by Tracee Wagner and The Forge Companies financial advisory team

With consumer prices skyrocketing over the past year, reassessing and refining your financial strategy is more critical than ever. In an environment where inflation erodes the value of your hard-earned money, effective financial management is key to reducing financial stress and growing your wealth. A solid financial plan means going beyond basic saving and investing—it’s about carefully managing cash flow, strategically handling debt, aligning your asset allocation with your goals, ensuring your identity is protected and planning for retirement early. By addressing these key areas, you can safeguard your purchasing power, reduce financial stress and lay the foundation for long-term financial security. For those with sophisticated financial needs, particularly lawyers navigating complex financial landscapes, now is the time to ensure your financial plan is truly working for you!

Cash Flow
The backbone of every financial plan is cash flow: how much do you have coming in, and where is it going? This seems straightforward, but you’d be surprised what subscriptions you forgot to unsubscribe from or how many “business” dinners you had in a month. Take a snapshot of your spending from the last month and take stock of the current situation.

After gathering data, categorize it. Luckily, with 21st Century technology, this task is not as daunting as sitting down with a stack of receipts and a blank Excel sheet used to be. There are numerous financial apps aimed at simplifying budgeting, but it’s crucial to thoroughly research them before entrusting your sensitive financial information to any platform. One feature to consider when researching budget apps is the method used to organize your finances. Whether it’s a traditional envelop system or a zero-based approach, you need to ensure it aligns with your desired method and goals. In this increasingly digital world, it is nearly impossible not to get hung up in a tangle of subscriptions required for nearly everything we do in our personal and professional lives. From internet service and Microsoft products to magazine and newspaper subscriptions, streaming TV and gym memberships, subscriptions can be a significant drain on finances.

A study conducted by C+R Research found that 42% of people polled had stopped using a subscription and didn’t realize or forgot they were still paying for it. The study also revealed that consumers underestimated their subscription expenses by an average of $133 per month, totaling $1,596 annually. This is where a subscription management app, like Rocket Money, can be a massive asset to your financial plan. Subscription management apps will track your transactions and notify you of recurring charges. These apps can track patterns in recurring charges to make recommendations on which subscriptions to cancel and can even cancel them for you. When researching any digital tool to assist with your budget plan, you need to make sure the app has enhanced security protections such as multi-factor authentication, encryption, and regular updates and notifications to protect data from unauthorized access.

Once you have a solid understanding of where your money is being spent, you can start minimizing unnecessary spending and reallocating that income toward your short-term and long-term goals. When evaluating your savings strategy, consider building an emergency savings fund of 3 to 6 months’ worth of essential expenses. This cushion can prevent you from relying on credit cards or high-interest loans in unexpected situations.

Debt
Debt isn’t a one-size-fits-all issue, and before you can effectively manage your debt, it’s essential to understand the different types of debt you may be dealing with. Debt can be broken down into two broad categories: good debt and bad debt. Recognizing which debts fall into these categories is the first step toward tackling them.

Good debt, often associated with investments that appreciate over time, can help build wealth and provide long-term benefits. According to Fidelity Smart Money, this type of debt usually comes with a lower interest rate or annual percentage rate (APR), which financial experts generally consider to be under 6% in the current environment. One of the most common types of good debt is student loans, with the average law school graduate owing $160,000 in student loan debt and 74% of law school students graduating with debt (EducationData.org, 2023). On the other hand, bad debt typically involves borrowing for items that depreciate or offer no future return, which can hinder your financial progress. Bad debt is often associated with high or variable interest rates. Forbes Advisor highlights that the average American carries nearly $6,213 in credit card debt, which is particularly concerning given that the average credit card interest rate was 22.63% in February 2024. High APRs can make repayment difficult and expensive, potentially leaving you with debt that outlasts the value of the product purchased.

