Alright, so on Monday I covered two of the financial mistakes that small-firm and solo lawyers tend to make that leave them holding tin cups in front of bar association functions crying “Alms!” I promised you guys we’d continue this series, and conclude it, today, so in order to do that we’re not going to spend a lot of time prefacing crap this morning. Instead, let’s get right into talking about Financial F’Ups 3-5 for the Small Lawyer!
If you need a refresher on the stuff I told you Monday, and you may because you assholes leak like a sieve when it comes to retaining information, you can re-read Part 1 here, which advises you to plan to make less money and live frugally. I don’t really expect you assholes to listen to me, because as a whole lawyers suck at taking advice from other people.
3. Plan on Dying Early.
This stuff isn’t nearly as morbid as it sounds, but it sure as hell got your attention, didn’t it? The point of this isn’t saying you should tie a belt to a doorknob and attach the other end to your throat, at least not just yet. No, what I’m talking about here is the fact that a lot of small lawyers go one way or the other on saving for retirement early in their career: They either don’t save a goddamn penny, or they save the max amount out of each check.
Ask these guys why they do that, and their answer is going to be “I need the money now” for the former and “Because I was told to” for the latter. Both of these are dumbass answers, and all of you guys nodding your head to agree with them are dumabasses. You’re all dumabasses. Stop it.
Fact is when you’re in your mid-20’s, like most new attorneys are, you aren’t exactly looking forward to the next 40 years and the light at the end of the tunnel where you finally leave the shackled bonds of a law office and spread your wings to fly…normally into heaven. So let me lay a hard truth on a lot of folks: for all but the Big Law Bastards out there, retirement for attorneys is a pipe dream. I know plenty of older lawyers, and most of them may cut down on their caseload as they age but they never actually retire.
We’re lucky to be a part of a profession where the biggest tool we need to do our jobs is a sharp mind, and barring mental disease or burn-out, or just a desire to live free, most of us won’t really retire so much as we’ll cut back. Accept that now: You need to save for retirement, but not because you’ll actually retire. So those young guys who are maxing it out every year and then struggling to pay rent need to cut that stuff out. Chances are you’re never going to truly retire, and if you want to up the contributions when you’re more financially stable you can do so then. You can get more info on financial planning software to help you keep track of your expenditures and incomings to make sure that you are staying in the black. If you so choose that is. If you do happen to own your own property, however, you could always look into equity release to help with the cost of retirement.
You need to save for retirement because a lot of employers offer “retirement matching” up to a certain amount, where you stick a percentage of your pay, pre-tax, into an account and your employer matches that same goddamn amount. For instance, with my small firm, the boss matches 5% of my pre-tax dollars stuck in the IRA. To me, that’s my boss saying “I will give you free fucking money up to 5%,” money that I can use down the road if I switch jobs, buy a house, have an emergency, or just flat out decide I don’t want to take more than one case a month in my old age. So for the guy who’s saying “Geez man, I need that 5% now, I can make it up later,” let me point out you’re literally leaving money on the table. You never leave money on the table. Give me your goddamn law license.
Solution? Easy. Stop maxing out your annual contributions if doing so is putting you in a bind right now cash wise, because it may not be that goddamn relevant when you get old enough to need it. On the other side, make sure you’re contributing at least the maximum percentage for any employer matching so you can get the free fucking money being offered.
For solos? I dunno man, set up a Simple IRA and stick some cash in it for savings purposes no matter what, okay?
4. Pay The Max You Can On Your Student Loans.
Alright, so student loans for lawyers suck. Taking an estimated student loan debt of $165,000 at 6.8% interest for graduate/professional degrees, you’re looking at student loan payment of $1,841.00 per month for the next 10 years. That’s $220,920.00 over the course of the loan repayment that your ass will be paying back if you can pay it back in ten years. Maybe for those Big Firm Fuckers paying a loan back that quickly may be feasible, but for us small guys it definitely fucking isn’t. $1,800.00 a month is a huge goddamn chunk of the paycheck for a freshly minted attorney. No wonder so many of my friends are looking for alternative loans to pay off their student loans. One of my friends told me that when contacting National Debt Relief they were in a pretty bad situation with their student loans but thankfully he got some useful advice on how to better consolidate his student debt but we all still have to pay it.
Luckily the Federal Government offers all these neat ass repayment options that extends the loan out 25 years and lets you make payments based on your income over the poverty level. I know guys who have gotten their monthly loan payment down to like $37.00 per month and are banking on that forgiveness option with the tax bomb being sorted out.
