How do young lawyers manage their finances?

4567lp

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Aug 9, 2021
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Hi all!

I know talking about personal finances is a bit of a taboo subject in this country, but I do think it's an important topic so hopefully I don't offend anyone by asking this question.

I was hoping to get advice from those who have started their TCs/have qualified or from any forum members with knowledge about the financial side of being a lawyer in the City. In particular, I'm intrigued about how NQs spend their money/how they invest it and if there are any lessons to be learnt? How early do people start saving for a mortgage? Whilst I acknowledge it's a privileged position to be in to start thinking pragmatically about spending your TC/qualified money, I can't help but have anxiety over 'doing the right thing' in terms of this.

I, personally, do not come from a background where I can ask my family for advice about these things, and I'm sure there are many others in the same situation, so any advice or experiences would be really helpful!

TIA
 
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TC fiend

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    Tbh in my own personal experience, I’d say the way people spend their money really depends on how they grew up with (or without) money and what they feel comfortable with. For example, in my own observation I’ve noticed that those who didn’t have financial stability growing up are more conscious of their pension contributions, long term investments and paying off any outstanding debts. On the flip side, I’ve noticed that people who have a financial support system to fall back on tend to be more relaxed and spend more on “flashier” items. I think it’s good to strike a balance between the two - hoarding all your money in a savings account isn’t the financially smartest option, but neither is living beyond your means. Luckily nowadays there are plenty of financial planners working both with banks and providing independent financial services, who can help you look at how you can make your money work for you and achieve your financial goals.
     

    James Carrabino

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    Hi all!

    I know talking about personal finances is a bit of a taboo subject in this country, but I do think it's an important topic so hopefully, I don't offend anyone by asking this question.

    I was hoping to get advice from those who have started their TCs/have qualified or from any forum members with knowledge about the financial side of being a lawyer in the City. In particular, I'm intrigued about how NQs spend their money/how they invest it and if there are any lessons to be learnt? How early do people start saving for a mortgage? Whilst I acknowledge it's a privileged position to be in to start thinking pragmatically about spending your TC/qualified money, I can't help but have anxiety over 'doing the right thing' in terms of this.

    I, personally, do not come from a background where I can ask my family for advice about these things, and I'm sure there are many others in the same situation, so any advice or experiences would be really helpful!

    TIA
    Tbh in my own personal experience, I’d say the way people spend their money really depends on how they grew up with (or without) money and what they feel comfortable with. For example, in my own observation I’ve noticed that those who didn’t have financial stability growing up are more conscious of their pension contributions, long term investments and paying off any outstanding debts. On the flip side, I’ve noticed that people who have a financial support system to fall back on tend to be more relaxed and spend more on “flashier” items. I think it’s good to strike a balance between the two - hoarding all your money in a savings account isn’t the financially smartest option, but neither is living beyond your means. Luckily nowadays there are plenty of financial planners working both with banks and providing independent financial services, who can help you look at how you can make your money work for you and achieve your financial goals.
    Just following on from this great input, I am aware of several people at the start of their careers who have started investing a little in professional advice on financial planning, wealth management, tax advice etc - it's probably something worth looking into
     
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    HorsesForCoursesNeighNeighNeigh

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    Hi all!

    I know talking about personal finances is a bit of a taboo subject in this country, but I do think it's an important topic so hopefully, I don't offend anyone by asking this question.

    I was hoping to get advice from those who have started their TCs/have qualified or from any forum members with knowledge about the financial side of being a lawyer in the City. In particular, I'm intrigued about how NQs spend their money/how they invest it and if there are any lessons to be learnt? How early do people start saving for a mortgage? Whilst I acknowledge it's a privileged position to be in to start thinking pragmatically about spending your TC/qualified money, I can't help but have anxiety over 'doing the right thing' in terms of this.

    I, personally, do not come from a background where I can ask my family for advice about these things, and I'm sure there are many others in the same situation, so any advice or experiences would be really helpful!

