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6.  » Tips for Young Lawyers

Tips for Young Lawyers

By:  Chris A. Szalay

Well, there's good news and bad news for you. Let’s start with the good news - you just completed law school and landed your first job practicing law. The future couldn't be brighter! The bad news - the student loans and long work hours make you feel like focusing on retirement planning, investing, or other financial goals isn't possible until many years from now. Sound like a familiar tale? As I work predominantly with professionals with careers in the legal field, this situation is very, very common. Fortunately, there are some planning strategies that will be truly advantageous that don't require fancy software, a degree in accounting, or a background on Wall Street.

Whenever you go to a travel website and look for airfare, it is impossible to get any price information if you only include your destination. Obviously, there is an airport that you are traveling from. As with building a financial plan for you and your family, it’s imperative to know where you are currently so you can appropriately plan for where you want to be. What does this mean to you? Get organized! Dig up your insurance policies, find your loan statements, and organize it all in a single location – filing drawer, your computer, etc.

Unless you are hiding under a bridge to escape from student loan debt, you most likely live in an apartment or house and have a variety of monthly bills. The MOST basic but incredibly useful planning strategy is creating a budget (cash flow statement), starting with the items in your life that are purely non-discretionary and comparing it with your gross pay (pre-tax). These non-discretionary items will likely include all utility bills, rent or mortgage, car payments, essential grocery items, other debt payments, insurance costs, cell phone, to name some.

Once you have some concept of your expected income and you have compared it to your non-discretionary expenses, identify some areas where the expense could be potentially mitigated. For example, it may make sense to refinance your mortgage at lower rates, thus lowering your mortgage payment. Or, you could “shop” around electricity rates or insurance policies—you may be pleasantly surprised.

Even if you absolutely just love your job, rarely does anyone want to work until the day they die. However, there seems to be this mental block. You “know” you will want to reduce hours or retire at some point, but it’s almost impossible to determine when those days will come or when you will want to retire. How can you plan for something that has so much uncertainty? I agree—it’s difficult. Without knowing specifically your goals or situation, I would recommend focusing on putting yourself in the best situation possible at some point in your later years. Fortunately, you can multitask to do this.

One of the best strategies, yet very underutilized by young attorneys, is contributing to your 401(k) plan through your employer. I say this knowing that most law firms do not match a dime of what you contribute, and if your employer matches then consider yourself very lucky. With mountains of debt at high interest rates, why contribute to a 401(k)? A few reasons: contributing lowers your adjusted gross income (AGI), which will also lower your tax bill, you don’t pay taxes on any of the investment gains until you withdraw, and you’re able to work on building up your nest-egg for later in life. Consider this scenario: if you are in the 28% tax bracket, each dollar of new income is taxed at 28%. Knowing this, you decide to contribute the maximum amount to your 401(k) of $17,500 (2013 limit). Doing this, you are lowering your AGI by that amount, contributing $17,500 to a plan that is yours to invest fully, and essentially doing so at a 28% discount due to the contribution being pre-tax.

Although we have yet to discuss some of the specifics of financial planning, or even some of the “fun” stuff, such as building an investment portfolio, I encourage you to build a bulletproof foundation first. It’s quite disheartening to visit with legal professionals who are nearing the age of when they can no longer perform their job at the highest level, are looking to retire in a few years, yet have barely any assets to show for their many years of work. They were “too busy” to plan, or “they didn’t have enough time.” If there is one piece of planning advice I could tell you, it would be to begin planning as early as possible and do your best to stay committed. Being an attorney doesn’t mean you need to drive a 5-series BMW, wear clothes only purchased from Neiman Marcus, or live in a $800,000 home. Yet, the pressures to “look the part” seem to create this mentality that you’re not meant for the job or you won’t be successful unless you appear to “fit in.” I’m not advocating living on the streets to save some money; instead, do things in moderation and in balance.

In the next article, I will delve deeper into an area where many of you are familiar: student loans. I will discuss what options you may have to consolidate, reduce the expense, or have student loans help “pay” for some of your tax bill.

Chris A. Szalay
President, Portfolio Manager
Maverick Financial Group, LLC
Securities offered through Maverick Financial Group, LLC, a Registered Investment Advisor (RIA), Member FINRA/SIPC. Maverick Financial Group, LLC is headquartered in The Woodlands, Texas. Maverick Financial Group, LLC is primarily engaged in providing discretionary investment advisory services through the use of separately managed accounts.