Finally starting your first job as a lawyer is exciting and terrifying all at once.
After years of preparation, you finally get to practice, not to mention all the money you’ll be making after living as a broke student. And the money is no joke for those who start out at a BigLaw firm: First-years can start as high as $170,000 per year. With money like that, who needs budgeting? As it turns out, young lawyers absolutely do.
You Have a Lot of Debt
Obviously, almost all new lawyers will be dealing with serious debt, as graduates frequently must contend with law school loans totaling $100,000 or more. For that reason alone, budgeting is important no matter how generous your first-year salary is. Getting rid of debt—both student and credit card debt—should be a new lawyer’s first priority. You don’t have to live with the scarcity you’ve most likely lived with over the past several years, but you also shouldn’t think of a lifestyle full of splurging as your right.
Once your fixed and essential bills are covered, put as much as you can towards your debt every month. If you don’t attack your law school loan debt and try to pay it off sooner rather than later, your finances will be negatively affected for years to come. The longer you take to pay off loans and credit cards, the more of your hard-earned money you’ll have to put towards those things, and the less cash you’ll have to both enjoy and save for your future. You also don’t know how long you’ll be earning such good money; you might decide that three years of BigLaw are all you can stand. Your next position, though more rewarding, might not pay as much, so you shouldn’t count on making such a high salary forever.
A Large Paycheck Can Be Tempting
It can be tempting to spend every cent left over after paying your monthly loan payments when your paycheck is generous. After all, don’t you deserve a new car, don’t you need to dress well for your job, and shouldn’t you buy a house or rent a swanky condo?
You really don’t have to live at the top of your means. You don’t have to buy the most expensive version of everything. You don’t need a brand-new luxury car, and you don’t have to buy a huge house right away. It can be easy for young lawyers to fall into the belief that they need to keep up with the Joneses and keep up the appearance of success among their uber-competitive colleagues. Budgeting a reasonable amount for things like vacations, clothing, and entertainment is the responsible and smart way to handle your finances no matter how much money you earn.
Make your big or expensive purchases intentional, rather than spontaneous or about what other people are doing. Choose a few important things or experiences to upgrade, and they will mean that much more to you.
You Need to Plan for the Future
The best thing you can do for your future self is to set up automatic deposits. With automatic deposits, you won’t have to remember anything or make decisions every pay day. You should put a percentage of your paycheck—at least enough to receive the company match, but hopefully more—into the 401(k) plan offered by your firm. Retirement may seem far off, and you may not see why you should rush to save for it at your age, but you can never start too early. And if you’re like most new lawyers, you’re a few years behind your peers who went into other professions. Even if you aren’t able to put much towards a retirement account, your relative youth means time is on your side. The magic of compounding means you’ll start earning interest on the money you contribute, and that slightly larger sum will then earn interest, and so on. The longer you invest your money, the more you’ll potentially be able to grow it. Not doing so is leaving money on the table.
You should put another percentage of your paycheck towards a savings account. While paying down your debt, focus on accumulating enough savings to cover any emergencies and all your expenses for at least three months in the event of job loss. You can contribute a larger amount to this fund for the first few months to build it up quickly, and then drop down to a lower monthly contribution. You may think you don’t need to save money since you’re making such a generous salary, but that attitude is always a mistake. Remember: You can’t know what the future will hold. The most recent hires are often the first lawyers to be let go if a firm decides to cut back, and no one can predict accidents or serious illnesses. There is no downside to being prepared.