Pandemic is a good time for lawyers to rethink lives and reassess financial plans, says Rick Goossen
Are you confident in your financial plan? What about your financial strategy for weathering a global pandemic? If the answer isn’t yes, things have just gotten a lot worse.
But it could have been different. We may not have seen the COVID-19 pandemic coming, but every bull market comes to an end; it was just a question of timing, the cause, and having a strategy in place to deal with it. Canadians are generally unprepared for financial speed bumps. An Environics Research Group Survey (July 2015) revealed that 45 per cent of Canadians identified themselves as having a low level of financial wellness, and 45 per cent felt distracted at work due to financial worries.
Likewise, lawyers are not necessarily a financially contented group. A 2012 Canadian Bar Association wellness survey of lawyers indicated that 36 per cent planned to work beyond 65 years of age, and 38 per cent were undecided. Why? Two reasons. More than half of respondents said they needed to keep working for financial reasons (51 per cent) and to maintain their current standard of living (56 per cent).
I have seen this firsthand. One of my most vivid memories as an articling student was listening to a partner in a major Vancouver firm bemoaning his financial lot in life: a slave to the timesheet; working for people not half as smart but making twice as much; and churning paperwork to help clients flip their way to profits.
What to do? Here are five financial strategies that will contribute to your financial wellness.
First, be clear about who you want to be. If your identity and self-worth is wrapped up in baubles of success, that lifestyle will keep you running for a long time. One of the major challenges for those in the legal profession is to project a certain image; lawyers need to look good, dress well, eat well, join a club, and take extravagant holidays. In fact, that’s part of the appeal of the profession. I still remember when I was being courted by a Bay Street firm for an articling position. I was invited to the senior partner’s elegant house for a visit, in a tony part of town with a very nice pool. A very nice pool. I had to stop from shouting, “me, too!” The problem is that not everyone can carry those expenses; some may try to pull it off, but can’t justify it. Be clear on the costs of who you want to be.
Second, you need some time and financial margin. This means wiggle room. A disruption such as this pandemic exposes who was over-leveraged. As Warren Buffett was quoted as saying, “It's only when the tide goes out [that] you can see who's been swimming naked.” Plan for disruptions: an act of God, so to speak. They always come, though in different shapes and sizes. You need some space in case your carefully laid plans are disrupted — and they will be. Margin means you have a built-in contingency in your monthly budget. You can take care of unexpected repairs. You can look after needs that may arise in your extended family or community. The buffer protects the core; the optional is defined and can be discarded as necessary.
Third, play the long game. This one is important, and an essential investment pillar. Almost everything in life and finances is about the long game. Invest prudently, let specialists take care of your investments, and don’t check them too often.
I recall a law school friend who was kept on at the mid-sized firm where he articled. He was a tax worker bee, all substance, no flash. He bought an old house in yonder ‘burb as a first-year lawyer. It was an old fixer upper, but it was his. He and his wife had one vehicle; she used it. He took the bus daily, about an hour each way. He made it work. Oh, so what happened? He retired in his early fifties, with a collection of rental properties along with a nice house. The long game works; the problem is that most egos don’t want the ignominy of the sacrifices along the way.
Fourth, don’t take unnecessary risks. Typically people take risks in order to get higher returns in a relatively short timeframe. If you have a plan, time and compounded returns work for you without causing any stress. Have your money professionally managed and let compounding returns do the rest. Time, when investing, should be your friend. Human nature may be to think, ‘I am too smart to play long; instead I can play fast!’ But when that doesn’t work it may take a while to dig yourself out of a hole, and retirement will end the opportunity to catch up.
Fifth, wealth comes through ownership and equity. Look for an opportunity to build something of value. In the classic personal finance book The Millionaire Next Door, one of the ways described to generate wealth is to have equity in a company. For lawyers, that is a partnership, and in particular, being part of a firm that has value in the partnership and a supply of people who want to buy in. Of course, there are smaller firms where the firm is a milch cow from which the partners take out what they can while they can, with the understanding that there is no pot of gold and no rainbow. The bottom line is that you would be better off to be positioned at the end of the day with some value in an entity.
It’s time to consider the five strategies mentioned and how they apply to you. A pandemic is a good time to rethink your life and reassess your financial plan. Unexpected events, like a pandemic, can and do happen. What about your current plan? I can do no better than concluding here with Dr. Phil’s oft-posed query: “How’s that working for you?”