    TIA

    First thing I would do is work out what I'm actually taking home using this tax calculator (I use the below one as it allows for postgrad loans too):
    You'll probably have a BIG shock when you see just how much tax reduces your salary (NB this calculator doesn't include council tax, not sure if it contains latest NI changes). Read up on the latest government policy on pensions as well as your company's policy--you get a certain tax free allowance and companies will have their own policies on how they match your contributions. Try different figures with a tax calculator to see if upping your contributions would work for you (it's probably something that will be a lot more helpful as a highly paid associate then as a trainee TBH). Also remember to claim the working from home tax relief if applicable.

    You're probably looking to buy as soon as possible, assuming you're renting now. Check out government help to buy ISAs which give you an extra chunk of money if the property is under a certain price (450k for London):
    Also sign up for Clearscore now to check your credit score. You'll want to register to vote, get a credit card, put all your bills on direct debit and get a phone contract to maximise it. Always good to do this years before you want to buy, to avoid nasty shocks.

    Assuming you're in London, property is obviously expensive but on a legal salary it's doable alone if you save. Assuming your credit score is fine, you should be able to borrow maybe up to 4.5-4.7 times your salary (depending on your type of contract--when you're permanent you're much more attractive to mortgage companies, also depending on ratio of deposit to borrowing--a broker can tell you or an online calculator). Exact amount will vary depending on your expenses, etc (basically don't get yourself into any expensive car hire agreements!), but let's say you're on £80k as an associate and have saved £50k, you might be able to borrow around £360k, look to buy a house at £400k and have the 10k for costs (lawyers, stamp duty, broker) and contingencies. I think some firms offer mortgage brokers and similar as work perks.

    So I'd start by deciding what I want when--how motivated are you to buy, how much are you willing to save? Or are you more relaxed about that and wanting fun for a few years? Then make a budget and plan around that. I'd advise putting your savings on direct debits for after you get paid, get all your bills automated.
     

    Jaysen

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    Hi all!

    I know talking about personal finances is a bit of a taboo subject in this country, but I do think it's an important topic so hopefully, I don't offend anyone by asking this question.

    I was hoping to get advice from those who have started their TCs/have qualified or from any forum members with knowledge about the financial side of being a lawyer in the City. In particular, I'm intrigued about how NQs spend their money/how they invest it and if there are any lessons to be learnt? How early do people start saving for a mortgage? Whilst I acknowledge it's a privileged position to be in to start thinking pragmatically about spending your TC/qualified money, I can't help but have anxiety over 'doing the right thing' in terms of this.

    I, personally, do not come from a background where I can ask my family for advice about these things, and I'm sure there are many others in the same situation, so any advice or experiences would be really helpful!

    TIA

    Just to jump in to say, I think this is a brilliant topic to raise. You are completely right that personal finance is often a taboo subject, but I think it's a really important discussion to have.

    I am in a similar position regarding my background. If you are familiar with Reddit, I would highly recommend the UKPersonalFinance subreddit, their wiki and the flowchart.

    My approach was to start by paying off any high-interest debts, then putting money aside as an emergency fund. A proportion then goes in a stocks & shares ISA, which is used to invest in index funds. Your approach would vary based on your short and long term goals.
     
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    123Law1234

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    Just to jump in to say, I think this is a brilliant topic to raise. You are completely right that personal finance is often a taboo subject, but I think it's a really important discussion to have.

    I am in a similar position regarding my background. If you are familiar with Reddit, I would highly recommend the UKPersonalFinance subreddit, their wiki and the flowchart.

    My approach was to start by paying off any high-interest debts, then putting money aside as an emergency fund. A proportion then goes in a stocks & shares ISA, which is used to invest in index funds. Your approach would vary based on your short and long term goals.

    This may be an obvious question but I was wondering what the rules on investing for solicitors are? Are corporate solicitors allowed a stocks & shares ISA due to potentially having access to more information through their job?
     

