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The real cost to partners of poor money management
Money plays a significant role in the legal profession, influencing career and life decisions. Attitudes towards money and links between personal and financial wellbeing are implicit yet rarely unpacked, writes Gerard Petersen.
Gerard Petersen
Partners often have built a façade of wealth with high incomes, expensive lifestyles, little real assets, and a personal house of cards. Many manage their money poorly with dire results. Just ask any financial planner with a large client base of high-income earning salary or equity partners.
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Evidence and consequences of poor money management
- High-earning partners whose incomes are unexpectedly cut or even halved: If they do not have a solid personal financial foundation and flexibility to weather these situations, they will face potential financial, personal and family crises.
- Partners who are deluded about their real value in the market: They act and spend as if they are earning $1 million (or think they will be at some stage). Yet the reality of their skills, profile and practice is that it’s unlikely they will earn over $500,000. Under an illusion of future earnings, they bounce around the market, hoping the next firm will pay big.
- Partners who are hocked with bad debt: Often desperately unhappy with the direction of their career or firm, they are shackled with golden handcuffs. Stuck in career quicksand without any options or flexibility, they are unable to go backwards in remuneration, even temporarily: The conundrum is they would be happy to take a salary cut to pivot their career to work that re-energises with greater purpose.
- Partners being sucked into the spending vortex and financial abyss of relentless social and professional comparison: This results in unhealthy status anxiety, which is rife within the profession. Cars, houses, holidays, schools, wine, boats, five-hat restaurants et al. is a hamster wheel that is hard to get off. The personal turmoil and familial carnage that occurs when a high-earning partner reaches that inevitable stage of life (which arrives sooner than they think) when their work holds little or no purpose and meaning.
They cannot afford to retire, having managed their income and wealth accumulation poorly. Suicide (particularly for men) and mental and physical health decline impact widely.
Re-evaluation touchpoints
a) Define what money means to you. Money can represent security, freedom, status, or something else entirely. By identifying your money values, you can create a financial plan that aligns with your career and life goals and values.
b) Become more financially literate with personal finances, budgeting, investing and retirement planning.
c) Know your value in the market. Taking an honest evaluation of your skills and financial prospects in the market is crucial not only for negotiating salaries, bonuses, and benefits but also for realistic wealth planning.
d) Not everyone can earn a million dollars in practice. There is no shame in recognising that as it is just reality. Success is not linear, nor is it measured by your income.
e) Spend less than what you currently earn over an extended period
f) Don’t compare or try guessing what others earn. You’ll never know, and what’s the point?
g) Consult a financial planner and have a solid financial plan, reviewed at least annually, for debt repayment, investing and retirement.
h) Take control of your own wealth and financial wellbeing. Do not rely on your law firm or partner for financial security.
i) Pursue career opportunities that challenge and enrich you. While legal practice can be highly lucrative, it’s important to pursue work for clients that challenges and enriches.
j) Financial flexibility allows you to consider a portfolio career, including directorships, in-house positions, or non-profit work, to diversify your income streams and enhance your career satisfaction.
k) Don’t let your relationship with money negatively impact your career decisions: It’s easy to become consumed by the pursuit of money, but it’s important to remember that money isn’t the only factor in your career decisions.
Ensure you’re making decisions that align with your values and personal, professional and family goals rather than solely focusing on financial gain.
Closing thoughts
Admire the partners who choose to practice law. While it is easy to venerate partners who appear to be wealthy and have it all, it’s important to remember that financial success alone is an unhealthy measure of career or personal success.
The lawyers and partners to revere and emulate are practising law because of a career choice. They are not doing so because they need high incomes for self-worth and status or to pay down personal debt.
And the evidence is clear. Earning more money does not have a direct correlation to a happier professional or personal life. Or, for that matter, to deliver asset wealth in real terms.
Gerard Petersen has been in the legal sector for 30 years as a lawyer, legal recruiter, career confidante and consultant. He is the owner of The Business of You.
