An old accountant’s joke say 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.
Following are are just a few issues I’ve noticed affecting young attorneys.
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 allocation
The single most important 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 up to 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. Personally, I’m not a fan of disability insurance for self-employed professionals. 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 is an easy decision for most attorneys. Most attorneys I’ve worked with choose to have at least some amount of permanent life insurance through a top tier carrier. These permanent policies may have inadequate coverage amounts in the event of premature death but attorneys tend to recognize the benefits of cash value life insurance more that most other professionals. Coverage can be supplemented with term life insurance through a group or individual plan.