Too goddamn many new lawyers get out there and get on these repayment plans, with no intent to ever make more than the minimum monthly payment to keep the loan current. They’re living the dream, man, at least until they apply for a house now. See, recently the guidelines for calculating the debt-to-income for home buying changed where they no longer take a look only at what your monthly payment is, but rather look at what your monthly payment would be if you were making the full payment amount each month. So when you make a “payment that doesn’t even cover the goddamn interest on the loan,” you may be keeping the student loan default monster away, but you aren’t decreasing the debt-to-income ratio at all. Stop doing that stuff.
This may be important if you, say, want to buy a house or take out a small business loan with a usda commercial loan, to keep your office afloat at any point in the near future.
Solution? Get on the lower repayment plan, but make as much of a payment as you can each month. There’s no rule saying you can’t pay more than the minimum balance due under REPAYE or IBR each month, and it technically won’t come into play during the renewal at the end of the next period. Use IBR plans like REPAYE as a safety net, giving you the ability to keep your loan current with that tiny payment, but make sure you’re actually throwing enough at the loan each month to eat away at principal. I’d suggest as close to the 10 year amount as you can do, but, you know, things happen.
This way you get the benefit of a lower required payment, but the chance to pay it off much fucking sooner.
5. Stop Wasting Money Being Cheap.
Yeah, yeah, I know. Every fucking part of this article is encouraging you to be the cheapest bastard you can be, but if you’re a solo, who this part of the article applies, to, you’re gonna lose some goddamn money if you keep being cheap as shit.
In an age of “Oh, I can do it on paper and not pay for this software!” or “I’ll do it all myself and be a one-man shop, no secretary needed!” I’m running into more and more attorneys who are fucking themselves over royally by trying to cheap out on practice overhead. They refuse to pay for BestCase or hire a paralegal/legal secretary to do anything because that’s additional overhead on the office they can’t afford at the moment without cutting into their paycheck for a month or two.
That’s bullshit. You’re a lawyer, and your time is money. Your goal in running a small practice should be to minimize the time an attorney needs to spend on flat-fee, simple matters while maximizing the time the attorney spends on billable hour matters and the number of cases the office can reasonably handle at one time. The right software, even software with an expensive fucking license, and a decent paralegal that can be trained to use that software and take care of that shit may have an up front cost that makes you balk, but in the long run it pays the fuck off.
Solution? You already know I’m going to tell you to buy software and tell you to hire a halfway decent paralegal, so I’ll just use this part to illustrate the point. Say you get BestCase at $1,595.00 per year, the fee for a single-user license that lets you have one attorney and one support staff on it for a Chapter 7 and Chapter 13. That’s a huge fucking cost. Say you also toss in $3,000 a month for a cheap paralegal/legal secretary. That’s $37,595.00.
But BestCase will pay for itself in like three cases, max. And you can train that paralegal to do pretty much fucking all of the bankruptcy work except appearing at the 341. All of the sudden, you can churn out 5-6 bankruptcies a month whereas before you were only doing 1, maybe 2, of them because you were doing fucking everything yourself. Say you charge $875+costs for a Chapter 7 and you pick up 3 a month. Off the Chapter 7 bankruptcies alone you’ve picked up $31,500 for the office, with a minimal attorney commitment to each case.
Plus that paralegal can do other shit, like draft those fucking wills, leaving you to only review the final product and press some flesh with the client. We charge like $600 for a simple will package here. We do another 2-3 of those a month. Most of the drafting is done by the paralegal, my time commitment is like 1 hour, max, review and meeting the clients. Add those in to the Bankruptcies, we’re up to $45,900 per year, already in the profit on just bankruptcies and wills…and guys, these are conservative estimates, not including all the other shit a decent paralegal or legal secretary can do or free you up to do.
Don’t let being too goddamn cheap stand in the way of making more money. Sometimes you do have to actually spend cash to make it.
Conclusion
Guys, I dunno. I’m not a fucking financial wizard. My personal finances are a mess because, you know, fucking reasons and bad decisions and all that shit. But I can tell you, this is the shit I wish I had done and that I’ve seen other people have a lot of fucking success with doing in the small-firm/solo market.
Fact is, until you build a reputation you don’t have much to sell or market to everyone else out there. So you have to live frugally for a while, and that’s the whole goddamn point. You’re not a Big Law Bastard, so live in the goddamn means.
-BB