Money Management for Future Lawyers

Every spring, a new generation of young attorneys graduate from law schools across the country. On the surface, it may seem like these newly appointed attorneys will have little to worry about when it comes to their finances, the economy, and debt load. After all, many young lawyers who go to work at top law firms in metropolitan areas expect to earn close to, if not more than, six figures right out of school. This may not be the norm, but wherever they choose to live, the salary of any first-year associate is usually a comfortable sum.

However, new attorneys often face some pretty tough times financially. How? The reason is twofold: student loan debt and life events. For one thing, most law students have to pay their tuition with student loans, and it’s not uncommon for a student to graduate with more than $100,000 in student loans to pay off. After all, including their college degrees, they have been in college for seven years at this point without many earning opportunities other than part-time jobs. Also, we all know that law school is not cheap.

The second theme is also related to the time they spend in school, but it has to do with life events. Most young lawyers do not enter the workforce until they are in their twenties. That means they’re much closer to thinking about life’s big decisions, like getting married, having kids, and buying a house, all of which cost money. The same could be said for other highly educated young professionals, such as doctors and doctoral candidates.

This leaves many young lawyers a bit stumped when it comes to money management. Which debts should they pay off first? Should they improve their lifestyle or continue to live like a college student and pay off as much debt as possible?

First of all, first-year associates shouldn’t waste time trying to pay off their student loans, especially private loans with APRs above 5%. Making more payments than required may involve some sacrifice in terms of lifestyle choices, but living without the burden of debt is priceless.

If they work in the public or nonprofit sector, or if they are forced to put aside a significant portion of their income (usually at least $1.50 of every $10 earned) to pay off their loans, they may be able to receive a deferment. or break when it comes to federal loan payments.

The second most important debt to tackle is credit cards. Interest rates charged by card issuers are too high these days to allow an unpaid balance to remain in your account for long. Attack this debt as quickly as possible. Credit card debt is a slippery slope.

Unfortunately, the economy has been very hard on people in the legal sector. Many junior and first-year associates have been laid off. To protect yourself against job loss, many experts recommend that you put aside enough money in an emergency fund to cover your expenses for 90 days. This will give you enough time to find another job in case your company is forced to lay off employees.

It may seem early to start thinking about retirement, but young professionals often find themselves far behind their peers who have been in the workforce longer when it comes to saving for retirement. When possible, it’s a good idea to start putting even a small percentage of your income into a retirement savings account. Talk to a financial advisor for more details.

In fact, any young professional who suddenly has an influx of new income would do well to talk to a financial advisor. Reading articles online is not enough. A financial advisor can guide you down the right path and help you develop the right habits when it comes to money management.