One of the most important things you can do to ensure a secure financial future is to take proactive steps now to manage your finances. This involves making smart choices in the present that will set you up for long-term success and avoiding financial mistakes that can set you back.
In this episode, Darren uncovers the most common mistakes attorneys can make that may negatively impact their retirement plans. He also discusses potential roadblocks and the steps you can take to avoid them.
- Savings strategies when you own your own business
- What living too large looks like based on your personal circumstances
- Making sure you don’t miss out on potential tax savings
- How to balance paying down debt and investing for your retirement
- And more
Connect with Darren Wurz:
- 30 Minute Chat With Darren
- Wurz Financial Services
- The Lawyer Millionaire: The Complete Guide for Attorneys on Maximizing Wealth, Minimizing Taxes, and Retiring with Confidence by Darren Wurz
- LinkedIn: Darren P. Wurz
- LinkedIn: The Lawyer Millionaire
- Twitter: Wurz Financial Services
[00:00:00] We are on a mission to help lawyers and law firm owners maximize wealth and achieve financial independence. Welcome to the Lawyer Millionaire with Darren Wurz From Wurz Financial Services. In this podcast, we will help you build wealth, minimize your taxes and plan for retirement with money management strategies designed for the legal profession.
Join us in this journey where we help you manage your money so you can make the most of your future. Start feeling confident in knowing you are well prepared for retirement and on track to financial independence. Now onto the show.
Patrice: I hate to break the news to you, but attorneys can be. They can make money, mistakes, mistakes that may come back to haunt them when they begin to think about retirement. I’m Patrice Sakura with your host Darren Wetz, author of the book, the Lawyer Millionaire. Darren, you have [00:01:00] seven of the biggest mistakes on your list for today’s conversation.
Patrice: It seems though like some common sense could probably avoid them.
Darren: Yes, absolutely Patrice and these are, when we talk about these mistakes I don’t wanna pick on attorneys too much. So it’s not like, oh gosh, these are terrible mistakes. A lot of these are common to most people. So, but some of them are kind of unique to the attorney, you know, the legal profession.
So, just some things that we can all watch out for. You’re right, common sense comes into play with a lot. But these are just really good things that we all should be reminded of.
Patrice: Well, number one on your list; insufficient savings rate. Now come on. I think we all do this. Yeah, you’re right not just attorneys .
Darren:That’s so true. We all need to make sure we’re saving enough money. You know, period. That’s very common across the board for everybody. I think it’s especially difficult for law firm owners. I’m there myself because I own my own [00:02:00] business and I love to invest in my own business. I bought a whole bunch of new podcasting equipment, so I could get better at this.
Patrice: Good, good, good. That’s good!
Darren: Right? So it’s fun, it’s easy. I spend money on the business and you, you do that thinking I’m investing in myself. I’m investing in my business a lot. That’s very good. But at the same time, we need to make sure we have a sufficient savings rate, that we’re putting away enough money. Another thing is that when your income fluctuates, it can be difficult to maintain a proper savings rate. You’re not off if you’re an owner of a law firm, you don’t have the luxury of just having a constant steady paycheck and you can have 10% of your pay go into your 401K or something automatically. You can do that, but when your income fluctuates , it becomes a little bit more difficult. And maybe you’re not doing that on an automatic basis because if your income’s down, then maybe you don’t want to put as much away. So, yeah, it’s difficult to maintain that savings rate to make sure you [00:03:00] have sufficient enough of a savings rate and time. You gotta get started early with this stuff, and a lot of attorneys are maybe starting a little bit later once their practices have become profitable. And at that point, if you’re getting a little bit of a later start. You really have to crank up the savings to play catch up.
Patrice: Mm-hmm. , that all seems to run into number two here, neglecting savings to pay off debt. And I’m specifically thinking of student debt.
Darren: Yeah. And this is, so yeah, this is all of that. Kind of getting a late start on the savings and investing journey. Coming out of law school and having a bunch of debts that you have to pay off. And let’s add to that, you know, maybe starting your law practice and you have to take on some debt in order to get your business started. I’ve been there.
