Money, Small Law Firms, Solo Practitioners

A Tale Of Two Lawyers: How They Make The Same Amount Of Money But Live Different Lifestyles

What is the moral of this comparative story? Focus on what works for you and stop comparing yourself to others.

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money question mark value valuationA few weeks ago, I met with my tax preparer to put the finishing touches on my tax returns. In a moment of insecurity, I asked him how I did financially compared to other lawyers he works with.

He responded by saying that lawyer income depends on specialty, hours spent working, location, luck… Yeah, yeah, I get it. I told him to just give it to me straight.

He told me a story of two solo practitioner lawyers: we’ll call them Lawyer A and Lawyer B. Both made an after-tax profit of $90,000 last year. But the way they made their money was quite different.

Lawyer A has the traditional law firm with a lot of overhead. His office is located in a building a few blocks from the local courthouse. He employs a full-time secretary and an associate. He also pays monthly expenses for case management software, web marketing, discovery tools, legal research subscriptions, etc.

Lawyer A uses his money to live the “lawyer lifestyle.” He lives in a high-rise in a nice part of the city. He also drives a leased luxury car. He goes to parties almost every night. For business development purposes, of course.

Lawyer A’s student loans are on forbearance status for the fourth year. Once that runs out, he plans to enroll in an income-based repayment plan and stay on it until the loans are forgiven. He’s betting that student loan forgiveness will be a major election issue in the future.

Lawyer A says that he enjoys his life and his material possessions. But he hates having to meet a certain sales goal in order to meet his overhead expenses. He would constantly have to call clients to get them to pay up. There have been months where he had to pay expenses with a credit line while a settlement was being negotiated. There were also times when payments were missed and checks have bounced.

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While Lawyer A is generally honest, there have been times where he had to be overly optimistic in order to get a potential client to sign on with him. He also hated pushing away salespeople trying to push whatever product they thought he needed.

Now let’s look at Lawyer B. He has an office that he shares with three others. He goes there only to pick up mail and meet a client once in a while. The rest of the time, he works from home. He prefers to meet clients at their home or office so that he can size them up.

Lawyer B is a true solo, which means he has no secretary or support staff. He hires a contract attorney or a law clerk for temporary projects that can be done remotely. But he has never had a full-time employee because that means he would have to rent office space where they can work.

He does his legal research at the nearest law library, usually coming early in the morning so he can access the legal research tools before anyone else.

Lawyer B does not have as many clients as Lawyer A, but the few clients he does have pay well.

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Lawyer B lives simply. He rents a room with multiple roommates. His car is a 10-year-old economy car. He has a strict budget for food and generally does not attend functions that charge a cover.

Most of the Lawyer B’s profits went to paying off his student loans. He believes that income-based repayment plans are too unpredictable and there is no guarantee that loans will be forgiven.

Lawyer B, like Lawyer A, enjoys his life. While he may not live in luxury, he has everything that he needs, and he has never had to worry about making a late payment.

However, Lawyer B complains that he has to do all of the administrative work since he has no staff. Everything from billing, purchasing office supplies, and marketing has to be done by him. This gives him less time to get real work done and for business development.

Sometimes, he also resents living like a skinflint in order to pay off student loan debt. He is concerned that the sacrifices that he is making now may not translate into a better return in the future.

For example, Lawyer B sometimes regrets paying off his student loans so aggressively. He knew some friends who used their money to purchase a house during the housing bust in 2009. They waited until their house value increased. They used a home equity loan to pay off their student loans and get a second mortgage interest deduction. And when they later sold the house, they walked away debt-free.

Finally, Lawyer B noticed that because he does not live a lawyer lifestyle, others do not take him seriously. He is rarely invited to parties by colleagues. Salespeople do not approach him even though he is interested in (and willing to pay for) ways to optimize his practice.

So what is the moral of this comparative story? Perhaps one is if you are making a lot of money but spending a lot more money, you might be doing it wrong. Another could be that the grass isn’t greener on the other side, as everyone has their own problems. Or that the traditional law firm model is getting too expensive and switching to a virtual model might be more cost-efficient.

Or maybe I should focus on doing what works for me and not comparing myself to others.

Anyway, I’m sure some of you have heard that Donald Trump won the presidency last night. He will appoint a new Supreme Court justice and probably start a reality show to select one of his Cabinet members. So solo and small firms should plan for a business-friendly administration that may result in reduction of government regulations and lower taxes. But given President-elect Trump’s colorful history, he might be the perfect scapegoat for a severe economic recession. I sincerely hope I’m wrong.

Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached by email at [email protected] and via Twitter: @ShanonAchimalbe.

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