Small Law Firms

6 Ways To Avoid Being Broke Even If You Make Good Money

Being financially solvent literally pays off and will prevent sleepless nights in the future.

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Very often I meet with fellow small-firm owners where the main topic of discussion is money. Usually the lack of it. They do earn a lot of money, but after expenses, they have little to no savings.

It’s not always an unwise large purchase that causes the problem. It’s usually a large amount of small purchases that go unnoticed.

The obvious answer is to earn more, spend less, or both. But business finances can be complicated. And it’s not easy to just reduce overhead. Also, people want to buy nice things so they can enjoy the fruits of their hard work or project a “successful” image.

Here are a few tips to help detect and reduce unnecessary spending. Some require small changes in spending habits while others require more foresight and discipline.

Minimize use of cash. We’ve all heard the phrase “Cash Is King.” I agree when it comes to collecting fees from clients. But when it comes to spending, not so much.

The problem with cash is that it’s hard to keep track of it. Most people stop spending once the cash is gone. And once it is gone, they most likely forgot how much they spent and how they spent it.

Now with credit cards offering all kinds of points, rebates, and incentives, it makes more financial sense to use the plastic instead of cash. Also, the monthly credit card statement — while painful to look at — can help you track your spending.

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It’s good to have a modest amount of cash in case you need to get out of a tight spot. But if you want to track your spending, it is better to use checks, spending apps, or cards instead.

Pay bills on time. This seems obvious, but apparently this is still a problem for some people. Even those who can pay on time don’t because they are too busy or just forget. And if you have a credit card balance with a 29% interest rate, the late fee and interest payment can be very painful.

Make sure that all of your credit card bills are mailed or emailed to you so you won’t accidentally overlook a bill. Also, set up reminders and autopay. Finally, in case you might accidentally exceed your bank account balance, make sure your overdrafts are connected to your savings account. You do have a savings account, right?

Debt by a thousand costs. If you do your spending with a credit card, take a look at how you spent your money last week. Did you get your daily caffeine fix by ordering a pumpkin spice latte made with sustainable organic coffee beans grown in a fair trade country? Did you follow that up with an artisanal salad with avocado toast on the side? Did you buy anything at Whole Foods? And did you spend the weekend going bar hopping, paying cover and rideshare fees? That’s all well and good, but don’t by surprised if your credit card bill comes close to a thousand dollars. You see, all of that little stuff adds up.

Look, I enjoy avocado toast as much as the next hipster. And spending $100 per month at Starbucks does not mean you are financially irresponsible. And I am definitely not advocating getting your daily nutrition from the $1 value menu at the local fast food joint.

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What I am suggesting is that you try to cut back on indulgences or find ways to do the things you enjoy at a lower cost. Try not to eat out as much. You don’t have to go to every party you’re invited to.

Don’t super-size when a regular will do. I am not talking about food here. Sometimes people make excessive purchases that they do not need. This includes major purchases which can destroy them financially when a recession hits. A single person does not need a three bedroom apartment unless they have a plan to rent out the other rooms profitably.

It might be cool to own the exotic car with the turbocharged V12 engine that that gets four miles to the gallon. But you’ll also be paying high insurance rates, and mechanics will see you as a money tree. And when you try to sell it, depreciation will take its toll and you may end up getting less than half of what you paid for it. Finally, in the age of smartphones with Google Maps, does it make sense to pay over $1,000 for an in-car navigation system?

Every major purchase is an investment. Treat it that way and don’t purchase more than you need. After a while, the only people who are going to care are your lenders.

Get stuff for free by asking around. Let’s say you want a new desk for your office. You can pay retail. Or you can try asking your local bar association listserv or attorneys’ social media chat group and ask if anyone needs to get rid of any excess office furniture.

Don’t feel self-conscious about this. I think that many attorneys would be happy to give away their excess equipment. What else are they going to do with it?

Two things, though. Inspect everything in person beforehand. Also, be courteous by making pick-up arrangements yourself.

Refinance whenever possible. For most graduates, student loans will be a second tax. But you can lessen the sting by refinancing to a lower interest rate. This can translate into a lower monthly payment or paying off the loan faster.

The trick is to do it early because you pay the most interest at the beginning stages of loan repayment. But this can be a difficult decision if you are on an income based repayment (IBR) plan. If you plan to be an IBR lifer, you cannot refinance since private loans do not qualify for IBR and are expected to be paid in full.

If you have credit card balances, try calling the credit card companies and ask for a lower interest rate. Sometimes they give it. But the best strategy is to have another card that you rarely use and transfer the balance to that card.  Most credit cards have low interest balance transfer rates for a certain period of time. You should budget your spending so that you pay off the balance before the promotional period is over.

Saving money does not mean you have to live like a monk eating insects and Chicken McNuggets. It does mean doing research, making some modest sacrifices, and developing better habits. But being financially solvent literally pays off and will prevent sleepless nights in the future.

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 sachimalbe@excite.com and via Twitter: @ShanonAchimalbe.

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