In the legal profession, there are some financial potholes that can trip up your planning. Do you set time aside to focus on you and your money?
In this episode of The Lawyer Millionaire, Darren Wurz discusses the challenges that people working in the legal profession experience when managing their money. He also provides tips on how to effectively manage your money.
- The importance of investing and saving money early in your career
- How debt can hamper one’s ability to save money
- The earning potential in the legal profession
- The importance of having a financial advisor
- And more!
Connect with Darren Wurz:
- 30 Minute Chat With Darren
- Wurz Financial Services
- LinkedIn: Darren P. Wurz
- LinkedIn: The Lawyer Millionaire
- Twitter: Wurz Financial Services
Transcript:[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: You might think the legal profession is very lucrative for those in practice, but there are some financial potholes that can trip up planning for retirement. Darren Wurz has written a book on financial planning for attorneys that identifies these very issues. I’m Patrice Sikora. Hey, Darren, this episode, we’re calling it the [00:01:00] biggest financial challenges of the legal profession. Well, let’s start at the beginning with there is so much schooling involved. Do lawyers get a late start on their careers?
Darren: Yes. Yes, absolutely. So you get your undergraduate degree and then you go get your law degree. And so you have some extra years of schooling in there, which means that ultimately you’re starting your career, maybe three or four years behind some of your peers–maybe not quite as late as those in the medical profession–but there are a few years there that are, that are knocked off. And when you add in your work on your undergrad, you could be eight years post high school that you’re maybe getting started in your career. And then of course it becomes even more tricky because maybe as a young attorney in the first few years, you’re really just trying to find your footing, , you might start at one firm, realize you’re working for a terrible boss and [00:02:00] explore a few different firms until you finally find a place that you really feel comfortable with.
I just spoke with a young attorney a couple of weeks ago, and that was his exact feeling. And the reason he was meeting with me is because he’s like, okay, I finally feel like, you know, I’m where I want to be. I’m at the law firm I want to be at and I’m ready to really start getting my finances in order and building wealth.
So, yeah, you’ve got schooling. And then you’ve got, just trying to figure your life out. Or maybe you are starting your own practice and that’s going to be tough. You might spend a few years where you’re not earning very much at all. And so, that kind of delays things for you. I’ve had that experience.
My background was as a teacher and then I came into this profession and I spent three or four years building up my business and not really earning anything. So I know what that’s like. Now, how is that a problem? Well, [00:03:00] it’s a problem because when it comes to building wealth, your most important asset is time.
Investing is all about compound growth. The earlier you can get started, the more wealth that you can build over time. If you have a later start, you’re starting off a little bit behind the curve and you’ve got some catching up to do. So that’s a big challenge for attorneys and you may need to maybe have a little bit higher savings rate than others when you finally do get to a place where you can start putting money away.
Patrice: You’ve mentioned schooling. I mean, I’m thinking about student loan debt right there. So not only are you getting a late start on investing and saving, but you’ve got debt you’ve got to pay off.
Darren: Yeah, that’s a really big one. And people are starting to talk a lot more about this when it comes to the legal profession, it’s a big problem. Most attorneys are graduating with a hundred thousand dollars or [00:04:00] more in student loan debt that then they have to pay off. And the problem is that it competes for your money. Yeah. You know, you only have so much money that you’re earning and you’ve got to figure out where you’re going to allocate it.
And so your student loans are over there, you know, trying to get the money and obviously you want to pay those loans down, but if you’re solely focused on paying your loans down and you neglect putting money away, you could be missing out on years of compound growth in the stock market that you could be otherwise getting.
And compounding is a very interesting phenomenon because it’s exponential. So it really is about how much time you are invested. You know, the earlier that you can get started, the more you can harness the power of that exponential growth over time, [00:05:00] where you’re earning on top of your earnings. And that’s why it’s so critical.
When I talk to young attorneys about their student loans, we’re trying to figure out what’s the most effective way to do this because we don’t want to go without investing completely–you still want to do some of that, even if it’s just on a smaller scale.
So we really have to think strategically about that. If you have really high interest debt, obviously you want to try and tackle that first. But I encourage my clients to think about some of the lower interest debt, maybe that’s 4% or 5% or so–maybe just kind of letting that get paid off over time according to your payment schedule. You stick to that payment schedule and that debt is going to take care of itself.[00:06:00] I know–a lot of people may not be a big fan of hearing that because they want to just get it knocked out. And I understand that. It’s something you want to get taken care of. You want to get rid of it as quickly as possible in some cases. But I believe that it’s important to get a head start on the savings and investing, if you can, because let’s say you could earn 10% in the stock market on average over time, that’s significantly more than maybe what you’re paying on your loans.
