It’s important for everyone, of course, who aspires to financial independence, early retirement, or just to live debt-free, but I think there are a few specific reasons why personal finance is that much more critical for lawyers, and even more specifically for in-house lawyers. Here are my top five reasons, in no particular order:
In-house lawyers typically have a shorter shelf-life than law firm lawyers
Years ago, I remember one of the partners at my Biglaw firm telling us at an associates’ retreat that law practice is a marathon, not a sprint, and we should approach our careers accordingly. This advice has always stuck with me and, for that reason, I’ve always tried to take a long-term view of both my legal career and my personal finances (admittedly with very mixed results).
But that being said, I have seen many in-house lawyers get downsized, lose their jobs after a merger or acquisition, or otherwise get forced out of their companies when they got too old and too expensive (more on this below). Many of them still had children in college, mortgages, and were simply not in a financial position where they could afford to retire. This makes budgeting, planning, and saving all the more critical while you are still employed in-house in your 30s and 40s, when time is on your side and your investments have decades to grow.
If you go back to a law firm, you might not make as much money
At my Biglaw firm, “of counsel” positions paid around $175,000/year and these lawyers were expected to bill 1800 hours. Of course, $175,000 is a hefty salary in most parts of the country. But if you’ve been working in-house for a decade, accruing stock and bonuses, and getting paid more than that (at least per the 2017 Robert Half Legal survey), that drop in compensation might come as a shock, especially if you weren’t diligent about banking your income while you were in-house.
Now, unlike many corporate positions, lawyers have the luxury of always looking to join a firm if things go sideways. In my view that’s one of the great things about being an in-house lawyer. But my point here is narrower: there is real potential for disruptions in your income stream if and when you leave your in-house position. This makes focusing on your personal finances while you’re still there all the more critical.
On the other hand, you’re probably not going to make as much money in-house as you would have if you’d just stayed in a law firm
It might seem like I’m contradicting myself here, but bear with me. I agree with the adage that it’s not what you earn, but what you save (which is why I work very hard to keep our annual savings rate above 40 percent of our income.) But earning more makes it easier to save more, provided you avoid lifestyle creep and always live below your means, Millionaire Next Door-style. (One of my favorite personal finance books, ever, like many of you I’m sure!)
Now, if you were on the partnership track at your firm but opted to take the off-ramp and go in-house, it’s probably a fair bet that you won’t end up making as much over the lifetime of your legal career as you would have if you had just stayed at the firm. Still, if you’re not going to become a 7-figure-earning Biglaw partner or try and make a run at your company’s C-suite, then the only real path towards wealth is to take a long-term view of your finances. Make a budget, track your spending habits, and keep things simple. The road to wealth starts with a spreadsheet and a savings plan!
Aging out of your in-house position is a real possibility, so you need to be prepared
Unfortunately I’ve seen this play out consistently during my in-house legal career. Once in-house lawyers get to a certain age they become too expensive to keep on board and run the risk of either being shown the door or asked to leave. I believe that this is happening all the more frequently as innovative legal services providers are able to provide on-demand legal services for corporations, reducing the need for in-house expertise. (More on this in a future post.)
And, no matter how talented they are, in-house lawyers are overhead and corporations are always looking to cut costs. Companies merge or are acquired and your job might be at risk even sooner than you thought. The bottom line is that you should save as much as you can during your prime in-house earning years because you don’t know when the end might come.
There’s no white knight coming; you’re on your own saving for retirement
Pensions are a thing of the past in Corporate America so working for twenty years as an in-house lawyer isn’t going to guarantee you a stable income stream in retirement the same way a government job might. And, as I’ve discussed before, lawyers aren’t known for being great with money, so focusing on your finances in order to secure your retirement is critical.
Finally, you might end up just wanting to do something else, in another industry, that doesn’t pay as well. Having a large nest egg and good personal finance habits might make it more likely that you can afford to make that jump into a new industry later on in your career.
What do you think of this list? Did I miss anything?