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Financial Planning for Lawyers

First Republic Bank
December 22, 2020

Being a first-year law associate comes with a host of new financial challenges like paying off student debt, saving for retirement and building an emergency savings account. Ask a seasoned attorney, and you’re likely to hear this goal-shifting advice for new law school graduates: Take the time now to set your career trajectory, manage debt, build an investment strategy and create a budget for long-term goals.

It sounds like a lot — so where to begin?

Start by taking a look at these key financial planning tips for first-year law professionals. Identify and devise a system, and you may find it easier to manage your newfound wealth and achieve success — both personally and professionally — than you ever imagined possible.

1. Create an investment strategy to achieve long-term financial goals.

Young professionals can jump-start a financial plan with a huge advantage over their more established colleagues. That's because the longer your investment time frame is, the better your chances are of achieving long-term gains within your portfolio. For many would-be investors, however, the most significant hurdle can be getting started on making their financial dreams a reality.

That’s where it can be beneficial to partner with a financial advisor who can work with you to identify your financial goals and then create an achievement-oriented investment strategy that can help you get where you ultimately want to be.

The financial advice you receive should be built upon your long-term goals, whether those goals are to pay off debt, upgrade to your dream car, buy a first home, support a growing family or retire early. In short, how you fund your retirement account, develop an asset allocation strategy and even choose to diversify among low-cost index funds — it all ties back to who you are as an investor and what goals you aim to reach.

Of course, you can tackle this step on your own — many investors do. Using an automated portfolio management tool like First Republic's Eagle Invest, or having a trusted professional by your side, can help you avoid unnecessary pitfalls while developing a well-thought-out plan that can leave you poised for financial success.

2. Prioritize paying off student loans.

Note: Currently, all payments for certain types of federal student loans are suspended until January 31, 2022 per an executive order by the president. Interest will not accrue during this time period. (Note updated on 8/10/2021)

After you graduate from law school and enter the working world, it can be tempting to delay student loan payments, but forbearance only puts off the inevitable. In fact; the delay can often increase your overall student loan balance because unpaid interest may continue to accrue, compound and capitalize. Let’s take a look at an example:

Putting $150,000 worth of student loans on hold for a year at a 6% interest rate would add up to an additional $9,000 in unpaid interest. That new amount would then be added to your total student loan balance, for a total of $159,000 owed. Even worse, that new higher balance would continue to accrue interest. (That’s interest accruing more interest.)

Now, while you’re earning income at your first job after law school, imagine if you could make interest-only payments on your balances for two years and still have the option to make additional principal payments. If you won’t miss the extra money each month, you could significantly decrease the amount of time it takes to repay your loan while also reducing the total interest you’ll pay. The decrease in monthly cash flow may hurt in the short-term, but it’s a move that can add up to a significant long-term financial win.

Even if you don’t have access to a few extra bucks each month, a student loan refinance via a personal line of credit could help you meet your repayment goals and get control over your finances while still in the early part of your career. With a personal line of credit, you have more control over what your regular monthly expenditures will be.

First Republic’s Personal Line of Credit – access funds with fixed rates from 2.25% APR (with discounts).

A First Republic Personal Line of Credit is flexible — you only tap funds when you need them, and they can be used for a variety of purposes such as to pay or repay student debt, unpaid taxes, medical bills and even home expenses — which makes it a money-smart choice for new lawyers who want to get out of debt but still maintain a cash cushion for the little surprises that come with everyday life.

Please note, First Republic Personal Line of Credit is not a student loan and you may be permanently giving up the benefits of a student loan such as certain deferment, forbearance and forgiveness options.

3. Start saving for retirement — now.

Getting an advanced degree like the Juris Doctor (J.D.) can be a great career-boosting move. Still, it can also delay or press the pause button on your high-income earning years. That could leave you playing catch-up when it comes to building your burgeoning retirement plan assets.

A common first strategy is to invest in a 401(k), if your firm offers one, at least up to the amount required to take advantage of any employer match. If your employer offers to match contributions on the first 3% of your income, for example, 3% should be your minimum target. Contributing any less would be akin to passing on a portion of your agreed-upon compensation package.

Once you meet that first retirement savings threshold, consider opening an individual retirement account (IRA), which generally offers greater investment flexibility and sometimes comes packaged with fewer fees than does an employer-sponsored 401(k). Check with your financial advisor or tax planner to make sure you meet IRA income requirements. If you do, the under-50 crowd can stash away up to $6,000 for the tax year 2020 while realizing certain income tax benefits that help enhance a portfolio’s ability to compound over time.

Once you’re able to max out your IRA, circle back to your 401(k), if you can, and start increasing contributions there. The more you save toward retirement now, the greater your portfolio’s long-term compounding potential. It’s basically the inverse of how your student loan interest works, except in this scenario, you’re the beneficiary of any compounding gains.

With your retirement plans on track, it's also a good time to start thinking about your estate plan. Getting your legacy in order is key to a comprehensive wealth-building strategy.

