Most lawyers today graduate law school with over $70,000 in student loans, which presents a unique set of challenges for getting on top of your finances. Setting and sticking to a budget is challenging but important to ensure financial success.
So, with staggering student debt, how do you pay your bills, eat AND save for retirement? We asked our financial advisors for tips for new lawyers who want to start planning for a successful financial future.
Get on top of your debt
Student debt is one of the biggest financial burdens for new lawyers. Determine when you would like to have your loan paid off and set your monthly payments to achieve your timeline goal. The sooner you pay it off, the less interest you will accumulate and the more you’ll have leftover for discretionary spending or savings. If you have multiple sources of debt, make sure to pay off the high-interest debt first.
Look at your expenses
It’s important to be aware of the scope of your spending. Take a close look at your spending habits. You may be surprised how much money you spend on items or activities that are not an integral part of your needs or lifestyle. Once you know exactly where your money goes, it becomes easier to make spending cuts.
Needs vs. wants
In today’s digital age there is a lot of pressure to reflect a lifestyle that looks good on social media. Unfortunately this can be challenging and causes frivolous spending. A good way to gauge how to get ahead is the 50/20/30 rule. As it stands 50% of your income should go to ‘needs’ like housing, food and expenses that are absolutely necessary. The next step, and one of the most difficult to achieve, is saving 20%. This includes putting money away in a separate savings account, paying off debt and saving for retirement. The final 30% is the fun part; this goes towards your personal expenses like entertainment, clothes, vacation and whatever else is on your ‘wants’ list.
It’s never too early to start investing. Use a retirement calculator to see what you need to be saving to meet your long-term needs. It’s okay to start small … just start!
You may find out that after compiling a list of your expenses, you don’t have enough money left over to meet every goal on your list. That’s okay! You may need to reevaluate your goals, curb your spending or lengthen your timeline. What’s most important is that you are aware of your current situation and that you are taking steps towards a strong financial future. Even small moves in the right direction can positively impact your future immensely.