Darren: You know, so maybe you kind of get into this mindset where you’re like, okay, I need to pay off all of my debts first and then I’ll start investing. Now there are [00:04:00] pros and cons each way, right? You have to evaluate your own circumstances and your own situation. What kind of interest rate are you paying on your student loans? I mean, if it’s a really high interest rate, double digits or something like that, then yes, you should probably try and knock that out of the park as quickly as you can. . But what we can’t do, and I’m not saying, don’t pay off your student loans at all. And that’s what I’m not saying, but what I am saying is it’s important to start investing right away, even if it’s just a small amount. If you don’t, you’re missing out on the possibility of what can happen. You know what, if we have a great couple of years in the stock market and there are some really great returns you could have harnessed that you miss out on, you know, one of the reasons people don’t wanna start paying down their debt is because they’re like, well, you know, my debt has a fixed rate of interest. I know what that’s costing me. If it’s 8%, I know that by paying it down, I’m basically earning 8% on that. But the stock [00:05:00] market, we don’t know what it’s gonna do. It’s risky, you know, it could go down like you did last year.
Patrice:A bit, a bit.
Darren: Right? So that’s one way to think of it. But the other way to think of it is opportunity. We have years where the stock market has given us 20, 30% returns. And those are things that are very easy to miss out on if you are just completely neglecting investing. So I think it’s important to do both. And again, you have to balance it for your own situation, but I would not put off investing completely until you’ve reached a place where all your debts are paid down and now you can start investing. I think that’s missing out on some opportunities.
Patrice: I would think too. It’s a habit that you’re forming. Even if it’s a little bit, you’re going away. It’s a habit and there’s some satisfaction when you can look back at it and see a number growing. May not be huge growth, but there’s a number growing and there’s a sense of accomplishment.
Darren: A hundred percent Patrice. [00:06:00] It’s never too small of an amount. Even if it seems ridiculous, get it started. I mean, I have a client he had struggled with putting money away and I said, okay, let’s start with a very minimal amount. I want you to save $10 a week.
Patrice: Sure, yeah.
Darren:You’re gonna put $10 a week into your investment account. Now that seems ridiculous, doesn’t it? Well, yes, but you know what? After a while, you don’t miss that $10 a week. And then it’s like, okay, now I can start pushing the boundary forward a little bit more. And it’s right. You have to get that habit started. It’s kinda like exercising. We were talking about exercising this morning, you know, we all have these great goals, especially around, the beginning of the year. And it’s the procrastination in getting it started. Once you get it started, it’s easy to adapt and modify and make it better, but it’s the initial inertia that it’s important to overcome. So that is, yeah, that’s an excellent point.
Patrice: [00:07:00] Number three on your list. Living too large. What is too large?
Darren:What is too large? That is a very relative thing for you in your circumstances. But here’s the thing, if you’re in a profession where you make great money and maybe you’re in a profession where status kind of is important. That can be a trap for not just attorneys, but other professions, doctors and so forth. Maybe you want to keep up with your peers, you want to keep up appearances, you need to have the really nice office with the big mahogany desk and drive the really nice car and you wanna play the part. You want to play the role and look the part. For your clients and you know, for your peers and that sort of thing. The other thing too is like we mentioned before, if your income is fluctuating, maybe you have some really great years and all of a sudden you’re living [00:08:00] high on the hog. The temptation can be there to really expand your lifestyle as your income grows. But you have to be careful because can you keep up that lifestyle and retire? Wealth, you know, there’s two kinds of rich, there’s two kinds of wealth. There’s cash flow rich, and there’s actual, money rich. Having a great cash flow is one thing, and even just because you’re spending a lot of money doesn’t mean you necessarily have a lot of money. I mean, I think that’s a common trap for a lot of Americans. We want to keep up with the Joneses and so we want to spend a lot of money. We want to but a lot of times we’re just spending on debt, you know? You might drive a nice car, but did you buy the car or did you finance it?
So you have to really evaluate and this, this goes to a deeper level, Patrice, what really makes you happy? You know how much is enough and it’s important to reach a level of contentment in our lives. Where we’re okay, we don’t need to really spend a whole [00:09:00] lot of money. You know, I will tell you, some of the wealthiest clients that I have are not the ones that drive the nicest cars, and that’s why they’re the wealthiest, because they were really diligent about living within their means, putting some money away and that sort of thing.
You know, a shameful confession. I’ve been going back and watching the Real Housewives of Atlanta .
Patrice: Oh my gosh. You’re kidding.
