Lawyers are highly regarded by most of the general public – thanks at least in part to the affluence and prestige associated with the career. Unfortunately, earning power does not automatically bestow money-management skills, so here are a few money lessons every young family lawyer needs to learn.
By Michael Deane, Marketing Consultant, and Diana Shepherd, Divorce Financial Analyst
According to “What Do New Law Graduates Who Go into Private Practice Earn? A 25-Year Retrospective,” published by the National Association for Law Placement (NALP), in 2009, the median starting salary for associates at law firms of all sizes was $130,000. As the recession deepened, that number dropped to a low of $80,000 in 2011, recovering by about $5,000/year until 2017, when the year-over-year increase was $13,000 (to $117,000). As of January 1, 2019, the overall median first-year base salary was $155,000: up $20,000 (14.8%) from 2017, the year of the most recent previous survey administration.
However, law firms of 251+ lawyers accounted for about 70% of responses in the NALP salary survey; for small or solo firms, the news was not so good. The vast majority of lawyers – especially family lawyers – don’t work at Big Law firms, and their starting salaries are considerably lower. According to NALP, the median starting salary at law firms with 1-10 lawyers is just $58,000 – compared to $180,000 at firms with 500+ lawyers.
“The difference is stark: whereas the median salaries at the largest firms (251+ attorneys) have gone up by 157%, at the smallest firms the median has not even doubled. This discrepancy has contributed to the evolution of the bi-modal nature of the salary distribution,” state the researchers at NALP.
Like many others, the legal profession took a big hit in the recession; despite that, and despite the high cost of carrying debt from student loans, the law profession remains highly sought-after.
6 Money Lessons Every Young Family Lawyer Should Learn
As a lawyer, you stand shoulder-to-shoulder with doctors near the top of the career pyramid. However, neither law nor medical school teaches money-management skills, and the inability to manage finances is so ingrained that in 2013, the New York Times listed lawyers and doctors as two groups of professionals with bad money-management skills.
With growing competition and lower salary caps for lawyers, it’s important to start getting wiser with money management to avoid repeating the mistakes of others in your chosen profession. We’ve broken down the essential money-management lessons you’ll need to know to walk away as a money-savvy lawyer.
1. You Must Overcome a Relatively Late Start to Your Career.
It’s no secret that a long educational road goes hand-in-hand with being a lawyer. This explains why most lawyers start their careers later than a typical college graduate; lawyers typically spend 35 years working versus 43 earning years for the rest of us.
A late entry into the workforce has a huge impact on your personal finances, including how much you can save for retirement. Unfortunately, young lawyers have the additional burden of massive student loans to pay off, which is a result of all those years spent at law school and as an undergraduate, and the fact that college tuition has more than doubled since the 1980s.
2. You Need a Plan for Repaying Student Loan Debt.
The most recent statistics on law school debt are from 2012, when the ABA released a chart showing that average public school debt was $84,600 and private school debt was $122,000. We may not have an official number, but we know that things have gotten worse.
“Student loan debt is now the second-highest consumer debt category – behind only mortgage debt – and higher than both credit cards and auto loans,” notes Zack Friedman in “Student Loan Debt Statistics In 2018: A $1.5 Trillion Crisis” (Forbes, June 2018).
“Between the years when millennials were born and a few years after they finished college, the cost of an undergraduate degree rose 213% at public schools. Private school college students fared somewhat better, with their cost of tuition going up by 129%,” notes Shannon Insler in her article, “Do Millennials Have It Better or Worse Than Generations Past?”
Living with a mountain of debt is stressful, and for young family lawyers, their salary for the first few years after law school may not be enough to let them start a family or buy a home until their student loans are paid off.
A crucial money-management lesson to avoid falling into this trap is to strike a balance between paying off student loans as quickly as possible, earning an above-average income, and living frugally until you are debt-free. Make a budget, track where your money goes, make extra loan payments as frequently as possible, and try to refinance your loan at a lower interest rate now that you are gainfully employed. Doing all takes self-control and meticulous planning, but the end result can give you the priceless gift of peace of mind.
3. Determine Your Grand Vision, and Figure Out What it Will Take to Achieve.
As a lawyer, you’ve been gifted with the intellect and education to make your mark in society; the only things left to do is to figure out what mark you wish to make and how you can bring it to fruition. Determining your ultimate goals can assist you to make better money-management decisions. Do you want to retire by 50? Do you want to own a luxury property and/or see the world? Do you want to start your own law firm in five years?