    Jessica Booker

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    This may be an obvious question but I was wondering what the rules on investing for solicitors are? Are corporate solicitors allowed a stocks & shares ISA due to potentially having access to more information through their job?
    It’s possible to have them but you just have to disclose your ownership and conflict checks are done. There will most likely to be conflicts when you work on matters, and so this may prevent you from either purchasing or selling your shares.

    Basically when you join a firm you will be given a whole load of training on this and also have to complete forms that help you keep on the right side of compliance.

    Lots of lawyers and investors choose to invest money in stocks/shares etc. They are just mindful of what they invest in and ensure everything is disclosed to conflict checks can be made.
     

    123Law1234

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    It’s possible to have them but you just have to disclose your ownership and conflict checks are done. There will most likely to be conflicts when you work on matters, and so this may prevent you from either purchasing or selling your shares.

    Basically when you join a firm you will be given a whole load of training on this and also have to complete forms that help you keep on the right side of compliance.

    Lots of lawyers and investors choose to invest money in stocks/shares etc. They are just mindful of what they invest in and ensure everything is disclosed to conflict checks can be made.

    Thank you! That clears that up. I always wondered how lawyers would be able to invest without there being a conflict.
     

    LlamaLaw

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    Always good to think ahead! If definitely +1 the advice about using the salary calculator and putting in as much as you can - pension contributions, taxable benefits, student loans, etc.

    For those starting at firms offering the particularly large NQ salaries, be aware that over £100,000 per year, things start to get a bit more complicated. You'll have to submit a tax return even if you're paying everything through PAYE (pay as you earn). You'll need to declare things like how much bank interest you make, etc, so make sure you keep some records!

    As with anything there's a balance to strike. Some people go nuts with newfound income and others go almost entirely the opposite direction, but you'll need to find whatever works for you. My advice is that at the very least you should treat yourself, at least sometimes. If you can save and invest then definitely do, but also don't stop living to watch a bank balance go up and not enjoy yourself a little.

    As @Jaysen said, the flow chart from UKPF is really helpful.

    You might also find some open banking apps useful. They can show your balances across multiple companies (current accounts, savings, credit cards, etc) and keep it easier to keep track of things without resorting to spreadsheets or keeping everything in one place
     

    4567lp

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    I was pretty nervous about starting this thread but I'm so glad I did as all the advice and input have been really helpful!! Thank you so much everyone :)

    Have bookmarked all the links provided by @Jaysen and @HorsesForCoursesNeighNeighNeigh so I can have a proper look at them in my spare time.

    I guess I come within the example in the first comment above by @FS where I didn't have financial stability hence why I want to set myself up well from the start. But, as others have also mentioned, striking a balance is also important.

    I'm grateful to be joining a US firm (not NQ) that pays well so IF I were to be retained after the TC, this is really interesting to know in advance!
    For those starting at firms offering the particularly large NQ salaries, be aware that over £100,000 per year, things start to get a bit more complicated. You'll have to submit a tax return even if you're paying everything through PAYE (pay as you earn). You'll need to declare things like how much bank interest you make, etc, so make sure you keep some records!

    I wish to get on to the property ladder soon after qualifying (maybe 2-3 years?) but obviously without setting a strict time frame so it's been really helpful to get some initial ideas.

    Forever grateful for this forum 😭
     
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    LlamaLaw

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    I was pretty nervous about starting this thread but I'm so glad I did as all the advice and input have been really helpful!! Thank you so much everyone :)

    Have bookmarked all the links provided by @Jaysen and @HorsesForCoursesNeighNeighNeigh so I can have a proper look at them in my spare time.

    I guess I come within the example in the first comment above by @FS where I didn't have financial stability hence why I want to set myself up well from the start. But, as others have also mentioned, striking a balance is also important.

    I'm grateful to be joining a US firm (not NQ) that pays well so IF I were to be retained after the TC, this is really interesting to know in advance!


    I wish to get on to the property ladder soon after qualifying (maybe 2-3 years?) but obviously without setting a strict time frame so it's been really helpful to get some initial ideas.

