We work with many associates and partner attorneys in large firms. There is often a professional and financial lifecycle as lawyers progress. Here’s what we see:
Early Career: Congratulations! Graduating fresh out of law school and passing the bar exam is an accomplishment. You start at a leading firm in a practice you always wanted. Starting salaries are generous and there are usually annual bonuses of up to 30% of base. Expenses are high. Some of that is setting up a new house, often with a new spouse, and becoming familiar with regular household expenses. Housing, travel and food expenses can run as high as 50% of income (more if you’re in New York, the Bay Area or Washington).
And there’s one big and often intimidating expense. Yes, student loans. It’s best if you can consolidate these (but be careful you don't run afoul of the community property commingling principles) for nothing else than ease of repayment. You may also pay a lower rate.
Start with the basics. Create a budget. Stick to it. Start saving some cash reserves. Three months of expenses is a good number to start with. That’s mostly so you can pay for emergencies or any time off work without having liquidate investments.
Set up a low cost investment savings account. Use ETFs or low cost index funds. Invest $100 a month. Saving $100 a month at a 5% return can grow to $80,000 in 30 years and $192,000 at 10%. So save more if you can. Get into the habit of “paying yourself first”.
You’ll never miss $100 but it can grow considerably with time. If your firm offers a 401(k), invest as much as you can. It's a gift from the IRS and they are not in the habit of gifting. Do not borrow from your 401(k).
Investment and saving success is about time, discipline and patience. You may get Facebook at $5 and retire early. Or you may get Yahoo at $125 and retire late. But with either, you hear about it more than you see it. Most of what we see is consistent saving and staying in the market. So start now.
And watch your expenses. Yes, again with the expenses. You will be working 60 hours a week so simplify your life where you can. Stuff like expensive phone plans, dining out, Uber, cable bills and club memberships can run into hundreds of dollars a month. Get into the habit of managing all expenses. Sweat the small stuff.
If you have any questions on these, or would like to discuss further, please feel free to e-mail us or call 415 435 8330.
Please note that this discussion of our investments and investment strategy (including our research and investment process) represents our investments and investment strategy at the date of this commentary, and is subject to change without notice. We cannot assure that the type of investments discussed in this commentary will outperform any other investment strategy in the future, nor can we guarantee that such investments will present the best or an attractive risk-adjusted investment in the future. This is for general informational purposes only; references to an individual security should not be construed as a recommendation to buy or sell that security. The securities mentioned in this commentary are only several of the successful as well as unsuccessful investments by us, and do not represent all of the securities we have purchased, sold or recommended. Although we deem reliable the sources of the statistical and other information referred to in this commentary, we cannot guarantee the accuracy or completeness of any statements or numerical data. Past performance is no indication of future results.