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Tony Novak, CPA, MBA, MT
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Financial planning for young lawyers
by Tony Novak, CPA, MBA, MT
There is an old accountant’s joke that financial planning for attorneys is simple because you are dealing with only three assets – a partnership interest, a retirement plan and a vacation home. It is easy to poke fun at stereotypes. The reality, especially for younger attorneys, is much different.
The path to financial success for young lawyers actually starts even before entrance to law school. The amount of education debt from undergraduate school plus the law school debt is the largest early indicator of financial status. It needs to be taken seriously. Those who postpone repayment or do not make the payoff an early priority may be dogged for decades with repayment burdens.
Automating the paycheck
The almost universal single key to financial success for young attorneys is automating the allocation of each paycheck. The same allocation formulas apply to attorneys as everyone else; the only variable is whether or not the individual chooses to be bound by the automated discipline of salary-deducted and direct deposit allocations.
Disability income insurance
An attorney faces a singular decision of whether to spend 4 percent of total lifetime earning on insurance to protect those earnings. The fact is that some percentage of attorneys will not realize financial success due to an impairment caused by a health or medical problem, including cognitive or mental health issues. When speaking with clients, I phrase it this way: “picture yourself a few years out; would you rather have a $100,000 salary or a $96,000 salary that was insured in the event that you couldn’t come to work. This is an individual decision. In my experience, young attorneys are almost evenly split on the issue. There is nothing wrong with choosing to be uninsured as long as the severity and scope of the risk is understood.
Life insurance seems to be a no-brainer for most attorneys. An overwhelming portion of attorneys I meet have some permanent life insurance. Some may have inadequate coverage amounts, yet attorneys tend to recognize the benefits of cash value life insurance more that most other professionals.
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