Budgeting for a Successful Legal Career Launch

As a new lawyer, you may have different financial opportunities and challenges depending on your field of practice, employer, and location. You may earn a high salary in a large law firm, a modest income in a public service position, or a variable income in a solo practice. You may also have a significant amount of student debt, a high cost of living, and various professional expenses. How can you manage your money effectively and prepare for your future as a lawyer? 

Here are some tips that can help you create and follow a realistic budget as you set up your legal professional lifestyle.

First, add tracking your income and expenses to your daily (or weekly) routine.

You need to know how much money you have coming in and how much you are spending on various categories, such as rent, utilities, food, transportation, entertainment, taxes, insurance, debt payments, and others. You can use a spreadsheet, an app, or a website to record and analyze your cash flow. Periodically review your bank statements and credit card bills to catch any errors or fraud. A budgeting tool that you can access from your phone or computer, that syncs with your accounts, can make this process easier and more accurate. Current and future legal professionals can utilize the National Association of Law Placement’s salaries and compensation data for the latest earnings trends.

Second, prioritize your expenses by need and rank savings high on the list.

To start, allocate your income to cover your essential needs, such as housing, food, utilities, and minimum debt payments. Then, set aside some money for your savings goals, such as an emergency fund, a retirement account, or a down payment for a home. Finally, you can use the remaining money for your discretionary spending, such as eating out, shopping, or traveling. A good guideline is to try to limit your discretionary spending to no more than 30% of your income and avoid using credit cards to finance your lifestyle.

A key factor to consider is your debt-to-income ratio, which is the percentage of your monthly income that goes toward debt payments. A high debt-to-income ratio can hurt your credit score and your ability to qualify for loans, mortgages, or refinancing. As a new lawyer, you may have a high debt-to-income ratio due to your student loans, especially if you work in a lower-paying field or location. You should aim to keep your debt-to-income ratio below 36%, or lower if possible. You can do this by increasing your income, reducing your debt, or both. You can also seek a higher salary, a bonus, or a side hustle while applying for income-driven repayment plans, loan forgiveness programs, or refinancing options for your student loans.

Third, adjust your budget (and behavior) as needed.

Your income and expenses may change over time, depending on your career stage, life events, and personal choices. Make it a habit to review your budget periodically and make changes accordingly. For example, if you get a bonus or a raise from your firm, you can use some of the extra money to pay off your debt faster, increase your savings, invest, or treat yourself to something nice. If you lose your job, you may need to cut back on your spending and tap into your emergency fund until you find a new one. You should also keep cash on hand for unexpected expenses, such as car repairs, medical bills, or legal fees. Having some cash reserves can help you avoid using credit cards or taking out payday loans, which can worsen your debt situation and damage your credit. It’s also common for lawyers with variable compensation, such as solo practitioners, to want to build a larger emergency fund to help support lower-income months.

Budgeting is not a one-time exercise, but a continuous process that requires discipline and flexibility.

By incorporating these tips, you can create a budget that works for you and your unique situation. A budget can help you live within your means, reduce your financial stress, and achieve your long-term goals.

To discuss your specific budgeting questions, schedule a free call with an Accredited Financial Counselor^® through AccessConnex by AccessLex^℠.