Efraim F. Burle (Photo: Courtesy Photo)

Prior to law school, I worked as a financial adviser where I met clients to gain an understanding of their financial situation and recommend a strategy for them to achieve their goals. I was surprised at how young professionals often accomplished so much in their careers yet were struggling to manage their personal finances. This article sets out habits that young lawyers should use as a catalyst for their financial success.

Avoid the Golden Handcuffs

For many young attorneys, a position at a reputable law firm or agency is perhaps their first experience with a substantial paycheck. Seeing these new numbers appear in their account is exciting and creates the illusion that they have an ample capacity to spend much more than as a law student and can finally live their dream life. However, it is prudent to think twice before taking on hefty financial obligations such as leasing a luxury car, renting a high-end apartment or joining an exclusive fitness club. These "golden handcuffs" create fixed costs that can inhibit your ability to make strategic career changes. For example, many associates at large law firms leave to pursue in-house counsel opportunities which often pay significantly less. Living well below your means will not only result in less stress but can grant you the fiscal flexibility to make tactical career changes if needed.

 Set a Plan of Action

Once you have secured a job it is important to evaluate your financial state so that you can create a monthly or bi-weekly budget. What is your salary after taxes and deductions? What are your fixed monthly expenses, i.e., rent, utilities, student loan repayment? What are your life goals? These ambitions can include paying off student loans, saving for a wedding, and purchasing your first home. You are significantly more likely to achieve these goals if you write them down and thoroughly recognize their financial implications.

Understand Your Taxes and Retirement Strategy

Speaking to your accountant can help you grasp your current tax situation and develop an approach to reduce your tax obligations and effectively plan for retirement. For example, you can contribute into a tax-deferred retirement savings account that will be taxed in the future, when you will presumably fall into a lower income tax bracket. Your employer might offer retirement packages where they match a portion of your retirement contributions, which is free money! Further, regularly saving for retirement earlier on will allow you to take greater advantage of compound interest as well as to build good saving habits.

Strategically Attack Your Debt

Look at your current debt obligations and their corresponding interest rates and minimum payments. Generally, you should prioritize paying off debt with the highest interest rates first, then focus on the second highest, and so on. You may also be eligible for a line of credit or debt consolidation loan that will allow you to consolidate your higher-interest debts into one lower-interest debt. Consider that your debt's interest rate can be higher than the rate you are earning on your savings account or investments, so paying it off will actually yield a higher return on investment.

Evaluate and Protect Your Credit Score

Various websites will allow you to check your credit score for free. It is imperative to know your current credit score and begin to improve it if needed. Having a strong credit score will allow you to borrow money at more favorable interest rates as well as allow you to borrow for larger purchases such as a home or vehicle. Young professionals are often stunned when they are rejected for such purchases despite having a high salary and it is often because of a poor credit score. Making your minimum payments on time, as well as keeping your debt obligations well below your paychecks will help you to improve and protect your credit score.

Plan for Emergencies

Life is unpredictable and COVID-19 is a prime example. It is vital to start an emergency savings account that can help you pay your monthly bills if you suddenly lose your job or face a surprise bill, such as a medical expense. This fund will help you avoid taking on new debt or being unable to pay existing bills, which can damage your credit score. Most experts recommend saving an amount that will keep you afloat for at least six months. Speak to an insurance adviser as well to evaluate insurance products that can help further protect you from such emergencies.

Invest in Yourself

Benjamin Franklin was not kidding when he said that "an investment in knowledge pays the best interest." Spending money on courses and seminars that further your education and personal development can pay large dividends in your career and may sometimes be reimbursed by your employer. Further, science has shown that investing in your health through healthier eating and regular exercise can improve your cognitive function and result in less missed days of work due to illness. Accordingly, it is important to build the habit of investing in your own well-being and potential!

You have made it this far in your legal education and career. Protect and improve yourself with these strong financial habits and continue to see great dividends ahead!