So, you have got to look at where the most growth is and you kind of think of your loans as–if that’s an investment that’s only earning me four or 5%, maybe I’m smarter to allocate my money elsewhere, where it can earn more for me. But if you’re feeling stressed, knowing that that debt is there–I get a lot of people saying, no, I have got to get rid of it. I totally understand [00:07:00] that. But it is a really big challenge because if you delay investing, that can really set you back. If you delay putting money into your retirement accounts, let’s say 10 years or so until you finally get your debts paid off, you’re 10 years behind the curve when it comes to saving for retirement. And that’s maybe 10 years of compound growth that you’ve missed out.
Patrice: One of these days we’ll do a podcast on compound growth.
Darren: Definitely, it’s a fascinating concept.
Patrice: On the positive side, attorneys have high earning potential. That also means higher taxes. What about this?
Darren: Yeah, definitely. So the good news is once you finally do get your debts paid down, the legal profession does is one that has a high potential for earnings. You can earn a lot of money as an attorney. The median salary is well into the six figures and partners can [00:08:00] make lots of money and there is even more opportunity if you own your own practice–you know, your income is really, there’s no ceiling to it. It’s whatever you can make of your own business. Or if you’re a contingency fee attorney, there’s a lot of money that you can make there. If you are a personal injury and you settle a big case, you get a big settlement award.
There’s a lot of money to be made, but that comes with a big problem. And that is taxes. For my older clients who are more settled in their careers, we’re trying to figure out what’s the most effective way to deal with taxes. What are some unique ways that we can try to reduce the amount of taxes that you have to pay now, but then also think into the future.
How can we reduce the amount that you’re going to be paying in taxes over the course of your lifetime? It’s not always just about saving money on [00:09:00] taxes right now in the moment. We want to do some strategic plannings and a lot of times that involves your retirement accounts, figuring out how we can take the most advantage of those accounts to really squirrel some money away and try to allow you to keep as much of it instead of giving more of it to Uncle Sam.
So we’re looking at–does a Roth make sense? Does it make sense to do the pre-tax thing. Are there other things that we can put into place to try to save money on taxes? If you’re a contingency fee attorney, maybe we need to think about some structured fee arrangements for some of those big settlements that you may get.
So that becomes a really big concern. And that’s something that I hear of from the people I work with. That’s really one of their number one questions that they are asking. When we dig down to it, of course, it’s the retirement question, you know–am I on [00:10:00] track for retirement? Am I going to have enough money for retirement and all that?
But then the second one, sometimes it’s even a bigger question is inevitably: how can you help me save some money on taxes? Oftentimes people say, say to me, Hey, I’m earning more money, but don’t really feel like it.
Patrice: I know that feeling.
Darren: Right. Yeah, because uncle Sam is taking a bigger and bigger chunk of it, you know? So that’s a big concern that I find a lot of attorneys have.
Patrice: You mentioned the contingency fees, which rolls right into the next point here: unpredictable income. If you’re a solo practitioner, sometimes years are good, sometimes years aren’t. There’s nothing to smooth that out for you and with contingency fees, wow. You can get a huge windfall. How do you deal with it?
Darren: It’s a big problem for many attorneys. [00:11:00] You mentioned the contingency fees. That’s a big one. And of course, if you own your own practice, you just have the ups and downs of being a business owner, the cycle of the market.
We learned in 2020 that the legal field is not immune to the cycles of the economy. Previously, the legal profession was thought of as something that was kind of insulated from economic cycles. People are always suing people, regardless of the economy. Business attorneys who are dealing with business transactions may see a bit of a dip, but other parts of the legal field might be somewhat protected. Well, 2020 threw that all out the window. Courts were actually closed. There was nothing [00:12:00] happening. So you really have to be prepared for those those situations. This is the one thing that we deal with–helping attorneys try to figure out.
And there is a chapter all about cash flow management in the book. So you can check out more of it there, but trying to figure out how can we even things out, how can we smooth out the cash flow strategically as much as possible. A lot of times that just involves doing some careful planning.
I get it. I own my own business. And I’ve experienced the ups and downs of that kind of situation where you have good years and bad years, good months and bad months. And here’s what happens, right? Here’s why this is a problem, a financial problem for attorneys: you get a big windfall, you’re feeling great.
You go, and you want to spend all kinds of money. [00:13:00] Then all of a sudden, the wind changes and you don’t put anything away. And now all of a sudden you’re like, okay, where’s the money? So you get into this cycle. This boom and bust cycle. And really what can happen is you end up racking up credit cards and that’s what you don’t want to do.
You don’t want to use credit cards to manage that cash flow cycle. You want to do some other things. You want to set up some separate accounts, create some regularity for yourself, instill certain practices and planning to make sure you can try to even things out.
Early in my career I had a really great couple of months and I was feeling really great. And one of my brother’s clients was selling a boat. And–
Patrice: I don’t think this is going to be funny.
Darren: Right, right. It actually has a good ending, because I didn’t buy the boat, [00:14:00] I’ll jump ahead to the ending. But you know, I was thinking about it. I was like, hey, I’ve got some extra money. It’d be fun to own a boat, but I’m so glad I didn’t because the next few months were really, really challenging. And then the other thing I didn’t plan for was I had all this income, but then at the end of the year, I had all kinds of taxes to pay. So that’s something that we help attorneys with–trying to master that cash flow cycle.