Whether your debt is good or bad, it must be paid off, which is why your financial plan must include a debt repayment strategy. There are several avenues for having law school debt forgiven. Loan repayment assistance programs (LRAPs) are offered through several law schools, state bar associations, foundations, and federal and state governments. Other student loan forgiveness programs included Public Service Loan Forgiveness (PSLF) and Forgiveness with Income-Based Repayment (IBR). However, many student loan forgiveness programs come with stringent qualifications, including specific practice fields and income limits, and most other types of debt offer no forgiveness options at all. At this point, it’s time to evaluate your repayment strategy.

Two common debt repayment strategies are the avalanche and snowball methods. With the avalanche method, you first prioritize paying off the debt with the highest interest rate or APR. This could be the credit card with a 22.63% APR. The goal behind this method is that you’ll pay less interest over time. The avalanche method could be the preferred solution if you are motivated by saving as much money as possible. With the snowball method, you prioritize paying the smallest balance off first, moving to the largest. This method is beneficial if you are motivated by seeing progress quickly. Remember, with both methods, you want to pay the minimum required payment on all debt before allocating additional payments towards a specific debt, ensuring you do not default or acquire additional fees.

Two other common debt repayment solutions are consolidation and refinancing. Understanding the difference between these two strategies is essential because they are often mistakenly used interchangeably. Consolidation is frequently associated with managing credit card debt, and refinancing is typically linked to mortgage adjustments, but both options can apply to various types of debt. Debt consolidation combines multiple existing debts into a new loan, streamlining your financial obligations into one payment. Refinancing refers to altering the terms of an existing debt, usually by securing a new loan with more favorable conditions. A common example of refinancing is adjusting the terms of a mortgage.

Asset Allocation
For any investor, the ideal portfolio is one that optimizes returns in line with the level of risk they are willing to accept. Your risk tolerance, combined with your target return, will guide the selection of assets that best suit your portfolio. Once you’ve assessed your risk tolerance, you can choose the assets you’re comfortable holding. Many investors build their portfolio from a mixture of the three major asset classes: equities (stocks), fixed income (bonds) and money market (cash equivalents). We think of each of these three investments as having a job: stocks provide long-term growth, bonds provide a low and steady return with a lower likelihood of losses than stocks, and money market funds provide little interest on short-term cash. For example, if your risk tolerance is incredibly safe, you’ll likely want to build your portfolio with mostly money market funds and bonds. If you are aiming for long-term growth to make your money last your lifetime, you’ll need more stock in your portfolio. Most investors need an in-between mix with long-term growth, as well as protection from downturns with cash on hand for unexpected expenses.

Identity Protection
Financial wellness extends beyond the balance sheet and future planning. An important aspect of financial planning in the digital age includes protecting your identity. The cost of being a victim to identity theft can be losing everything. All the time and effort you put into your financial plan means nothing when your accounts are drained. According to AARP, American adults lost a staggering $43 billion to identity fraud in 2023. So, that fireproof lockbox sitting in your closet isn’t enough to protect you from cybercriminals. However, by taking practical steps, such as regularly reviewing your credit report for any unusual activity, including unauthorized leases or newly opened credit card accounts, you can significantly reduce the risk of identity theft. You’re entitled to a free credit report from each of the three major credit bureaus—Equifax, TransUnion and Experian—every twelve months through annualcreditreport.com. By staggering your requests, you can review a different report every four months, putting you in control of your financial security.

To take your protection to the next level, consider enrolling in an identity theft protection service. For top-notch security, choose a service that offers comprehensive identity monitoring, credit monitoring, high-risk transaction alerts and recovery assistance. These services are designed to cover every aspect of identity protection, giving you a sense of complete security. Identity monitoring tracks your personal information and alerts you to suspicious activity, helping to minimize the financial damage from identity theft. Credit monitoring keeps an eye on your credit score and reports changes that could signal stolen information. High-risk transaction monitoring notifies you of significant activities like account openings or password resets. If you become a victim, recovery assistance from fraud resolution professionals can help you navigate the recovery process more smoothly. These various programs have features such as dark web surveillance, credit monitoring alerts and scanning for online data exposure. Most of these programs also include secure password management systems with reminders to change passwords periodically to keep accounts secure. 

