Financial planning for young lawyers

“Financial planning should begin with reducing the risk of losing your assets,” said Thomas A. Haunty, certified financial planner, North Star Resource Group, during the program, “Real Life Financial Planning for Young Lawyers,” at the ABA Midyear Meeting in Los Angeles.

Too many people speculate with money they cannot afford to lose without adequately protecting their assets, said Haunty. Reducing the risk of loss by preparing legal documents, such as wills and trusts, and by protecting income through disability and life insurance, should be the foundation of financial planning, he said.

“The principle of using insurance is to pay small premiums, thereby shifting the risk of potentially large catastrophic losses to an insurer so that you can be free to accumulate and grow your assets more aggressively,” explained Haunty.

Besides asset protection, Haunty suggests lawyers prepare a cash flow plan that outlines money allocation. That plan should include short-term savings, such as money market accounts, for debt reduction and for regular and emergency expenses; medium-term savings for expenses, such as college tuitions and vehicles; and long-term savings in IRAs for retirement.

Other financial planning tips from Haunty include:

• Re-set tax withholding to put more in your pocket on payday. Invest this money instead of allowing the government to use it interest-free.
• “Pay yourself first—Invest and save first, then spend.”
• Reduce debt, but also consider saving at the same time to take advantage of the power of compounding interest and returns.
• Consider renting, instead of buying property: “Renting can represent freedom from home repair expenses and the ability to debt reduce, save and invest more early on.”
• In order to beat inflation and taxes, focus on growth investments more than income producing ones.

Perhaps most important, according to Haunty, is appropriate asset allocation—diversifying your portfolio with investments that are risk appropriate to your goals. “A well-known study by industry experts of pension plans revealed that long-term portfolio success is really driven by the asset allocation decisions, not by market timing or which securities are selected to be bought or sold,” said Haunty. The study “found that the success or failure of an investment strategy depended not on which securities or mutual funds were bought or sold, or when.  The key was how the assets were divided among the various asset classes.”

The American Bar Endowment and the ABA Young Lawyers Division sponsored the program.

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