    Forever grateful for this forum 😭

    Makes a lot of sense. I can sympathise having come from a similar situation, so having that security is definitely a good feeling.

    It sounds very basic, but saving at the beginning of the month rather than the end can create a good habit and make sure you're regularly saving. I ended up making a budget and worked out how much I could safely put away at the beginning of each month.

    One other tip - if your firm offers bonuses (or your pay fluctuates because of benefits, etc), it might be worth trying to project your total income over the year, and when you start, you can give that figure to HMRC via your online tax account. That way you pay the right tax from the start, rather than get to the end of the year and find out you owe them something.
     

    Jane Smith

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    Always try to spend less than your net pay is a good first rule so you are setting some money aside for harder times (or the deposit on a property in due course). Other than that it depends on the person. Some with good pay spend it all (very unwise in my view). Others are more careful with money and put it aside for the future. Once you have an idea of where you might want to settle it is worth buying a home as soon as you can once you are qualified and how long that will take will depend on your pay, savings, where you want to buy etc. If you have a partner then the two professional salaries together can make it easier to buy a first place (obviously). We bought out in Zone 5 (London) (lots of commuting sadly...) as it was cheaper.
     

    Velikilawyer123

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    For those starting at firms offering the particularly large NQ salaries, be aware that over £100,000 per year, things start to get a bit more complicated. You'll have to submit a tax return even if you're paying everything through PAYE (pay as you earn). You'll need to declare things like how much bank interest you make, etc, so make sure you keep some records!
    That's interesting, I didn't know that. I'm assuming firms will inform us about this / we will get training or a course on the topic? Or is there somewhere you could recommend reading up on this?
     

    Jessica Booker

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    That's interesting, I didn't know that. I'm assuming firms will inform us about this / we will get training or a course on the topic? Or is there somewhere you could recommend reading up on this?
    Your employer doesn't have to inform you as the reasons you could have to submit a self assessment tax return are quite varied and not actually tied to your employment. Its more about how you invest any savings or make money from any assets you have.
     

    Velikilawyer123

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    Your employer doesn't have to inform you as the reasons you could have to submit a self assessment tax return are quite varied and not actually tied to your employment. Its more about how you invest any savings or make money from any assets you have.
    Ah fair enough, that makes sense, I was referring more to the comment above that stated you have to submit a self-assessment tax form even if you're 100% on the PAYE system, as long as you make over 100k. Is that true even if it's your only source of income (i.e. no investments, other sources of cash, etc.)?
     
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    Jessica Booker

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    Ah fair enough, that makes sense, I was referring more to the comment above that stated you have to submit a self-assessment tax form even if you're 100% of the PAYE system, as long as you make over 100k. Is that true even if it's your only source of income (i.e. no investments, other sources of cash, etc.)?
    HMRC will request you submit a tax return if you earn over £100k, even if it is your only source of income. If you are on PAYE, they will know you have earned more than £100,000 and will send you a notification to submit one. This doesn't come via your employer, it will come from HMRC directly.

    But there are plenty of people who earn under £100k who also have to submit a tax return. This article explains why you would have to:

    Ten reasons why YOU may need to submit a tax return to HMRC - even if you're on PAYE | This is Money
     

    LlamaLaw

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    That's interesting, I didn't know that. I'm assuming firms will inform us about this / we will get training or a course on the topic? Or is there somewhere you could recommend reading up on this?
    I'm not aware of a particularly useful guide, but as @Jessica Booker said, you'll get a letter telling you to fill one in from HMRC after that tax year ends - probably about June or July. My recommendation would be to do it online (via Gov.uk) because it's relatively straightforward that way. Some people use specialist software or simply pay for an accountant, but honestly if your income is essentially all via employment, you will only need to fill in one or two sections and the Gov.uk website is pretty good at walking you through what you need.

    I'd recommend something like Which? for some info, along with the guidance on Gov.uk.
     
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