Darren: I know, I know. They live these fabulous lives and you think they have all this money and some of them do have quite a bit of money, but then when you actually look up their real net worth is oftentimes not as impressive as you might think because the appearance doesn’t always match the reality. And so it’s very important that you have a very careful balance about the current lifestyle you have because you have to think about, if I retire, if I want to retire, am I gonna be able to maintain that lifestyle in retirement? [00:10:00]
Patrice: Let’s look at it from the other side too. If you are a successful attorney or other profession and you are driving a 10 year old car, but it runs, there’s some status there. Hey, my car is running. I take care of my money. I can take care of you two.
Darren: Yeah. You know, think of it that way. Think of it as I’m being more responsible.
Darren:You know, with my assets and, and lifestyle and that sort of thing. You know, there’s a reason that a lot, I don’t know the number, but a good number of professional athletes who make really great money during their careers end up broke. And it’s this same problem of living too large while the money is good. We go back to, you know, mistake number one, making sure you have a sufficient savings rate.
Patrice: That’s a whole nother podcast in itself, learning how to handle money, but learning about [00:11:00] taxes, tax advantages, not maximizing tax advantages. That’s on your list as well.
Darren: Yeah. Not being aware of tax advantages and not taking advantage of the tax advantages that are out there for you. I think this is just a symptom of being a busy professional and maybe not doing a lot of the research about some of the things that are out there that could be helping you. And we cover a lot of this in the book by the way. So be sure to pick up your copy of the Lawyer Millionaire. There are a lot of cool things you can do. You know, one of my favorite things, the 401k. 401K has a lot of advantages over some of your other vehicles like a set IRA or a simple IRA. There are health savings accounts you can use that can provide you with some tax advantages. A lot of contingency fee attorneys aren’t aware that you have the ability to defer a large settlement fee, and that becomes a very interesting, [00:12:00] very, powerful tax planning technique. So there’s a lot of interesting things out there you can use. What you really have to try to do is you want to make sure that when you have those high income years, you’re taking advantage of all the opportunities you have to lower your income so that you’re not being taxed at a higher rate. And there’s a lot of cool things you can do there. The other thing, and I’m a really, really, really huge proponent of this, is taking advantage of the Roth. I think the Roth is neglected by a lot of folks, not just attorneys. I think this is just a symptom across the board. A lot of people don’t really know about it.
Patrice: Maybe quickly explain the difference between a Roth a non Roth account?
Darren: Absolutely. So your traditional 401K or IRA, when you put money in it reduces your income, your taxable income, and so that’s basically pre-tax money that goes [00:13:00] in there. So it helps you. It gives you some tax savings today, but when you get to retirement and you pull that money out, it’s gonna be taxable. Not only the money you put in, but also all of the earnings. So when you, you know, when you put money in an IRA, you’re growing money not just for yourself, but also for the government.
Patrice: That’s an interesting way to put it, but you’re right.
Darren: Essentially, I mean you work for the government now. Anyway, the Roth IRA is kind of the opposite in a way. When you put money into the Roth, you do not get a tax deduction today. However, you basically freeze that money and that money and any earnings on that money going forward. Will never be taxable. Well, if you take it out too early, it will be taxable, but as long as you take it out after 59 and a half and a few other exceptions, you won’t have to pay any income tax.
Now you could run the calculations and see which one is better, and there are certain situations where pre-tax [00:14:00] is better or Roth is better. I believe that it’s really important to have a combination of both types of assets when you get to retirement, because then you can be strategic about which one you’re pulling from trying to control your taxable distributions.
And the other thing is it gives you what I like to call tax insurance.
Darren: Okay, so what if 30 years from now, what are tax rates gonna be? We don’t know. They could be lower. Somehow doubt that.
Patrice: You and a lot of people, including me.
Darren: Yeah. The way the deficit is going, I somehow doubt that. So, if rates are higher, you won’t be subject to those higher rates. Now again, we don’t know, and that’s why I call it insurance. You’re insuring against the risk of those rates being higher, you may get a benefit. You may not get a benefit, but it is an important feature of your plan. So something not to neglect for sure. [00:15:00]
Patrice: When someone has money to invest, I won’t say all the time, it’s obviously not all the time, but very often real estate is one of the first thoughts.
Darren: Oh yeah.
Patrice: Why, why real estate? And why is having a lot of your assets tied up in real estate, maybe not such a good idea.
Darren: You know, I don’t know what it is, but I find it very common among attorneys, among law firm owners, among those in the legal profession to have an interest in real estate, either as rentals or as you know things they can flip and sell.
