Joshua from Biglaw Investor received a $160,000 starting salary from the law firm he works at. But before that, he borrowed about $170,000 to fund his law school education and living expenses at Boston College Law School.
He incurred another $20,000 of interest during law school.
Joshua admits, “Despite having an interest in personal finance, I didn’t really give much thought to signing on the dotted line for law school.” But once he reviewed his finances after graduation, he told me: “It didn’t take long to recognize this as a true debt emergency.”
He acted instantly. “I moved in with a roommate in Brooklyn and tried to keep all expenses as low as possible while throwing thousands of dollars at the debt.”
But he didn’t deprive himself. He enjoyed nights out with friends. He also “gave each dollar a job so I felt no regret when dollars were spent on what they were spent on — whether it was having fun or debt repayment.”
Joshua continued with this thoughtful insight:
“The thing about personal finance is that it’s personal,” says Joshua. “Each lawyer gets to make his or her own decision about how to spend the money. The key is to be conscious about it.”
Lawyers study Law not money
Unfortunately, many young lawyers who are making more money now than ever before aren’t conscious about their finances. He helps them reach consciousness for free through his website and blog.
He advises them “to set up a fake paycheck.” In other words, they tell their Human Resource Department to “deposit a ‘salary’ (you can pick your own) into your main checking account every month.” They use that for expenses.
Now comes the important part: HR sends the rest to a separate account. Joshua prefers sending it to a different financial institution. The result: “If you’re paying off loans, funnel that money to the debt. If you’re saving, send it directly to a brokerage account.”
By following this strategy and becoming “conscious” about their money, young lawyers avoid pitfalls such as lifestyle inflation. He says for lawyers in New York City for example, “Lifestyle inflation is when you’re working long hours, and decide that you’re at the point in your life where you deserve your own apartment.”
The inflation doesn’t end there though: Now your peers have money, too. So, guess what? No more cheap restaurants or bars. Joshua continues, “Add in the electronic gadgets, two vacations a year, dating and a few other of life’s necessities and you won’t feel like your lifestyle has inflated that much, although you’re spending money at a level that wouldn’t have been possible a few years ago.”
But the “fake pay check” trick prevents such overspending because they don’t have any additional spending money.
Never too soon to save for retirement
Joshua also teaches young lawyers to think differently about saving. He says “saving for retirement sounds irrelevant and far away.” He focuses on another strategy for helping them improve their saving habits.
“Young lawyers work so hard and then don’t take the initiative to buy themselves financial independence,” noted Joshua. “But being financially independent is obviously an attractive option that many lawyers aren’t too familiar with.”
He familiarizes them with it and they realize, “Wow, this could have an immediate impact on my life.”
Joshua told me he considers himself “one of the lucky ones” because things have worked out for him financially. I think each young lawyer who takes his advice will also have a chance to become one of the lucky ones, free of charge.
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