Being a younger partner at many law firms comes with tremendous pressures. There are demands on time, expectations of becoming a rainmaker, and even feeling the need to spend more of your new larger annual income on upgrades like a bigger home or fancier car. Before you increase your expenses, check out these tips to simplify your finances and increase your wealth:
- Keep a budget: Becoming a partner can take your annual bi-weekly pay check and turn your cash flow into lumpy distributions throughout the year. Estimate your annual cash needs and make sure you have a cash cushion to get through the variability. Start with a conservative budget and treat yourself when things turn out better than planned!
- Maximize retirement savings: If you aren’t already, make sure you’re maximizing the retirement savings for you and your spouse. Even if you’re maximizing your contributions, it may make sense to begin making Roth (post-tax) contributions.
- Protect your family: Extra earnings over the last few years may have changed the lifestyle and needs of your family. Make sure you are properly covered for both life and disability insurance. This may be in addition to the insurance required by the law firm.
- Eliminate monthly credit card debt: Credit cards can be a great thing when used properly. Make sure your credit card debt doesn’t grow as you attempt to spend like older partners. Pay off your credit card debt each month. If you have an original balance, come up with a plan to pay it off as quickly as possible.
- FINALLY get rid of those student loans: You may have accumulated significant debt during undergraduate and law school. It’s never fun, but make sure this debt is addressed before any large, unnecessary expenses are incurred (second home, a more expensive car, a boat – you get the idea). This debt will never go away unless there is a plan in place to take care of it!
- Eliminate mortgage insurance: If you purchased a home with less than 20% down, you may be paying mortgage insurance in addition to your principal and interest. Take part of your partner distributions to get rid of this extra payment. Keep in mind, you may need to call your mortgage company to eliminate this payment.
It’s tempting for young partners to reward their long hours at the office with additional luxuries. There’s certainly nothing wrong with that as long as they fit into your overall financial plan. Start by doing these six things to simplify your finances.
You’ll feel better when you do make the decision to splurge because you will know you can afford to.