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3 common money mistakes lawyers make

Many lawyers don’t know where to start when it comes to managing their money, writes Glen Hare.

Some are waiting for a sign, others are looking for the perfect moment and many believe they’re too strapped for time to finesse finance as well as law. Whatever the poison, the outcome is the same. Detrimental effects on longer-term wealth creation and in turn the ability to live the life they aspire to. Thinking specifically about those in the legal progression we work with, here are three (very) common mistakes I see. 

Do nothing

According to the Oxford Dictionary, option paralysis is ‘the inability to make a decision when presented with a wide range of choices’. The fear of making the wrong choice is real and most often presents itself as the statement ‘I just don’t know where to start’. Many people see property as a ‘safe’ investment because they’ve witnessed first hand the seemingly exponential growth during the recent property boom, however, feel inhibited by the commitment and/or upfront costs. Many shy away from the share market due to previous burns or lack of understanding and the vast majority haven’t even considered alternative investments.

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And so continues the vicious cycle of option paralysis. Doing nothing is still a choice and it is worthwhile considering the impact that choice can have. Current interest rates versus inflation literally mean that cash left sitting in the bank is going backwards (and much more likely to be blown on fluff!). Warren Buffett once said, ‘if you don’t find a way to make money while you sleep, you will work until you die’. How hard is your money working for you?

The more you earn, the more you spend

After years of living the (meagre) student life and surviving on a staple diet of mi-goreng noodles and cask wine, it’s time to splash out on fancy cufflinks, designer handbags and tailored suits. Somehow though, even when there are an extra four or five zeros at the end of the pay cheque there still seems to be nothing left at the end of the month. Research suggests that credit card owners spend around 25 per cent more, just because they have access to credit. Sure points are fantastic, even better when the bill is paid before a cent of interest is charged. Does this mean that it’s ok for credit card bills to all but eviscerate a monthly pay cheque? Absolutely not.

Why is it that the more some people earn the more they spend on these (often unnecessary) material things? And is ‘because they have more money’ really a credible answer to that question?

Not spending money on what’s really important

It’s really important to align an investment or cashflow strategy to a particular goal. These goals range from the mild, like buying a home, paying for private education for the kids and travelling the world to the unadulterated and wild. This variety is truly the spice of life and I don’t think the people of Sydney will ever slow down the surprises when it comes to the things they save their money for. While the end game may be vastly different, everybody who is saving has one thing in common. A goal, something that they’re working towards and once achieved/purchased/paid for will signal their success.

What happens when people spend money on things that don’t align with their core values? They buy all the stuff that society tells them is going to make them happy and then wonder why it doesn’t. Rest assures that this is not the sign of success. Many of Fox and Hares clients that have pivoted their spending behaviours and now consider where their money is going, live much happier, rewarding and fruitful lives. I’ve often wondered what effect short-term ‘gratification’ has on the wider population’s long-term goals. What does it mean that people are willing to spend thousands of dollars per month on clothing/Deliveroo but defer saving for a home because ‘it’s too expensive’?

And...bonus round

What are the most common responses to the question ‘how are you doing’ in the office? ‘Good thanks’ is probably number one but ‘busy’ has to be a close second and lawyers are bandits for this! It’s a fact that almost everybody is ‘busy’; people just choose to prioritise things differently.

Unfortunately those in the legal field often relegate managing one’s finances to the bottom of the pile. The result? One of the most highly skilled, upwardly mobile sectors of the workforce somehow being left behind the pack. Managing finances doesn’t have to be picking the next big thing on the stock exchange, it can be as simple as managing credit card debt, starting a regular investment strategy or putting a budget together to buy your first property.

It’s worth taking a moment to reflect and ask ourselves what it is that we’re actually working toward. Have you ever considered whether or not you’re across your current financial situation? Even more important, do you know what needs to change?

Glen Hare is a financial adviser and co-founder of Fox & Hare. 

 

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