5 Financial Challenges for Personal Injury Lawyers – and How to Tackle Them
Whether fresh out of law school or a well-established partner, every personal injury lawyer faces certain inevitable financial challenges and volatility in their practice. The shifting of professional goalposts can make money management an ongoing and all-important task. As a personal injury lawyer, your job is to help others in vulnerable positions. You can best do so if you also protect yourself from financial insecurity in the process. To ensure you and your firm are well-equipped to minimize stress and maximize legal success, check out some of the most common financial challenges for personal injury lawyers – and tips for addressing them – below.
1. Scaling the Inverted Salary Arc
Personal injury lawyers often experience salary inversion or compression: a situation in which you make more money in some years of practice than you do in subsequent years, even if you are becoming more experienced and have a growing reputation. This creates a potentially dangerous financial trap. Since personal injury law can be a fluid area of practice, and caseloads and settlements can be uneven, your first period of big earnings should also be your savviest in spending. Live within your means, anticipate income fluctuation and save as much as you can. Boston University School of Law warns: “Live like a lawyer when you’re a student and you could end up living like a student when you’re a lawyer.” The same adage holds true for personal injury lawyers who have durational risks in the resolution of their cases. Live like a senior lawyer when your revenues are strong, and you could end up living like an entry-level lawyer when your returns are more uneven.
2. Paying Off Significant Student Loans
Law school is expensive. In 2021, the average law school graduate carried $160,000 in debt – a figure that greatly influences graduates’ choice of career, location and lifestyle decisions. If this number feels daunting, know that the problem won’t go away or shrink on its own. Consistency is key when it comes to paying off debt. Set a realistic savings goal for the year, factoring in your costs of living, planned expenses and interest rates on your loans. From there, decide on a monthly amount you allocate to paying off your debt. Consider using a visual aid like a retractable bar graph that you can update every time you make a payment. That way, you can see and encourage your progress.
3. Neglecting a Firm Budget
When the workday gets long and busy seasons stretch on for months, budgeting can take a backseat. The fast-paced world of personal injury law has daily litigation deadlines that can exacerbate this issue. Lawyers who spend long days in the office can be quick to overspend on conveniences like delivery services, subscriptions or rideshares — and these costs add up. To avoid depleting your savings, stick to a budget that accounts for these added expenditures. Many financial advisors use the “50/30/20 rule,” which prescribes that you use 50% of one month’s income on needs, 30% on wants and 20% directly on savings and investments. Using this model doesn’t require you to be altogether restrictive, and reallocating money during busier months can alleviate any financial surprises at the end of the year.
Budgeting tools come in every style, from smartphone apps to spreadsheets. Explore different formats until you find one that works for you, and schedule check-ins with yourself to review your numbers and readjust as needed.
4. Underestimating Overhead
For lawyers, overhead comes in all sizes. Law Crossing approximates that the typical law firm spends nearly 50% of its earnings on overhead expenditures. You will have routine expenses that often escalate each year, such as office space, staff turnover, technology and equipment. But don’t forget some big-ticket expenses like transportation, conferences and client dinners. Whether you’re investing in office space, smartphones, computers, work-from-home equipment or research services, be sure to analyze each product against its competitors and factor it into your budget before purchasing. If your input helps shape your firm’s decisions on overhead, be sure to connect with other partners and paint a full picture of all associated costs, so you can determine the level of productivity needed to offset them as much as possible.
5. Biting Off More Than You Can Chew
Personal injury cases are not always straightforward. Representing claimants with significant or complex injuries can necessitate longer discovery and trials and require outside expertise, like medical specialists. Some lawyers feel ready to take on such clients and cases. The reality is that many attorneys are financially underprepared to do so. Before taking on these challenges, check two things off your to-do list: First, determine the likelihood of success on liability and the range of possible outcomes, using analytics that are being developed by outside firms. Second, ensure you have the legal funding you and your client will need to see the case through.
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