I didn’t come from a background of wealth so it took me a while to develop better financial literacy. I had to read lots, work on my mindset and start adopting better money management strategies. These are the steps I took.
Disclaimer: The information in this blog is my personal opinion and experience and is not legal or financial advice in any way! Also, just FYI, this post may contain affiliate links.
How did you answer that age old interview question: “why law”?
I’ll be honest. For me, the main reason was the money.
I didn’t come from a wealthy family and I wanted a career that would pay well (of course, I didn’t admit that in my interviews)!
The financial incentive of law is a draw for many of us – and that’s nothing to be ashamed of – but so few of us know how to make the most of the money we earn.
It is now more important than ever that us female lawyers prioritize our financial well-being and correct the money mistakes that so many of us make.
It took me a while to correct the money mistakes that I was making. But here’s how I overcame them.
Step 1. Get Financially Educated
Growing up, the main thing I learnt about money was that it didn’t grow on trees…
It wasn’t until I was in my mid-20s that I realised that (like many other female lawyers) I was financially illiterate – despite earning a decent salary.
Us lawyers are an intelligent bunch, but one thing law school didn’t teach us is personal finance.
In fact, it wasn’t until I read this Closing the Gender Gap report, that I realised just how financially illiterate most women are.
So much so that women are statistically more likely to experience poverty in retirement.
This is why it is so important that we invest in our financial education – before doing anything else!
Before I became more financially educated, I didn’t really understand the principles of property investment; or how to build multiple income streams; or what financial freedom meant; or how compound interest worked…
I didn’t even know that it was within my power to decide what age I wanted to retire.
My mind was blown when I realised that I could retire as young as 34 if I wanted to, simply by building multiple streams of passive income.
Financial education is the key!
Law Ladies Who Invest Tip: We all know how demanding law can be. I’ve found that the best app for getting financial education on the move and in between client demands is: Blinkist. I’d highly recommend it!
Step 2: Start with “why”
The first really important step for me was to identify my intrinsic motivations. To do this, I needed to understand exactly why financial freedom was important to me.
I thought deeply about where I could see myself in 5 years and then what my financial situation might look like in retirement.
I didn’t like what I saw!
The path that I was on was very different to the path that I wanted to be on.
So I started reading / listening to books about ways to design my life and I started visualizing what I wanted my life to look like in years to come.
One thing that helped me do this was an exercise in Pat Flynn’s book Will It Fly, where he asks you to interview your future self. Here’s how it goes:
- divide a piece of paper into 4 sections;
- identify the 4 most important quadrants in your life (these could be things like money, family, travel, career, well-being etc);
- in each of those sections, write down all the things that come to mind 5 years down the road (for example, in 5 years you’ll have paid off mortgages; be fit and healthy; have a family etc).
This led me to realise that I wanted to become financially free because:
- I want to be able to retire at what ever age I decide;
- I want to provide for my family and have more family time;
- I want to build an education scholarship and support community initiatives on a consistent basis; and
- I want to live in a nice house, be free of financial restraints; travel lots and enable my children to see the world.
After figuring out what I wanted my life to look like, I started working backwards to figure how how much passive income I would need to make that a reality.
This was such an important step for me and it’s now become my motivation to keep me on track.
Law Ladies Who Invest Tip: Why not try the Will It Fly exercise yourself and start visualizing specifically what you want your life to look like in years to come.
Step 3. Create a budget
To fully understand how much I needed to save in order to achieve my “why”, I needed to first understand my starting point.
We often spend money on unnecessary things without realising just how quickly those things accumulate (a £4 coffee per working day would equate to almost of £1,000 per year)!
It then helped me to:
- do a full financial analysis of my income and expenses (here is the spread sheet I used for this);
- run through a bank statement and identify all of the expenses that could be can cut back on;
- open up a set up a separate bank account purely for savings and automate transfers immediately following pay day; and
- track spending using this Income and Expense tracker.
Law Ladies Who Invest Tip: You can download the Income and Expense tracker here to start tracking your own finances.
Step 4. Clear debts
The Money Charity recently reported that the average UK household is £60,363 in debt.
Consumer debt is a financial crisis in itself. It can make people feel trapped in a cycle of work and repayment.
Ultimately, you can’t be financially free carrying around bad debt. It’s like running a marathon with a backpack full of bricks.
There are a few ways to clear debt:
- by adopting a snowball strategy to tackle the small debts first – this gives a sense of achievement because it enables you to tick them off (and who doesn’t love ticking things off a list);
- by paying off debts with the highest interest rate first. This makes the most sense as it means tackling the debt that is the biggest threat to financial freedom.
Some people also choose to consolidate and refinance their debts if a bank allows a balance transfer at 0% interest.
If you do this, it’s important to bear in mind that these companies are banking on you failing to pay it off so make sure you pay it off within the interest free period.
Law Ladies Who Invest Tip: Try listing out all your debts to get a full picture of what you owe. Put them in an order and decide what you plan to tackle first.
Step 5. Create an emergency fund
How many people that you know weren’t prepared for the economic impact of COVID-19?
Finder recently posted that 40.93% of Brits don’t have enough savings to live for a month without income. This is a dangerous position to be in.
Pandemic aside, most of us will have an unexpected life event every 10 years.
