Most lawyers reflexively understand the importance of creating a budget and sticking to it.
After all, the proof is there: Budgeting helps us make sure we always have money for the things we need. But still, plenty of lawyers choose, for whatever reason, not to create a spending plan.
We’re here to help. Here is some of the best advice for finally creating – and abiding by – a budget for lawyers.
Do the Math
The top budget tip? Keep it simple. The simplest format that works for most professionals will work for lawyers too: Make a list of all your monthly expenses (rent, groceries, car insurance, etc.), and subtract the total from your incoming monthly salary. The money you have left over is your discretionary income, and you have some flexibility with how you spend it. It’s important, of course, to make sure the sum of your monthly expenses and discretionary spending never outpaces your income; you don’t want to fall into debt.
Tackle Student Loans First
Were your law school student loan payments included in your list of monthly expenses above? They should have been. Student loan interest rates vary, and if not handled efficiently, can end up costing thousands and thousands of dollars in interest over time. Pay your highest-interest loans first and as early as possible. In addition, if you’ve recently changed jobs, it might be time to revisit your loans. You may have the opportunity to refinance them or apply for loan forgiveness, for example.
Whether you’re one of those overworked firm lawyers or an attorney bringing home a more modest salary, it’s important to enjoy the fruits of your labor – without going overboard. Consider choosing select areas in your life to upgrade. Maybe you opt to buy a newer model of the car you drive to work every day or treat yourself to an expensive glass of wine or cocktail at the end of each week. Whatever you choose to upgrade should make you feel happy and accomplished, and should help make it easier to save elsewhere.
Don’t Forget to Save
When it comes to retirement savings, it’s a best practice to max out your 401k contribution. Of course, that can be tough if you’re paying down law school loans or aren’t taking home a sufficient salary that leaves enough room for you to save on top of monthly expenses. In that case, the best thing you can do is start small (committing 2-3% of your salary to savings), with a goal of increasing your contribution over time. Starting is key. At the same time, you should work to have three months’ worth of expenses in a savings account that you can access in case of an emergency. This will help you rest a little easier knowing you’re prepared for unexpected events.
Plan for Your Future
Especially if you’re a few years out of law school, you’ve likely started to think about where your career will take you. If you’re in Biglaw, do you want to be there forever or just long enough to pay off your loans and save a little? Do you want to retire by the time you’re 50? Variables like these and others will affect the way you budget for your current life. You may have to save more (or might be able to get away with saving a little less) depending on your future plans.
Take the first step and make a list of your recurring monthly expenses. Subtract them from your take-home monthly salary as described in the first tip above. How much of this remaining amount do you tend to spend, and what do you spend it on?