The relationship between lawyers and money is often a complicated one.
If you’re just beginning your career, you may be plagued by more debt than you bargained for, even while earning an impressive salary. On the other hand, if you’re mid-career, you may be more comfortable with your financial situation and believe there’s nothing you need to address and certainly no need for a budget.
Lawyers tend not to be the most enthusiastic people when it to comes to numbers, and often end up just kind of ignoring their finances. A hectic schedule, as well as a tendency to think that all is well as long as a high salary keeps rolling in, also contributes to ignoring finances. No matter the income bracket, though, people who budget or are at least aware of their spending habits tend to have fewer financial problems in the long-run, stress less about money, and tend to be able to achieve their financial goals. Taking control of your finances starts with baby steps and doesn’t have to be that difficult.
Identify Why You’re Avoiding Your Finances
First, figure out why you’re avoiding taking charge of your finances. Is it really just that you don’t like math? Or is extensive student debt making you feel stressed, and like it’ll take forever to get where you want to be financially? Are you accustomed to your spending habits and resent any change that might lower your standard of living? It’s helpful to identify your trigger points and reevaluate how you approach them. Most importantly, embrace an optimistic view of your financial situation! Think about how much better you’ll feel as your debt slowly decreases while you save for retirement and are able to still budget for fun things. Or how much your standard of living could eventually improve if you optimized your spending habits just a bit and focused on long-term goals.
Track Your Spending
Tracking your spending is often the most tiresome process of taking charge of your finances. And as a lawyer, you probably have even less time and patience than the average person, especially for tracking your expenses using the dreaded Excel spreadsheet. But don’t worry: Excel proficiency isn’t required. There are numerous apps available that will do the calculations for you and ultimately help you understand your finances. Your bank likely has an app set up to directly track your debit or credit card spending habits. By getting even a rough idea of how much you’re spending, what you’re spending your money on, and how much money you’ll need in order to live your life, you’ll already be in a better position that most Americans.
Determine What You Want to Get out of Your Finances
One way to begin budgeting is by determining what you want from your finances. Money management can seem daunting; by breaking it down and identifying specific goals or steps you’d like to take, you’re making it easier on yourself. Is your next financial goal to own a new home, pay off your law school loans, pay off your mortgage, or maybe even take an exciting vacation soul-searching in Bali or getting your fill of food in Italy? Whatever your financial goals are, you’ll be more motivated to keep up with your budget if you’re working towards them.
Make Peace with Budgeting
Budgeting has become sort of a dirty word. It implies cutting out all the fun between lawyers and money, living at subsistence levels, and absolutely no shopping sprees (which, honestly, we all need sometimes). But it doesn’t have to be that way. Sure, if you really want to you can choose to follow a zero-based budget, where every spending category has a dollar limit and every expenditure must be justified. Doing so will definitely help you avoid overspending, but it can be quite constraining and difficult to follow.
An easier budget to follow is the 50/30/20 rule (popularized by Elizabeth Warren in her 2005 book, All Your Worth: The Ultimate Lifetime Money Plan). The rule basically states that 50% of your after-tax income should go towards necessities, like rent, mortgage payments, food, insurance, law school loans, etc. Another 30% should be put to discretionary spending, to things that bring you enjoyment such as the occasional shopping spree, vacation, or night out. The final 20% should go to your savings and investments, like a 401(k) and other investment accounts, and larger financial goals like a down-payment for a home.
If the 50/30/20 rule is difficult for you, either because of debt or other constraints, you can still find ways to optimize your finances. Try following the “pay yourself first” rule, where you take out 20%, 15%, or even 10% of your paycheck and put it directly into your savings first, living only off the remaining amount. Over time, you’ll build up enough savings to achieve various financial goals.
Seek out Financial Advice
Finances are often a touchy and private subject for most of us. You don’t need to talk about your income, spending, or debt with everyone, but seeking out advice from someone you trust and who has maybe even been in your shoes can prove to be one of the smartest decisions you make. Consider relatives, friends who are lawyers, or a mentor you have a close relationship with. Even better: Make an appointment with a financial advisor. If you don’t have a financial advisor or think you can’t afford one, you’ll be surprised to find out what your actual options are. Your firm may even provide a free meeting with a financial advisor a couple times a year.
It’s time to get a handle on your finances and get in the habit of budgeting. Over the next month, track your spending. Use an app or whatever method you find easiest. Then sit down and create a simple budget, being sure to include fixed bills like rent and car payments as well as reasonable amounts for entertainment and travel. And don’t forget to set some funds aside for savings! Your final step? Commit to following your new budget.