Darren: I don’t know why. It’s kinda like pickleball. Pickleball is extremely popular among attorneys. I don’t know why. It just is.
Patrice: Attorneys and everybody else all of a sudden.
Darren: Maybe it’s everybody, and I think a lot of that has to do with television. There’s so many real estate shows now, and it’s in vogue and everybody’s into it.
And maybe it’s becoming [00:16:00] less attractive now that interest rates have come up so much. But here’s the thing about real estate. If we look at the real estate market broadly, the real estate market has not performed better than the stock market over the long term. The average rate of return for the real estate market is a little bit better than inflation over time.
Now we’re, again, we’re speaking generally. So there are caveats, right? There are in real estate it’s location, location, location, right? So if you’re in a hot market that’s growing really fast, you could experience growth rates that are much better. There is a lot of thought that needs to go into where the house is.
I mean, I look at my parents’ house. My parents have lived in the same house for 30 years, it has barely doubled in value over that timeframe. If you were invested in the stock market, you would’ve [00:17:00] way more than doubled your money over that timeframe. So it’s so dependent on location. If you know a lot about real estate, you’re really well connected to the real estate market and there’s a great opportunity in a hot market, it can be a nice addition to your overall financial plan. But there are some things to remember. The biggest being risk; when you invest in one property, you have a lot of property specific risk in the stock market. That would be like buying one stock, one company, putting a lot of money in one company and betting on that one company to do really well. And I know a lot of people think that the real estate market is not as risky as the stock market, but maybe those are folks who don’t remember 2008.When real estate markets fell significantly. And that’s something that can happen. It’s kind of an outlying risk, you know, I would say. But that is something to remember is you have the specific risk.
The other thing is, um, if I invest in [00:18:00] stocks, there’s no upkeep.
Patrice: There is that! No pipes to fix, no plumbing, no toilets, no nothing.
Darren: Yeah, I can buy a mutual fund and boom, that’s it. I don’t have to worry about hurricanes or earthquakes or tornadoes. , you know, or floods. That’s it. You know, it’s one and done. And I can just track that. I don’t have to put any more money in. So sometimes real estate requires additional capital, and that’s something you should remember. If you have tenants, you have problems. If you’re renting, you have to have quality tenants. And I know a lot of people who have had such great difficulty with making sure they have quality tenants during the pandemic.
There was a moratorium on evictions, and that was a huge headache for landowners or for landlords. Because they couldn’t do anything about tenants that weren’t paying their rent. So there’s just a lot of risks that you have to be aware of. Now, am I saying, you know, don’t do it at all. No. I’m not saying that. [00:19:00] I’m saying weigh the risks. Know what you’re doing. Don’t put too much into it, it can be a part of your overall plan, but don’t let it detract and take away from what you need to be putting into your investments.
Patrice: You just mentioned an overall plan, not having a plan that’s on your list.
Darren: Yeah. The no plan plan.
Patrice: It’s just gonna take care of itself. I think.
Darren: This is very common. Among law firm owners that I speak to because they’ve been so focused on building their business and they just haven’t had time to think about planning for retirement. They haven’t had time to consider the fact that they will retire or can retire.
You know what I mean? It just hasn’t been on the radar.
So as with [00:20:00] anything, as with investing, the earlier you get started the better. And a plan doesn’t have to be very sophisticated. A plan could be as simple as a calculation of, okay, how much money do I need to be able to retire and how well am I doing, you know, how close am I on track? You know, there are some you can look up and see how much you should have saved at different age levels to get to retirement. By age 30 you should have about maybe one and a half, half to one times your salary saved. By age 40, it should be probably somewhere around three to four times. You know what I mean? So there are some metrics like that. It could be really simple like that, just kind of gauging how you are doing. In terms of how much money you should have saved and should I be accelerating that a little bit more? But yeah, that would be a mistake to not have a plan at all. And maybe you don’t have a plan because either, maybe like we said, you’re too busy or it just hasn’t been something you really [00:21:00] sat down and thought about. Or maybe you’re kind of scared, right, of the idea. Well, what do these numbers look like? I don’t wanna look at them. .
Patrice: Yeah. Put your head in the sand.
Darren: Right. I would say don’t be afraid to look at it. I’ve talked to a lot of people who have been in that situation, and when they actually sit down, I think it actually brings a lot of peace to look at the numbers, even if they’re not ideal the way you want them to be.
