Lawyer Finance Issues – Sofi.com – Student Loan Refinancing
You’ve made it. Law school is behind you, the bar exam is checked off the list, and you’re officially a practicing attorney. But while you may have mastered contracts, torts, and civil procedure, managing your own finances is an entirely different challenge.
Many young lawyers step into high-paying jobs yet still struggle with financial stability. Between student loan debt, taxes, and lifestyle inflation, it’s easy to fall into money traps that can take years to recover from. The good news? Avoiding these mistakes is possible—with the right knowledge and planning.
Below, we’ll break down the most common financial mistakes young lawyers make and how you can sidestep them.
1. Ignoring Student Loan Repayment Options
Student loans are one of the biggest financial burdens for young lawyers, yet many fail to explore the best ways to manage their debt. Some graduates automatically stick to the standard 10-year repayment plan, assuming it’s their only option. Others enroll in income-driven repayment plans without realizing they might be paying more interest in the long run.
If you have high-interest private student loans, refinancing could be a smart move. SoFi, for example, offers options to refinance law school loans, potentially lowering your interest rate and saving you thousands over time. This can free up more of your income for other financial goals, like investing or buying a home. However, refinancing isn’t the right choice for everyone. If you’re pursuing a career in public interest law, check whether you qualify for Public Service Loan Forgiveness (PSLF) before refinancing, as doing so would make you ineligible for that program.
The key is to compare your options. Don’t just assume the first repayment plan you’re placed into is the best one for you.
2. Living Like a Big Law Partner on an Associate’s Salary
Your first real paycheck as a lawyer might feel like a lottery win. After years of scraping by on student loans, you finally have financial breathing room. It’s tempting to go all out—renting a luxury apartment, leasing a new car, dining at high-end restaurants, and booking lavish vacations.
But just because you can afford something doesn’t mean you should. Many new lawyers get caught up in lifestyle inflation, upgrading their spending habits to match their new income level. The problem? Salaries can fluctuate, unexpected expenses arise, and bad spending habits are hard to break.
Instead of splurging right away, create a realistic budget that covers all necessities while allowing room for savings and investments. Give yourself time to adjust before making major financial commitments.
3. Not Planning for Taxes
Taxes can be a rude awakening for young lawyers, especially those who receive large bonuses or earn extra income through side work. Many underestimate how much they owe, leading to a painful tax bill come April.
If you’re on a salary, your employer withholds taxes from your paycheck, but it may not be enough if you receive bonuses or have multiple income streams. If you do any freelance legal work, you’re responsible for setting aside money for self-employment taxes, which can add up quickly.
To avoid surprises, set aside at least 25-30% of your income for taxes. If you have multiple income sources, work with an accountant to adjust your withholdings or make quarterly estimated tax payments.
4. Delaying Retirement Contributions
Many young lawyers put off retirement savings, thinking they have plenty of time to catch up. They prioritize student loans, rent, and lifestyle expenses while retirement stays on the back burner.
The problem? The longer you wait, the more you miss out on compound interest. Even small contributions in your 20s can lead to significantly more wealth than starting in your 30s or 40s.
If your law firm provides a 401(k) match, be sure to contribute enough to take full advantage of it—it’s essentially extra money from your employer. If a 401(k) isn’t an option, consider opening an IRA and begin making regular contributions as soon as possible. Even small, consistent deposits can add up significantly over time.
5. Not Having an Emergency Fund
Legal jobs may seem stable, but unexpected layoffs, health issues, or economic downturns can happen. Many young lawyers don’t have a financial safety net and end up relying on credit cards when emergencies strike.
Try to set aside enough savings to cover three to six months of living expenses in a high-yield savings account. This financial buffer can help you stay afloat if you experience a job loss or encounter an unforeseen expense.
Building an emergency fund might take time, but it’s better to start small than not at all.
6. Taking on Too Much Credit Card Debt
Credit cards offer convenience, but they also lead to high-interest debt if not managed carefully. Some lawyers fall into the habit of making minimum payments, allowing balances to grow with interest.
If you’re already carrying a balance, focus on paying it down aggressively. If possible, look into a low-interest debt consolidation loan to make repayment more manageable.
7. Overlooking Insurance Needs
Young professionals often skip essential insurance policies, assuming they don’t need them yet. But one accident or illness could leave you financially vulnerable.
- Disability insurance: Protects your income if you’re unable to work due to injury or illness.
- Life insurance: If you have dependents, it ensures they’re financially secure if something happens to you.
- Renters insurance: Covers your belongings in case of theft, fire, or other disasters.
Insurance isn’t just an extra expense—it’s a safety net for your financial future.
8. Failing to Invest Outside of Retirement Accounts
While a 401(k) or IRA is a great start, stopping there means missing out on additional growth opportunities.
Consider investing in index funds, stocks, or real estate. These assets can grow wealth faster than leaving money in a low-interest savings account. If you’re new to investing, start with low-cost index funds and gradually expand your portfolio.
9. Not Setting Financial Goals
Without clear financial goals, it’s easy to spend money aimlessly. Many lawyers focus on earning more rather than building wealth strategically.
Set both short-term and long-term financial goals. Whether it’s paying off loans, saving for a home, or reaching financial independence, having a plan makes financial decisions easier.
Regularly review and adjust your goals based on your progress.
Avoiding these common financial mistakes will set you up for long-term stability. Take control of your student loans, spending, taxes, and investments early in your career.
By making informed financial decisions now, you’ll build a secure future and gain the freedom to pursue the legal career you truly want—without financial stress holding you back.