This could be an unexpected pregnancy, loss of a job or just economic fluctuation.
For this reason, before actually investing any money, I knew it was important to build an emergency fund. Experts recommend this should be at least 6 months’ living expenses.
Law Ladies Who Invest Tip: Calculate your basic monthly living expenses (such as rent/mortgage, bills etc). Use this to calculate your 6 month emergency fund target
Step 6. Set financial goals
As lawyers, we’re often told to do objective setting each year. These objectives are then reviewed in the dreaded appraisal.
However, very few female lawyers I know actually set any sort of personal objectives – and even fewer set financial ones.
But goal setting is so important because it keeps us focused.
To set my financial goals, I had to be very clear about exactly:
- how much I want;
- by when; and
- for what (i.e. exactly what level of financial freedom I wanted to aim for).
This helped me decide how much I plan to save and invest on a monthly basis.
Once I had set my monthly goal, I adopted the principal of “paying myself first”, which what Robert Kiyosaki promotes in his legendary book Rich Dad Poor Dad.
This essentially means that after I get paid, a portion of my salary is automatically paid into a separate bank account each month. Before any bills or any other spending.
There is a caveat here. If you are setting goals after having done your financial analysis, you might be tempted to set a goal that is “too realistic” based on whatever you have left each month after paying your expenses. Don’t do this.
Law Ladies Who Invest Tip: Read or listen to Rich Dad Poor Dad by Robert Kiyosaki. If there is one book that changed my financial life forever, it’d be this one!
Step 7. Stop thinking like a lawyer
Developing a mindset for investment meant firstly making an investment in my financial education.
As lawyers, we are trained to be risk averse. We are trained to advise on the “what if” scenarios – the worst-case scenarios – which means that we are constantly thinking about what could go wrong.
If we apply this mindset to our financial goals, it takes even more courage to shift to being pro-investment.
Investing is risky – you put your money into an asset in the hope that it’ll grow. It took me a while to understand that risk isn’t such a bad thing!
Risk means reward.
I also came to understand that the risk is reduced significantly when investing for the long term.
I’m now unphased by blips in the stock market for example because they are nothing compared to the long term gains.
Besides, when the market drops, I get to buy on sale – and who doesn’t love a sale?
Law Ladies Who Invest Tip: Again, if you’re short on time (which, let’s face it, all female lawyers are) download Blinkist to kick-start your financial education.
Step 8. Develop an investment strategy
The main benefit of investing is that my money will make more money – without me putting in any extra work.
I always aim for my investments to be:
- passive (i.e. income with no additional work required); and
- diversified (i.e. to spread my risk)
There are several ways to achieve this. Personally, my preferred investment strategies are (and these are just that: personal to me): property investment and index funds.
Property investment, for me, is the best for passive income.
I always buy for long term cash flow (capital growth is a bonus for me, not a target).
I made a lot of mistakes in the early days so I’ve written an article on the top 15 property investment tips I wish I’d have known when starting out here.
Index Funds are my other personal investment route. Index funds are essentially low cost funds that track the stock market (unlike actively managed funds).
Personally, I find index funds the best for diversification as there are hundreds of index funds available.
I’ve written an article on why index funds are the only way I’ll invest in the stock market here.
Again, this investment strategy is personal to me and is by no means a recommendation. It’s important that you do your own research and get the right advice and education.
Law Ladies Who Invest Tip: Develop your own strategy by getting the right financial advice and investing in your financial education
Step 9. Reinvest the gains to make use of compounding
In my opinion, real wealth is in the power of compounding.
Compounding is when interest builds interest.
For example, if I were to invest £10,000 at 10% interest, I’d have £11,000 after the first year.
The extra £1,000 I earned (by doing nothing!) would itself earn interest.
This means that the full £11,000 (not just the original £10,000) will earn interest, with no additional effort from me.
Compound interest would cause this to keep happening year after year. So after 30 years that original £10,000 would be £175,000!
I aim to put all of my investment income (e.g from property investment or dividends) straight into another income generating asset, such as an index fund.
That way, I earn compound interest on the rental payments, and then that interest will earn more interest.
This allows my money to grow exponentially. For me, this is the key to real wealth.
Law Ladies Who Invest Tip: Get to grips with the concept of compound interest by reading books like Little Book of Common Sense Investing by John C Bogle
To Sum Up…
In the current financial climate, it’s more important than ever that we make our money work for us by investing our money wisely.
As lawyers, we often work for people (our clients) who have done something sensible with their money, but we so often lack the financial literacy to do something sensible with our own. The main steps are to:
- Get financially education – download the Blinkist app and start reading the financial literacy books
- Start with why – figure out exactly how you see your retirement
- Analyse your finances – get full picture of your income and expenses and set a budget
- Clear your debt – start by paying off the one with the highest interest rate
- Build an emergency fund – give yourself a financial safety net of 6 months’ expenses
- Set goals – start paying yourself first
- Get educated – understand the concept of risk
- Set your investment strategy – focus on passive income (such as through property investment) and compounding (such as through index funds)
- Reinvest your gains – harness the advantages of compound interest
Law Ladies Who Invest Tip: As a final tip, have a read of this article on How to Get Paid What You Deserve.