Tristen is a legal professional working in a busy personal injury practice. After articling for a well-known firm, she was offered a full-time position and quickly moved up through the ranks to become Partner after only 3 years. Tristen was thrilled to achieve this level of success so early in her career. She felt grateful to Grace, the Managing Partner who hired her. They had a great relationship and she attributed her success to the mentorship she received from Grace. Tristen has felt lucky to work with such a powerhouse in the legal industry and learned a lot from her over the past 5 years. Unfortunately, Grace was diagnosed with cancer last year and recently had to step down from her post in the firm.
Since then Tristen has started to feel pressure from her direct report to take on more cases and to get existing cases in her roster settled. She has also had several confrontations with clients who were unhappy with the direction their cases are going. Lately, Tristen is waking up in the middle of the night with panic attacks and not being able to get back to sleep. She no longer looks forward to coming into the office or working on cases. She often gets to work tired, struggles to focus on her work and feels overwhelmed by routine tasks. On some of her darkest days she fantasizes of getting into a minor car accident so she can take time off work. She knows this is not realistic because she has hardly made a dent in her student loan and can barely afford the costs of living in the city so she can be close to work. Tristen now wonders if she made the right career choice and if she can even afford to leave the profession or take time off and weigh her options. The lawyer in her looks at the evidence: hardly any savings and mounting six-figure debt means working through her burnout and hoping it will pass.
It doesn’t have to be this way. Although burnout is now considered a legitimate medical condition* by the World Health Organization, it is still a subject that many professionals, especially lawyers have difficulty talking about. A part of this has to do with the shame associated with not doing your best (lawyers are known to be perfectionists). There is also the lack of understanding of what practical options are available if you wanted to explore career options outside of the legal profession or take an extended break from it.
Here are five actionable steps lawyers can take to minimize the financial implications of a burnout, should you face one now or in the future.
1) Live your life based on what you value, not what others value.
Lawyers are notorious for wanting the finer things in life. The pressure to look like they have ‘made it’ can be intense. But at what cost? If keeping up with the Joneses robs you of your ability to save for the future – is it worth it? What is the balance based on honouring what you truly value? Examples may include purchasing the latest luxury car or designer clothes versus paying down debt or setting aside funds for an emergency. This is especially true if the financial pressure of keeping up takes away from the peace of mind that comes with building a nest egg for the future.
2) Become better acquainted with your cashflow.
If you are a lawyer that draws a blank stare when asked what you need to live for a month, it may be time for you to take stock. Not having an understanding of your cashflow means you have no idea how much money you need to pay your bills each month and how much you will need should you fall on hard times and need to take from savings you have accumulated for a rainy day. Worse yet, you will have no idea how long the rainy-day fund will last if you are forced to live on the proceeds and need to take time off as a result of a burnout.
TIP: Write down all your expenses and use an Excel spreadsheet or budget software to keep track of where your money is going. You can use this information to decide if your financial priorities are in line with your spending and make changes accordingly.
3) Take control of your debts and set up low-interest financing as a backup.
Do you know how much you are paying in interest costs on your debts? Keep in mind, the average credit card interest rate is over 20 percent. This means you could be paying $200 in interest on a $1,000 balance. How long will it take you to pay off the balance if you are paying interest only? Carrying high-interest debt is a sure-fire way to feel trapped in your circumstances.
TIP: Avoid carrying a balance on your credit card and seek out low-cost financing such as a line of credit. Typically interest on a line of credit is available at a fraction of the cost of a credit card. You will need to have a stellar credit rating (700 or more) so check your score before applying. Check your credit score for free at CreditKarma.com.
4) Pay attention to the amount of taxes you pay. Organize your finances so that you pay less tax.
The saying, ‘More money, more problems’ may not be far from the truth and is especially true when it comes to taxes. Keep in mind the more you earn, the more of a tax problem you will have. Taxes are something every lawyer must pay attention to especially as they earn more income. For example, if you earn over $130,000 in Ontario, 46 cents of every dollar you earn after that will be lost to taxes. In 2017, a new tax bracket was created for people who earn over $220,000 and for every dollar earned over that amount 50 cents will be lost to taxes. This means organizing your income to pay as little tax as possible should be an essential part of your financial plan. Tax planning will help you to keep more of the money you earn and redirect it to the priorities you care about. Potential strategies to do this may include maxing out your RRSP contributions, setting up a Personal Pension Plan (PPP) and maxing out your TFSA, to name a few.
5) Build passive streams of income.
In order to work less and earn more, you need to build income streams that are not tied to you working harder. Instead of trading money for time build assets that can help you to eventually replace the income you earn from your legal career. Keep in mind, the average millionaire has seven sources of income. Ask yourself what passive income streams can you create now? Investing in RRSPs may be a great strategy to help you reduce your taxable income while creating an income stream for the future. Other passive income streams may be real estate income, income from partnerships and any other asset you have built that is not tied you working directly to produce the income.
Recognizing that burnout is a complex issue that many professions are grappling with, it is unlikely to be solved with any one solution, or approach. In fact, this article is not intended to specifically address the causes of burnout or how to tackle them from a psychological perspective. What I can offer as a financial professional is practical solutions to the financial implications of “burnout”. Lawyers like Tristen who do not have confidence around their finances will likely struggle and feel more trapped in their profession than lawyers who build a fortress around their finances should they experience burnout in the future. Although I don’t know this to be true, I do know that there is peace of mind associated with planning for the things you can control such as: how much you spend, how much debt you are in, and investing in your financial future.
Are you a lawyer who is interested in improving your Financial IQ and creating options for yourself in the legal profession? Please reach out to myself and my team to talk about steps on how you can build your financial fortress now. We offer a complimentary 30-minute phone consultation to talk about your finances.
If this is something you’d like to take advantage of or you would like to learn more about tackling financial issues for legal professionals, go to my page dedicated to providing top-notch content individuals in this profession. You’ll find videos, articles, resources and access to my Legal White Paper.