One key mistake we female lawyers make is living within our maximum means. For many of us, no matter how much money we make, our lifestyles seem to expand to take up the extra income following a pay rise. Instead of buying more stuff, this blogs explains how to invest it wisely!
Don’t acquire things over wealth
Julie is a lawyer in a City law firm. She has worked hard consistently for her entire career and has always lived comfortably on her City salary. She has received an increase in pay and a bonus every year since she started at her firm.
After each increase and bonus payment, she rewards herself with a new car, or a new house, or just more stuff. In fact, sometimes she will have mentally spent the bonus before even receiving it.
She is now reaching retirement. She hasn’t saved much so she requests her pension statement from the HR department. She is shocked by how little she is entitled to and is now worried that she won’t be able to maintain her quality of living after retirement.
What Julie didn’t realise is that, without a goal in mind throughout her career, she was just covering her current lifestyle, and not doing anything for her future self. She has spent her entire career earning a decent salary but a less than modest retirement fund.
It can be difficult to forgo an expensive treat in favour of bulking up the wealth that you won’t see for years – but you need to decide whether you want to acquire things now or acquire wealth for the future.
This is even more important in the context of a recession, where keeping more money than we spend becomes more important that ever.
Stop living a lifestyle of inflation
Like many well paid professionals, female lawyers will often succumb to a lifestyle of inflation: i.e. earn more and then spend more.
This results in us sometimes spending money on things that we think reflect the money we earn: a nice car, a big house, an expensive handbag etc.
But this often leads to a false sense of security: a feeling that you must be financially secure if you’re able to spend money on expensive things.
Fancy homes, flash cars and designer handbags are societal status symbols that are seen to represent career success.
Whilst many of these things might initially feel like assets, they often result in accumulating bad debt as the value of most materialistic things will depreciate quickly.
They may impress other people but they are not a sign of wealth; because wealth isn’t about how much you spend, it’s about how much you keep.
Understanding the difference between liabilities (things that take money out of your pocket) and assets (things that generate an income and put money in your pocket) can make all the difference when it comes time to retirement.
No matter how much you’re making today, you’ve probably already adjusted to that amount of money. This means you won’t miss a raise if you never see it.
To stop living a lifestyle of inflation doesn’t mean to stop living your current lifestyle. Investing your pay raise and bonus will have zero impact on your standard of living and yet using it wisely could help your net worth balloon!
Of course it is important to celebrate your successes. After getting a pay increase or bonus those big purchases you’ve been putting off are going to be very tempting now.
But don’t take it for granted. Try having a modest celebration like going out for a nice meal with a loved one to reflect on your achievements and let it sink in. Then, reassess your budget and start thinking about how you can make your pay rise, rise even more.
Celebrate by putting your extra cash into an investment that is going to grow and make you even more money. Make sure your money is working as hard as you are.
Use it wisely
Now that the excitement has settled in, it’s time to start thinking about exactly where your extra cash would do the most good. Here are the first things you should consider doing:
- Pay off your debts
- Build an emergency fund
- Invest in an index fund
- Invest in property
- Increase charitable donations
Final tip: know your bonus policy
As a final tip, make sure you know your bonus policy. Most lawyers will have a fixed income through their salary and it can be difficult to negotiate an increase. So make sure you get to grips with your firm’s bonus policy so that you can ensure you qualify for the annual bonus.
This will encourage you to keep investing in your career. The bonus policy will probably require you to put yourself forward for things – so do that, and make sure deliver on them.
You’ll then start to get known by the right people for the right things and you’ll be invited to volunteer for more things with more responsibility. This will put you in a good position to qualify for a bonus.
Invest your pay increase and your bonus. Remember, a secure financial future isn’t dependent on how much you earn, it’s dependent on how much you save.
Familiarise yourself with your employer’s bonus policy and make sure you qualify for one. Just make sure you invest it when you get it!