Lawyers are notorious for mishandling their finances, or not handling them at all, but some easy steps can get them on the path toward a secure financial future.
The mishandling is for good reason: The combination of generous salaries and bonuses, high-stress workload, and the tendency for law to attract right-minded individuals means that the average lawyer lacks the time—and often the awareness—to manage their finances responsibly. This is often compounded by lawyers’ general aversion to dealing with numbers.
But handling your finances doesn’t mean you need to become a financial expert overnight, or that you’ll have to change your lifestyle completely and restrict yourself excessively. Instead, financial responsibility is about understanding your finances, planning what you’ll do with your money, and preparing for your financial future. Don’t let the idea of spreadsheets and expense calculations scare you away. While some of us might be comfortable sitting down with a spreadsheet, there are plenty of steps that anyone can take to ensure financial stability without being a math whiz.
And remember, no matter how comfortable you are now—or how budget-averse you’d like to be—ignoring your finances will keep you unaware and unprepared for your financial future, which is likely to limit your flexibility and options at some point down the road. The key is to get started and the steps below are meant to help you do just that.
Step One: Stop Ignoring Your Finances
The first step to dealing with your finances is fairly simple: stop ignoring how you spend and save. To start with, click over to your online bank account. If you’ve forgotten your password and need to do a reset, that’s a good indicator that you’re not logging in enough and keeping tabs on your financial condition. Once logged in, you’ll have a range of tools available to you, such as expense charts showing the breakdown of your monthly debit card use. Take a look at your typical weekly expenses, whether you’re a regular spender or tend to save up and splurge. Do the same with your credit card statement (if you have more than one, you can just focus on the one with the largest balance for now). Skim through your monthly bank and credit card statements for the last two periods and take note of any repeating payments—you may be subscribed to more streaming services, news sites, or other recurring expenses than you think. That’s not to say you have to choose between your Spotify and Netflix account, but it’s a good idea to know where your money is going every month and try to eliminate any expenses for services you’re not taking advantage of.
The goal is not so much to eliminate things you enjoy, but rather to make sure each dollar you’re spending is worth it to you, and that you’re getting something you value in return. If you don’t know already, also take a look at your direct deposit slips to get a rough sense of how much money is being taken out of your paycheck and for what. While looking at your monthly expenses is a great way to get a handle on what you’re spending, looking at the funds you’re earning every month can help you put these expenses in perspective.
Step Two: Brush Up on Your Terms
No matter what your financial situation is, it’s going to be difficult to navigate money matters if you’re not familiar with basic terminology. Think 1L, only this time it’s just you and your bank account. Next time you find yourself on the train, in a doctor’s office, or in line for Starbucks, pull up our list of financial terms you should know to give yourself a firm grounding in the basic terms and concepts. Or simply use Google to search for those common terms that you’ve never quite understood. There’s nothing like feeling in-the-know to stave off financial reluctance.
Step Three: Know Your Debt and Be Wary
Debt is a tricky thing. It allows access to opportunities that would otherwise remain inaccessible, but it’s also a scary thing, because it can quickly grow into a burden. Lawyers often relate to debt at the extreme ends of the spectrum: Either they’re debt-avoidant, choosing to enact austere measures to reduce expenses and pay off student loans as quickly as possible, or they’re debt-happy, racking up mileage on a travel rewards card, knowing their paycheck will be enough to cover any expenses. Regardless of the category you lean toward, you can benefit from understanding that all debt is not equal. Bad debt, like credit card bills, needs to be managed as quickly as possible to avoid interest rates and late fees—in addition to the damage late payments can do to your credit score. Good debt is money borrowed for a longer-term investment, such as for school loans or a mortgage on a home.
Getting a handle on the facts about debt will help you navigate your finances and give you a sense of when a potential purchase is too good to pass up—or a choice you’ll regret.
Step Four: Consider Your Future
If we’re being honest, most accountants would put preparing for your future as Step One. In our economy, saving for retirement is becoming more of a challenge as the cost of living rises. Lawyers have a unique set of challenges when it comes to retirement, with a late entry into the workforce and usually extensive student loans to pay off. But saving for retirement is like beating Thanksgiving traffic—the earlier you start, the less you’ll have to worry. Sit down and consider when you’d like to retire and envision how you’d like retirement to look. The where, who, and what of your retirement planning will help you figure out how (and how much) to start saving.
Step Five: Get Help From a Pro
After you’ve got a handle on the basics of financial literacy and your financial goals, there’s no better step to take than finding an accountant or financial advisor you can trust. Depending on where you are in your own career, these professionals can not only help you understand your finances, but guide you to prepare for your future. Whether you’re trying to figure out debt payments or just looking to maximize your retirement fund, a certified financial professional will make sure you get the most for your money. If you’re not sure how to find someone reliable, it’s always a good idea to ask around for a recommendation—especially from fellow lawyers, as their financial service provider will have experience working with the tax bracket and typical challenges of those in legal careers.
It’s time to stop ignoring your finances and start managing them. Go over all your accounts and make sure you’re not paying for anything unnecessarily. Then sit down and make a basic budget that accounts for all your spending and also incorporates saving and planning for the future. If your finances are especially complicated or you feel overwhelmed, make an appointment with a financial professional.