As an attorney, you spend your days making complex judgement calls to deliver the best outcomes for your clients. While you are working hard to improve your clients’ futures, are you keeping a detailed eye on planning for your own?
From the moment your journey as an attorney begins, your financial needs are unique from those of other high-performing professionals – and they will continue to evolve as you advance through your career.
It is important to work with a financial advisor who understands the complexities of building a plan tailored to the attorney’s professional and personal journey. The strategies that you’ll need to manage your cash flow, prepare and file taxes, and plan for retirement will change as you move from the beginning of your career to partnership, and eventually into post-career life. Your advisor should help you create a coordinated financial plan that accounts for all the things that make your needs unique: inconsistent cash flow, tax planning complexities, complicated retirement plans, a lack of time for planning, and more.
Prioritize Cash Flow Management
As an attorney, your cash flow needs will fluctuate throughout your career. How will you finance your capital contributions when you make partner? What is the best strategy for paying estimated income taxes throughout the year? How do you balance competing priorities such as funding your retirement plans, buying a home, and saving for your kid’s college education? It is important to build a model that helps you create short-term cash reserves (and tax reserves) and long-term savings to match the timing of your income. The result is a strategic plan that alleviates cash flow stress (and prepares for cyclical fluctuations) while proactively maximizing your progress towards your financial goals.
Changes in Tax Complexity
It’s key to understand that your income tax situation will change throughout your career, and you will want to know how to take advantage of available tax saving opportunities as you and your firm grow.
Did you know that law firm partners need to pay income tax in every state and country in which the firm does business? Once you make partner, you will need to decide not just the amount to pay in taxes, but to which state, when, and how.
When reviewing your taxes, it’s important to proactively think about your tax payments with regard to your family. Utilizing a tax-advantaged Section 529 college education plan or forecasting charitable contribution goals in line with your inconsistent cash flow can go a long way.
Does your law firm have uneven partner distribution schedules which are heavily weighted towards the end of the year? If you are working with a tax advisor, you could make smaller estimated payments at the beginning of the year and larger payments later in the year to better mirror your firm’s income and cash flow. This advice comes with a cautionary note: be sure to work with a competent tax professional to avoid substantial under/late payment penalties. Set up regular meetings with your accountant and spread tax consulting and decisions throughout the year to ensure accuracy and thoughtful planning.
Planning for Financial Independence
Without question, the most important vehicles available to fund retirement are your firm’s retirement plans.
It is particularly important to understand how you can maximize these benefits. Defined contribution plans early in your career operate differently than options available to you when you become partner. An advisor can help you navigate your options – defined contribution, defined benefit, or cash balance retirement plans – and determine the best strategy for your goals.
Incorporating your firm’s retirement plan into your overall financial plan is vital, but it’s not the only key to planning for life after your career. It is also helpful to accumulate assets outside of your retirement plans to provide maximum tax planning flexibility after you stop working.
Time Management
Your career demands a lot: a lot of energy, a lot of dedication, and a lot of time. As an attorney, your time is incredibly valuable – and it’s far better to use it helping clients than trying to manage your own portfolio. When you work with a CERTIFIED FINANCIAL PLANNER™ professional, portfolio managers, and tax professionals who have experience working with attorneys and understand the unique financial challenges that you face, your time can instead be spent focused on building your practice (and, thereby, your income). A holistic approach to planning can save you time, money, and frustration.
Establishing a Plan for Your Financial Future
To build a strong financial plan, it is important to find a financial advisor with thorough knowledge and experience working with attorneys. A seasoned financial advisor can identify where and when your financial options are likely to change so you are prepared to maximize opportunities as they arrive. Furthermore, experienced advisors will help ensure that you take advantage of ever-changing opportunities in the financial markets as both your career and the economy evolve. Consistent and efficient communication with your advisors is important to ensure you remain on track to realize your financial hopes and dreams.
Final Thoughts
Whether you are a new associate, an established attorney considering buying into a partnership, a new equity partner, or an experienced partner approaching retirement, you have unique financial planning needs that require an equally unique understanding and approach. Knowing what to expect as your income, taxes, and benefits shift throughout your life – and working with a trusted financial advisor who understands the complex needs of attorneys – will help you manage the intricacies of your financial situation and guide you on a path toward achieving your goals.