Patrice: And the fact that you are helping them helps them because they don’t have enough time to do that?
Darren: Absolutely. Yeah. And that’s the really, the fifth thing is the lack of time. And that’s a really big challenge. You are not just a practitioner, but you are a business owner. Even if you work in a big firm, you’re [00:15:00] probably responsible for bringing in business. You have to be a marketer, you have to be a networker.
You have to be a mover and shaker out there, getting new business. So you have a lot of hats that you’re wearing. You’re doing a lot of things at the same time. And burnout is a real big problem in the legal profession. It’s stressful. It’s very busy. Your time literally has a price tag attached to it, you know?
So that becomes a problem with your finances often because maybe you’re so busy that you’re not spending the time to sit down and plan things out. And I see that a lot with people that I work with. You get busy in your practice. You neglect doing some planning. And then, weeks go by, months go by and you’ve missed out on opportunities that you could have taken advantage of.
Or you haven’t done the planning and so everything’s a mess. And then [00:16:00] here’s what happens. When you don’t take the time to sit down and go through things, you get to this place where you just want to avoid it.
Patrice: Oh, I think we all know that place.
Darren: Yes. It’s avoidance. I use a program called mint.com to budget and track my expenses and things. And there are other things like that out there, but here’s the thing with a system like–you have to maintain it. Otherwise it just becomes a big jumbled mess and the messier it is the more you avoid wanting to go in and look at it. I’ve been there. I know that feeling. My own personal practice is Saturday morning.
Saturday morning is my time to go in and look at my personal finances review transactions and tidy everything up. If you can kind of set aside some time like that on a regular basis. I think weekly is good because monthly–by the time you get to sitting down and going through your expenses, you’re looking at charges on your credit cards, scratching your head like now, what was that? So it’s really important to be proactive and spend some time planning. Even if your time is so limited, you really have to be purposeful about setting aside time to really focus on you and focus on your money.
Patrice: Do your clients push back when you say you really have to put a little bit of time into this, you’ve got to invest something. You’ve got to think about this. Do they say yeah, maybe. Or do they just give you a yes and not do it?
Darren: It’s probably the latter. [00:18:00] And I get it. You have all kinds of demands. It’s easy to focus on the urgent and neglect the important. I’ve heard that said. And you have clients that you’re dealing with. Right? So they’ve got their issues that they’re reaching out to you and you’re really busy. And a lot of times we just, we keep thinking to ourselves, things are gonna get better. I just need to make a little bit more money. Give it a couple months. Well, you know, you can spend your whole life doing that.
You really have to sit down and be purposeful about it. And it’s really helpful to have an advisor who can pester you. So that is one of the great roles that I play with my clients. I can be that person who is kind of an accountability partner for you to try to keep you on track, make sure that you are [00:19:00] taking care of certain things need to be taken care of, checking in with you to make sure things get done. Because it can be a lot to handle. It can be a lot to deal with.
Patrice: All right. Now, tell us more about your book because these points are all in your book. You’ve got a chapter on it, in fact.
Darren: Absolutely. I’ve got chapters on a lot of these different topics, student loans in particular. We dive into a lot about that and I do a lot of math in the book so you can see comparisons of different strategies, different ideas visually, which is really helpful–especially taxes. In fact, we have a whole section on taxes, a really big section on taxes, because that’s a really important one for attorneys. So the book is called The Lawyer Millionaire. And it’s all about how you can maximize your wealth, minimize your taxes and try to [00:20:00] achieve financial freedom or financial independence. And I like to use that term when I’m talking about retirement, because it’s getting to a place where you can retire if you want to. But a lot of attorneys they kind of want to keep working a little bit, you know, so retirement might not just be a sudden one time thing. It might be a slow transition. But the book will be out hopefully towards the end of June. So stay tuned.
Patrice: And the American Bar Association is supporting it?
Darren: That’s right. The American Bar Association is publishing it. I’m very excited to have a great partner like them. We’ve gone through the peer review process. We’re now in the editing and proofreading stage, and I expect to get the manuscript back any day to review it. Then we’ll do the page layouts and then we’ll be off to the races.
Patrice: That’s [00:21:00] very exciting. Very exciting. So we will look for the book, The Lawyer Millionaire. Okay. The book’s not quite out yet. People have questions even after the book is out and they have questions. How can listeners reach you?
Darren: You can always just give my office a call if I’m not available. My receptionist will be happy to schedule a time for us to chat. That’s 859-291-9879. Or if you go to my website, there’s a link there to my calendar and you can schedule a time to talk with me.
Patrice: All right, this is The Lawyer Millionaire. Follow the podcast, share it with friends and colleagues. And of course get the book. It’s got the same name. Come on. I’m Patrice Sikora with Darren Wurz. Let’s talk again later.
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