4. Pay off credit card debt (or auto loans, medical bills, or other high-interest rate debt).

High-interest credit card debt can seriously sap a saver’s potential to prepare for long-term goals. With annual percentage rates (APRs) that fall in the 15.58% through 22.83% range, that plastic in your pocket is one of the most expensive ways you can borrow cash. Not only are rates high, but every dollar you use to pay down debt is a dollar you can’t apply toward a more effective use — like building an emergency savings account, saving for retirement or building a child’s college fund.

Other types of debt such as car loans and medical bills typically come with lower interest rates than credit cards, but their presence can detract from long-term goals just the same. To really dial in on a long-term plan’s financial efficiency, it's generally best to pay these bills down — and eventually off — in order of APR, from highest to lowest.

5. Manage your wealth by living below your means.

The median first-year lawyer salary is $155,000, according to a 2019 Associate Salary Survey released by the National Association for Law Placement. That may seem like a lot, particularly after four years of college and three years of law school, but many recent graduates are surprised to find just how quickly their hard-earned income can disappear.

The rent on a new apartment, payment for a new car and other expenses associated with establishing a professional career all add up. If you’re not careful, these costs can easily bump up against the margins of that seemingly high first-year lawyer salary.

And that’s not all. Lifestyle creep can expand exponentially over time — a luxury car, larger home and private school for the kids may become par for the course as you climb in your career. That’s why effective wealth management can often hinge upon your ability to actively live below your means so you can build emergency savings, pay off debt in a smart way and create a long-term plan to meet your future financial goals.

As a first step, building a budget can help manage the flow of outgoing costs and find ways to funnel funds toward long-term objectives. In short, your net income minus expenses should give you a gauge for how much you have left over each month to make extra student loan payments, contribute to retirement plans, build an emergency savings account and even have a little fun.

6. Invest in your own personal and professional growth.

Your professional reputation matters, particularly over the long-term trajectory of your law career. Use the early years of your career as an opportunity to build trust with senior colleagues, whom you’ll likely rely on as you climb the corporate ladder.

While you're at it, seek out a mentor, particularly if your firm offers a formal or informal program. Even if yours doesn’t, take the initiative to seek out a more senior colleague who has the skills and knowledge you want to develop. A mentor doesn’t have to be someone from your office. You can seek to develop a professional relationship online or by phone, which can be helpful as more professionals move to remote work locations. To find a suitable mentor, consider your career aspirations, then look for someone who’s doing what you want to be doing. While you’re at it, build relationships with your assistant, the office paralegals and court staff. Many know how to resolve the problems you’re sure to face as a first-year associate.

Financial planning for new lawyers is a marathon, not a sprint. Success often builds upon your ability to develop and maintain personal and professional habits that make you a little more fiscally responsible every day. That includes budgeting and managing debt, developing your professional network and creating an investment strategy for long-term financial success.

Refinancing law school student loans by using a personal line of credit may be an early career strategy that can save you time and money as you pay down debt and prepare for future financial goals. Beyond refinancing student loans, a personal line of credit can be used for a wide range of personal and household expenses, such as upgrading your car or furnishing a new apartment.

Ready to get started? See your rate through our personal line of credit calculator today.

 

First Republic’s Personal Line of Credit – access funds with fixed rates from 2.25% APR (with discounts).

 

1. Annual Percentage Rate. Rates effective as of 06/15/2020 and are subject to change.

Borrower must open a First Republic ATM Rebate Checking account (“Account”). Terms and conditions apply to the Account. If the Account is closed, the rate will increase by 5.00%. Rates shown include relationship-based pricing adjustments of: 1) 2.00% for maintaining automatic payments and direct deposit with the Account, 2) 0.50% for depositing and maintaining a deposit balance of at least 10% of the approved loan amount into the Account, and 3) an additional 0.25% for depositing and maintaining a deposit balance of at least 20% of the approved loan amount into the Account.

Personal Line of Credit consists of a two-year, interest-only, revolving draw period followed by a fully amortizing repayment period of the remainder of the term. Draws are not permitted during the repayment period. Full terms of 7, 10 and 15 years available.

This product can only be used for personal, family or household purposes. It cannot be used for the following (among other prohibitions): to refinance or pay any First Republic loans or lines of credit, to purchase securities or investment products (including margin stock), for speculative purposes, for business or commercial uses, or for the direct payment of post-secondary educational expenses. This product cannot be used to pay off credit card debt at origination.

Personal Line of Credit minimum is $60,000; maximum is the lesser of $350,000 or debt to be repaid at origination plus $100,000. If no debt to be repaid at origination, the maximum loan amount is $100,000. Line of credit cannot be fully drawn at origination.

The terms of this product may differ from terms of your current loan(s) that are being paid off, including but not limited to student loans. By repaying such loans, you may permanently be giving up tax and repayment benefits, including forbearance, deferment and forgiveness, and you may not be able to re-obtain such benefits if this loan is refinanced with another lender in the future.

Contact your legal, tax and financial advisors for advice on deciding whether this is the right product for you. Terms and conditions apply.

Product is not available in all markets. For a complete list of locations, visit firstrepublic.com/locations. Applicants must meet a First Republic banker to open account. This is not a commitment to lend; all lending is subject to First Republic’s underwriting standards. Applicants should discuss line of credit terms, conditions and account details with their banker.

The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document.

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