important to you, but you’ve planned for them. And one of the addict benefits, there is a lot of times people feel guilty when they’re spending on things that aren’t responsible, right? They’re spending on things that they just want, they just like, whatever the case may be.

If you make a plan and you have money set aside for those types of things, you no longer feel guilty spending on them because you already plan to spend it, and you know that you’re not taking yourself off track from your goals, or you’re not at risk of not being able to pay your bills. You just have that money already set aside.

So make sure that you’re planning your spending that way, you don’t end up having it slip through your fingers. You’re making a good income, so let’s make sure that you’re using that income to benefit yourself. Okay.

The next tip is to build a cushion.

So one of the top things that I talk with my clients about and that I’ve talked about on LinkedIn, that a lot of people have said that they really enjoy is the concept of having a checking account buffer. So the checking account buffer is a floor in your account, an amount of money that just sits there and is a buffer between you and your account hitting zero.

I recommend you start with at least $1,000, because $1,000 is a long way from zero, especially if you’re used to getting down to, you know $100 or something like that.

Having that $1000 buffer in there gives you a lot of wiggle room, if you will, toward the end of the pay period to where you aren’t worried about overdrafting your account. You’re not worried about running out of money. You’ve still got a lot of money in there. Right?

So that is kind of the first layer of your cushion.

But beyond that, you also want to have emergency savings. So a lot of people talk about emergency funds and the typical advice is to have three to six months of expenses set aside in your emergency fund. But there really is no right or wrong answer here. I’ve seen people do as little as a month. I’ve seen people do as much as 12 months.

It’s really personal to you and your risk tolerance and depends on your situation.

But the key is you want to have something.

We just need to have a pot of money set aside so that if something were to come up, if there’s some emergency, there’s some unexpected expense, you lose your job or your furloughed or whatever it is, you’ve got money to fall back on.

So build a cushion and that way you make sure that you’re taking care of yourself in the future and you’re not just spending right now in the present and then something happens inevitably in the future and you aren’t able to support yourself.

The next tip is don’t ignore your debt.

There are so many people who just kind of stick their head in the sand with regard to their student loans or their credit cards or whatever debt you might have. You don’t want to do that because sticking your head in the sand does not mean it goes away. Like the debt is still there, you’re just ignoring it and it’s just continuing to pile up and the interest rates are piling on and whatever else.

So we want to make sure that you actually create a plan for your debt. You’re looking at what’s going on with your debt. You know the details of it, what the minimum payments are, what the interest rates are, and then from there you can create a strategic plan for how you’re going to handle it.

So it might be that you go ahead and pay it all off. It might be that there are certain debts that are more bothersome to you. Like maybe you’ve got high interest credit card debt and you want to get that gone.

It might be that you just hate a certain bank. Like one of my clients had a credit card with a bank that she could not stand and that was the one that she was ready to pay off quickly. Whatever it is, you want to have all of those details available and know what’s going on with your debt so that you can create a plan to take care of it.

Debt is one of those things that the minimum payments just add up and they often are taking out a huge chunk of people’s monthly income.

Like in my case, my husband and I at one point had $3500 of minimum debt payments. And it’s like, we need to get this gone. Like we need to pay this off because that’s a lot of money.

I’ve seen a lot of other attorneys who also have had multiple thousands of dollars coming out just in their debt payments. Where if they could pay their debt off, now they’ve got an extra $2,000 a month that they don’t have to worry about.

And this is beyond your mortgage, your car payment, like I’m talking just credit cards, personal loans, student loans, that kind of stuff, where if they could just pay that off, they have an extra $2000 dollars a month, $4,000 a month.

Paying attention to this debt is a critical piece of your financial plan because a lot of your money is going out to servicing the debt payments and it’s money that you could be using for yourself, for the things that you want, for your own goals, that kind of thing.

Having so much tied up in these monthly payments means that’s less that you could spend on the lifestyle, for example, as we talked about earlier.

So make sure that you are not ignoring your debt payments. Ignoring them is not going to make them go away.

Alright, and the final tip is to take advantage of your firm benefits or the things that your firm offers.

So I often will have clients who’ve got stuff that they’ve paid for, for work and they just haven’t submitted the reimbursements. Like they just got hundreds of dollars that’s sitting there and all they have to do is turn in this form or turn in their receipts or whatever.

Get your money.

Stop just letting this money sit there. If that’s you, make sure you get your money.

One thing that I used to do, like, when I would buy stuff for the firm, I would immediately send the receipt to my assistant and ask her to submit the reimbursement form for me. So if it was like a paper receipt, I would take a picture of it and email it to her. If it was a receipt that got emailed to me, I would forward it to her, but I did it right then in there because one, I didn’t want to forget and two, I didn’t want to lose the receipt, and three, I wanted my money.

So make sure that you are taking advantage of these things and not just allowing all of those reimbursements and stuff like that to pile up because that’s money that could be in your pocket going towards the things that you want or the goals that you have.

Another one is 401k’s. A lot of firms will do matching, so if your firm offers a 401k match, make sure that you’re contributing enough to get the match because that is free money.

There are some instances where it might not be the best to do that. I’ve talked about it before on the podcast. You would have to look at your specific numbers to see, but generally that is a sound strategy. Putting in enough to make sure that you’re getting the match from your firm.

Some firms also offer benefits like flexible spending accounts. We had a flexible spending account or an FSA when our kids were in daycare and so we were able to pay for daycare expenses with pre-tax dollars. That’s a wonderful benefit to you because the money that you’re using to pay for that cost is money that you have not also had to pay taxes on.

If you were using after tax dollars, you would have had to make more to be able to pay that same amount. I hope that makes sense.

So having access to an account like an FSA is really important. It’s a great benefit because of the fact that you’re spending pre-tax dollars.

So it’s not that I had to, let’s say for example, the cost is $2,000. It’s not that I had to make $3,000 and be taxed on it and then I have $2,000 to pay it. I could pay with the $2,000 that I made and not get taxed on it.

I don’t know if I’m articulating it well, but hopefully you’re understanding the point.

The main point being look into the benefits that your firm has and make sure that you’re taking advantage of them. Another one that comes up often is reimbursements, like for your internet, for your cell phone, or maybe even your firm will pay for those things. Make sure you know what’s available because every little bit helps. Anything that you don’t have to pay for is very nice.

So if your firm is willing to pay for a certain thing, like, make sure that you are taking advantage of that because it’s going to help you in your financial journey. So that is my top money advice for lawyers. I hope it is helpful for you.

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As we close out, friend, I pray that you take the information you learn 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.