There’s no limit to a dream, but there are limits on how you can turn your dream into reality. With long working hours and a generous salary, lawyers are prone to overspending. However, by remaining firm on your grand vision, you can easily pull yourself away from unwise money management decisions or avoid it altogether.
4. Get Smart About Retirement Planning Now.
Given that lawyers begin their careers late, part of smart money management is to prioritize retirement planning. Although lawyers tend to fare better than the standard college-grad, they also must catch up on their retirement savings once they start working. After all, this is an era when people live longer, government support for retirees continues to weaken, and inflation is a fact of life.
Hiring a financial advisor to help with your retirement planning can go a long way considering that part of retirement planning is looking beyond the accumulation of great wealth. Whether you’re a solo lawyer or one who works for a law firm, you may even be entitled to work-related tax benefits that can go into your retirement savings.
Planning financially for retirement and setting realistic goals while you are young allows you to access the “magic” of compound interest – which will help ensure you achieve your vision of a comfortable retired life.
5. Always Expect the Unexpected.
Life is full of surprises, which explains the need for emergency funds. Starting a career can be treacherous in the beginning and there might be situations, such as falling ill, that may require money – and a lot of it. After paying off your student loans, consider putting aside a sum of money every month as your “rainy day fund.” Set up automatic withdrawals from your regular account to a high-interest savings account. As a word to the wise, gradually save enough to cover at least three months without a salary.
You can even go the extra mile by arranging for health insurance and hiring a good financial planner to make smart investments to boost your income/assets and your emergency funds. Expecting the unexpected will give you a safety net no matter the situation.
6. Set Hourly Rates that Both You and Your Clients Can Afford.
When it comes down to money management for solo lawyers, determining your hourly rates and other fees is paramount if you’re looking to stay financially afloat and have a work-life balance. Remember that you may wind up spending more time (a lot more time in some cases) on a case than your client can afford – but your client is a good person who is being screwed over by their spouse, so you really want to help them. Maybe your personal philosophy has you doing pro bono work for deserving clients. But now you have to spend evenings and weekends on lucrative cases to make up for the hours you can’t/won’t bill for. Never-ending workweeks may seem all-too-familiar to family lawyers, but it can have you headed for burnout in no time.
Many lawyers also face the challenge of money-sensitive clients, which could be a determining factor for hourly rates and for how many new clients you need to bring in every month to keep the lights on and have a personal life. Think of ways to work smarter: which might mean automating certain tasks, or hiring staff to fulfill roles that will free you up to practice law rather than prospecting or handling billing.
7. Adopt a Positive Outlook
Research has proven that there are perks to being optimistic – including improved performance, which can only benefit your financial situation. Unfortunately, stats show that those in law are 3.6 times more unhappy than the general population; lawyers had the highest incidence of depression in a Johns Hopkins University study of more than 100 occupations.1 “The legal profession is waking up to the fact that it has a serious problem with substance abuse and mental health disorders; thankfully, several national lawyer organizations have stepped up to offer programs to promote lawyer well-being,” writes Bree Buchanan in “Addiction and Mental Health Issues Among Family Lawyers” (Family Lawyer Magazine, Fall 2019).
The good news is that despite this, it’s possible for you to rewire your brain and think more positively. Your local bar association may have a Lawyer Assistance Program to help you get back on track, and you can acccess resources for depression, anxiety, and addiction for lawyers here. You can opt for any number of stress reduction and positive thinking techniques – including Cognitive Behavioral Therapy, meditation and chanting mantras, encouraging positivity from others, subscribing to the Happier Podcast, or even singing/listening to your favorite happy songs during a workout. You may need to experiment to find the one(s) that work for you, but if the perks of having a positive world view constitute a better income and a healthier body, then why not go for it? A “happy lawyer” does not have to be an oxymoron – it could be you!
1 Eaton, W.W. (1990), “Occupations and the Prevalence of Major Depressive Disorder,” Journal of Occupational Medicine, 32 (11), 1079-1087.
Michael Deane has been running his own small business marketing consultancy for almost a decade. He has worked with a huge range of clients, which has made him knowledgeable on many different subjects. He has recently rediscovered a passion for writing and hopes to make it a daily habit. You can read more of Michael’s work at Qeedle.com. Diana Shepherd is the Editorial Director of Family Lawyer Magazine. She has been a CDFA® since 2007.
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