7 Financial Goals for Young Lawyers

Lawyers are uniquely goal-driven professionals. You likely have many personal and professional goals. But an often neglected goal category is financial goals. It's not common for people to take time and actually think about all of their goals. To help lawyers better define their goals and maybe even inspire them to commit to some new goals, this blog is a list of some great financial goals to consider.

What are some good financial goals for young lawyers?

Lawyers, by nature, are goal-driven. You didn't get to where you are today without setting goals for yourself — your LSAT scores, which law school you attended, and passing the bar. Once you begin working as a lawyer you likely set new goals for yourself, both personal and financial.

If you were asked right now to name all of your goals, could you? The best part about goals is that they are always changing, but when you do accomplish a goal, it materially improves how you feel about your life.

To help you think of financial goals to set, here is a list of 7 common financial goals that young lawyers have.

#1 Fully fund an emergency fund

This is the most important financial goal. Just 39% of Americans can cover a $1,000 unexpected expense, and 40% of Americans would not be able to pay a $400 unexpected expense. The future is uncertain, but you can be certain that you will have unexpected expenses.

The rule of thumb is to maintain 3 months of expenses if you and your partner are both working. If you are single or have your finances separate from your partner, you should have 6 months of expenses saved up, placed somewhere that can be quickly accessed (no more than 24hrs) in an emergency.

#2 Max out your 401(k) and/or IRA

This is a lofty goal for some lawyers, but regardless of your income, maxing out these retirement accounts will set you up for future financial security. The rule of thumb is to save 10-15% of your income for retirement.

If you are currently only contributing a portion of your contribution limit, here is a trick: each year when you receive a raise, increase your contribution percentage too. If you received a 3% raise, then increase your contribution percentage by 1%. Your take-home income will still increase by 2%, and you'll be contributing more each year. Keep doing this until you max out.

#3 Reach $100,000 in investment assets as quickly as possible

Investment assets include your 401(k), IRA, brokerage accounts, and any other retirement accounts. Emergency funds and home values do not count.

This goal has two benefits. The first is it helps you avoid lifestyle creep — when your expenses grow as your income increases. If you make it a point to get to $100,000 quickly, you will be saving more as your income grows, establishing the habit of holding off lifestyle creep.

The other benefit is that it allows you to capitalize on compounding growth. If you already have $100,000, congrats! Set a goal for an even higher amount: $250,000, $500,000, or even $1 Million.

#4 Pay off law school student loans

Nearly 3 in 4 graduating law students graduate with student loans, often well over $100,000. Depending on your repayment plan, these loans can take anywhere from 10-25 years to pay off fully. Paying off your student loans is an amazing feeling — it provides you more freedom to make career changes, more take-home income to save or spend, and it will improve your credit history.

#5 Retire early

If you want to retire early, your retirement decision will depend upon how much you have in retirement savings. The rule of thumb is that your retirement savings should be large enough that you only need to withdraw 4% of your retirement savings to fund your annual living expenses. If you spend $100,000 a year, you should aim to have $2.5 Million saved. I think 3% is a better number, since the worst thing that can happen is running out of retirement savings.

#6 Give to charity

Philanthropy is a great way to give back to your community. Find a charity that has a mission you find important and decide how much to donate a year. Donating money isn't the only way to give back — many charities also rely on volunteers to operate. Lawyers are unique because they can also offer pro bono legal services to charities they care about, and firms may even count some or all of these hours towards billable hour goals.

#7 Make partner

Many law firms are built based on the Cravath system — meaning you either move up in the firm or you move out. For many lawyers, making partner is the pinnacle of their career, opening up many opportunities and high compensation.

If this is a goal you want to pursue, you also need to prepare financially for the partner buy-in. The average partner buy-in is over $100,000 and sometimes as large as $500,000. You can buy in with money you've saved, a loan, or a combination of the two.

Goals are fundamental to you living the dream life a lawyer deserves to live, but it can be challenging to figure out the best way to achieve them. The Developing Financial Process is built specifically to identify the goals you want to achieve and tailor a financial plan that puts you on the path towards success.