Personal Finance for BigLaw Associates

There's no two ways about it—compensation is a central reason why lawyers practice in BigLaw. The market-leading annual compensation for first-year associates is $225,000, and senior associates can earn $435,000 per year. By any reasonable measure, that's a lot of money. What do you do with it, and why is it important to consider your personal finances?

How personal finance decisions impact career decisions

Personal finance drives career decisions. The ability to make changes and take risks depends on your ability to finance these changes and risks, but personal finance is often an underappreciated part of career health.

The classic personal finance advice focuses on saving money, but a new generation of financial advice focuses on generating additional income under the rationale that there is no cap on how much you can earn. While that's true, you have more control of your expenses than your income.

There is a lot of pressure to spend in BigLaw. The partners may have splashy second homes and cars, and your peers may want to fit the image of a successful lawyer by spending freely. The risk in joining your peers in spending is twofold: you need to keep earning more to match the increased spending, and your identity becomes locked into the BigLaw lifestyle. Both of these situations limit your ability to make career decisions.

Rent vs. buy

One of the most important personal finance decisions for many people is whether to own their personal residence.  Many lawyers make career decisions based on the desire to own their personal residence. Some lawyers want to move regions so that they can buy a house. Others find themselves with limited job options or unable to accept now roles because of where they bought houses.

Americans place a high premium on home ownership. There are wonderful things about being rooted in a community. But there are also many wonderful things to having freedom—freedom to move, freedom from constant home maintenance.

Real estate is a valuable asset. It's the most accessible tax-advantaged asset out there. For example, when a property is placed in service as a rental, all expenses are deductible. That's not the case for a personal residence. A hidden cost of home ownership is a limitation on career options. It seems outrageous to let the home you live in dictate your career options, but many find themselves in that position. Alternatively, renting can be a great financial decision and career move.

Other key investment decisions

While an examination of the pros and cons of different investment approaches is outside the scope of this article, here are some key topics to think about:

• Should you direct additional funds to paying down student loans or to investments? For some, the psychological benefit of paying down student loans may exceed the value of investment returns, even when those returns are greater than the costs of the loans.
• Should you invest in pre-tax or post-tax accounts? While IRA and 401(k) pre-tax accounts have many proponents, there is value in the control and clarity around the taxation of assets held in post-tax accounts.
• Should you invest in equities, real estate, or something else? Many agree that equities are difficult to beat for historical returns and ease of investing. Real estate is tax-advantaged, but is also labor and attention-intensive. And cash gives you options.
• Should you hire a financial advisor? There is an ever-growing trend of investors choosing to manage their own investing decisions, relying on target-date funds that rebalance investments to reflect lower risk over time, or working with fee-only advisors who don't charge a percentage of the value of the assets managed.

One of the hallmarks of legal training is thinking for yourself and distinguishing relevant from irrelevant precedents. This skill set will serve you well as you consider your own personal finance decisions and chart your own course.