How Wise Lawyers Think About Their Money
It’s human nature to wonder what other successful people are doing. This is especially true of lawyers where precedent is such a powerful concept. With that in mind, here are some key habits of the most financially savvy lawyers I’ve known.
1. Focus on what you can control
So much of our lives, especially our financial lives, is out of our control. We have zero control over the ebbs and flows of the world economy or the peaks and valleys of the stock market. All we can do is react and make wise decisions with the information we have. Smart lawyers recognize this and focus on what they can control, namely spending and after-tax savings.
For virtually everyone, spending will be the single biggest driver of how successful their retirement will be. It’s also something over which we can exert significant control. The wisest lawyers I’ve worked with track their spending carefully and avoid falling into the “comparison trap” of comparing their lifestyles to those of their partners and peers from other professions. They show discipline avoiding the temptation to allow their spending to increase in lockstep with their income.
Wise lawyers also recognize the importance of maxing out any firm-sponsored retirement plans available to them. They also realize that the savings into those qualified plans may not be enough to fully fund their retirement. So, they focus on the after-tax annual savings target they need in order to enjoy a full life upon retirement. They even come up with a savings action plan, based on their specific partner distribution schedule so they know how much they need to sock away from each partner distribution.
4. Awareness of Peak Earnings Mortality
Wise lawyers have one eye on today and the other eye on tomorrow. They recognize that although they may be enjoying their peak earning years now, it won’t last forever. Many firms still have some type of nuanced approach to encouraging senior partners to retire later in their careers. Wise lawyers understand that they won’t make the kind of income they’re enjoying now for an unlimited number of years. Consequently, they take advantage of the peak earnings years and make sure that those years double as peak savings years.
Wise lawyers also recognize that when the economy is humming lawyers are busy and profits per partner are likely quite good. However, the pendulum can swing the other way and when recessions hit, law firm partner incomes can suffer. The smartest lawyers I’ve known make realistic assumptions about their income growth and budget using conservative estimates for how their income will increase over time.
5. Don’t Ignore Estate Planning
Estate planning is rarely a favorite conversation topic for most of us. Wise lawyers recognize that an updated estate plan is critical to their long-term financial success and ensuring that the assets they’ve worked so many hours to accumulate land in the right hands once they’re gone.
Estate planning should not be a one and done exercise. As your life evolves your estate plan should evolve with you and should be revisited every few years to make sure that it is updated to reflect current law and your current wishes. Lawyers are often so busy fixing other peoples’ problems that they don’t take the time to make sure their own affairs are in order. Wise lawyers don’t make this mistake.
It’s often been said that when it comes to your money it’s not what you make, but what you keep that counts. By adopting some of these healthy habits of wise lawyers you will be able to keep more of the money you work so hard to make.
Justin Peacock, MBA, CFP® is an Owner and Wealth Manager at BDF. He works closely with clients to design wealth management plans that take into account the full spectrum of their career and personal concerns. Justin graduated from Illinois State University with a B.S. in Mass Communication and earned his MBA from Northwestern University’s J.L. Kellogg School of Business.