Surely at some point you’ve heard somebody say “it’s not how you start, it’s how you finish that counts.” Nobody ever won a gold medal for coming in first at the 20 meter mark. While there’s a lot of truth to that, I would argue that it’s a lot easier to finish strong if you get off to a good start. For lawyers this means making wise financial decisions from the get-go.
This blog is the second installment in a series focused on the steps lawyers should take to prepare for “life after law” based on where they are in their career. Today we’ll focus on associates. The patterns you form during your early years in law firm land will go a long way toward shaping your financial future. Here are a few tips to keep in mind:
1) Pay down law school debt – The financial crisis of 2008-09 took a significant toll on new associate hiring. Big law firms consistently reduced the size of summer associate classes and major buyers of law firm services have increasingly brought more legal work in-house. That makes for a tough job market. The good news, however is that new associate salaries at top firms have enjoyed some nice bumps of late. So, if you are one of the fortunate law school grads to land a prime position at an AM LAW 100 firm, congratulations! The key now is to take full advantage of your good fortune by consistently paying off your law school loans. Getting yourself out of debt quickly will streamline your path to financial freedom.
2) Form healthy habits – Law firms, especially big law firms, have historically done a nice job of providing quality retirement plans for their people. As an associate it’s critical to take full advantage of these plans by maxing out your contributions as early in your career as possible. Time is on your side so the sooner you start building your retirement nest egg, the better. It’s worth having a little less spending money in your wallet today in exchange for a whole lot more in your retirement account 40 years from now. Firms make it easy to contribute – just select a percentage of your salary to contribute and they’ll automatically deduct it from your paycheck. If you start early it will become a way of life and you won’t have to unlearn bad financial habits later in your career.
3) Avoid the comparison trap – One of the biggest challenges you face as an associate is the environment that surrounds you. Everywhere you look you see money. Your partner colleagues often earn upwards of seven figures and your investment banker or private equity friends are making serious money too. It’s easy to compare your situation to theirs and try to keep up. Don’t fall into this trap! Learn to live within your means early on in your career. Dare I say, create a budget? The spending habits you form now will greatly influence how you spend as you advance to income partner and eventually equity partner. It’s far too common among lawyers for spending to move in lock-step with income. Dare to be different and start a healthy trend that focuses more on long-term wealth accumulation.
If your career and life itself are races to be run, it’s tempting to just focus on where you finish. While that’s what ultimately matters most, it sure makes it easier to finish well if you also start strong. Hopefully these few pointers will help you get out of the blocks and on the right track.
Justin Peacock, MBA, CFP® is an Owner and Wealth Manager at BDF. In addition, he leads BDF’s Attorney Practice Group. This group is dedicated to providing financial planning and investment management services specifically tailored to addressing the distinct needs of lawyers. As practice group leader, Justin is responsible for the overall vision and strategy of the practice group and for developing customized solutions for BDF’s attorney clients. Justin graduated magna cum laude 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.