And the end result is, okay, I need to be saving a lot more. It at least brings you a level of certainty and it eliminates some uncertainty in not knowing. I think the biggest thing is just not knowing. So yeah, don’t be afraid to sit down and crunch some numbers. It doesn’t take very long and get a plan started.
Patrice: Well, the final item on your list for today then is too much planning. You can have no plan and too much planning?
Patrice: How is that a bad thing?
Darren: I heard an [00:22:00] attorney once call this analysis paralysis.
Darren: I have been there. I’ll give you an example. I have a problem if I’m shopping; I can’t decide on which item I want to buy and I will spend a really long time in a store or on Amazon evaluating, okay, which one is better? You know, is it worth the money? Sometimes then nothing ever happens. And maybe that’s a good thing. I don’t actually spend any money.
Patrice: If you didn’t need it in there anyway.
Darren: Right, I think with planning sometimes the fear of not knowing if you’re doing it the right way or taking too much time to analyze your options and you know, when it comes to finance, it can be so complex, right? Do I need a 401k? Do I need a SEP IRA? [00:23:00] Do I need this insurance or that insurance? Is the Roth better? Is the pretext better? It’s just like, oh my goodness. There’s so many different facets to think about. And by the way, that’s a great reason to hire a financial planner.
But anyway, I think that the key, like we, I think we mentioned before, is to overcome that inertia of getting started. And so with a lot of my clients, we won’t even deal with the question of pre-tax or Roth. We don’t even mess with that. We’ll just open an account. Let’s open up a taxable account and let’s start putting money in it, that’s it. You know what I mean? Just start there. Start at the very basic step. Let’s not worry about taxes. Let’s not worry about all the different facets. Let’s just start building [00:24:00] some money for you. And once we have built up a nice amount of money, then we can start to analyze, okay, now how can we do this more effectively?
And so I find that that’s a very easy, nice way to begin the process of investing in financial planning because, you know, maybe you’re thinking there’s so much involved, I gotta sit down and meet with a planner and then, get out all my documents and all of this stuff, and there’s so much that you feel like I have to overcome in order to do this.
It just becomes this big burdensome task. Well, one of the secrets to productivity is taking a really big task and breaking it down into really smaller tasks that are easier to accomplish. Right? So start with step one, which is, open up an account, set it up on autopilot with a certain amount [00:25:00] going into it each month and just start building up some money for yourself.
You’ll be surprised how easy that is. How easy, the easier that becomes. And that’s a really great first step. So don’t let the complexities of all of this overwhelm you. You know, and I think a lot of the attorneys I know, They are great readers. They’re great analyzers. They’re great thinkers, and they want to know, they want to know the nitty gritty.
You know, some of my clients, they don’t wanna read any of the fine print. They just sign, sign, sign, sign, sign. Here, it’s done. A lot of my attorney clients want to take the time. Understandably so, I mean, if you’re a contract attorney and you’re signing a contract, yes, I wanna read it and everyone should read it.
Absolutely. And I encourage everyone to read everything. I’m not saying don’t read all of it, you know, I’m saying do [00:26:00] read it and do make sure you’re, you’re crossing all your T’s and dotting all your i’s, but don’t let that process overwhelm you, and don’t let it consume you to the point where you take no action and you miss the opportunity to get started creating a financial plan and beginning your journey to building wealth.
Patrice: Now these thoughts, this information is all on chapter five of your book, correct?
Darren: Yes, it is. We’ve got a whole chapter on all of these big mistakes that are common to attorneys and law firm owners, but I think also, like we mentioned to everyone who is out there. So be sure to pick up a copy of the book. You can go to Thelawyermillionaire.com, learn more about the book, learn more about the podcast. If you wanna start your journey to building wealth and creating a financial plan, go ahead and book a meeting with me right there on the website. I think we’ll put the link to my calendar in the page notes or the podcast notes, you can book a free [00:27:00] consultation right there.
Patrice: And of course, listeners follow this podcast for the latest episode. And if you find this informative and helpful, let us know. And share it with others. Thanks for being with us.
Thank you for listening to The Lawyer Millionaire. Click the follow button below to be notified when new episodes become available. This content has been made available for informational and educational purposes only. This content is not intended to represent investing or tax advice. Always seek the advice of a qualified investment or tax advisor with any questions you may have regarding your own financial circumstances.