Retirement
When you retire, your primary income will shift from your salary to your investments. To avoid running out of savings, a common guideline is to have a balance equal to 25 times your desired annual retirement income, based on a 4-percent withdrawal rate. For many lawyers who may have higher expenses and begin saving later in life, reaching this goal requires a substantial savings rate. While a smaller nest egg can still support a comfortable retirement, it increases the risk of outliving your funds.

The power of compound interest is the key reason to start saving early for retirement. Compound interest allows your contributions to grow by earning interest not only on the principal but also on the accumulated interest over time. Let’s say you’re 25 and decide to put away $3,000 a year for 10 years in a tax-deferred retirement account with a 7% annual return. Then, after those 10 years, you decide to stop adding money, instead letting your previous contributions grow. Your $30,000 in contributions ($3,000 a year for 10 years) will have grown to $338,000 by the time you withdraw your funds at 65. If you saved the same amount each year starting at age 35 but for 30 years as opposed to ten, your $90,000 will only grow to roughly $303,000 when you reach 65. When evaluating your timeline until you retire, keep the volatility of your assets in mind. This strategic approach is crucial as it can help you make the most of your investments. When you’re younger, you might want to take a more aggressive approach since you’ll have time to bounce back. As you reach your goal retirement age, safer, more predictable investments might make more sense. As life changes, so should your retirement strategy.

When planning for retirement, simplicity can often be your best strategy. Start by taking full advantage of retirement benefits, such as a 401(k). If your business doesn’t provide a retirement plan, consider opening a Roth IRA. A 401(k) or IRA can be an effective way to minimize taxes, helping you make the most of your earnings. Plus, 401(k) accounts frequently come with firm-specific benefits, such as employer matching contributions.

For contingent fee lawyers, the landscape of fee deferral solutions is vast. From traditional structured settlement annuities to traditional deferred comp plans, it’s worth the research to understand the options available and ways to accomplish retirement goals as you move through different phases in your practice and career.

It’s important to think about how much you can realistically put toward retirement. A common guideline is to save at least 15% of your income each year. This might mean taking a closer look at your monthly spending to find areas where you can free up some extra cash.

Estate Planning
It’s ironic, but not uncommon, to find highly successful lawyers who haven’t even set up basic estate planning documents like a will, let alone trusts or more comprehensive plans—similar to the classic “cobbler’s children have no shoes” scenario. A solid financial plan needs to include estate planning so that your legacy is secure and you’re not leaving loved ones with financial stress. In 2014, the estate tax exemption was $5,340,000 per person ($10,680,000 for married couples), but over the past ten years, it has increased significantly to the current level of $13,610,000 per person ($27,220,000 for married couples) as of 2024, according to the IRS. The substantial increase in the exemption, along with the enactment of portability laws—which allow a surviving spouse to claim the unused portion of their deceased spouse’s federal estate tax exemption and add it to their own—has led to fewer people utilizing sophisticated estate planning techniques.

Most fail to realize that there is far more to estate planning than simply passing on wealth from one generation to the next. As such, any well-drafted estate plan should include documents for both incapacity and death. At the very minimum, estate plans for any income level should include a Last Will and Testament, Financial Power of Attorney, Living Will/Health Care Directives, Guardianship Designations and HIPPA Release.

Conclusion  
Achieving financial wellness requires a comprehensive approach that goes beyond simple saving and investing. By effectively managing cash flow, tackling debt strategically, carefully allocating assets and planning for retirement, you can build a solid foundation for long-term financial security. Additionally, protecting your identity and ensuring your estate is in order are crucial steps in safeguarding the wealth and stability you’ve worked hard to build. As financial landscapes continue to evolve, staying proactive and informed is critical to maintaining control over your financial future and reducing stress. Whether you’re just starting your financial journey or refining an existing plan, these strategies will help you confidently navigate the complexities of financial management.

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