The famous boxing training Cus D’Amato said it best: “Fear is like fire.” It can keep you warm, or it can burn you. The same can be said of money. It all depends on how you manage it.
As a law student, a host of great career options lie ahead. I know it may not feel like it, with student debt piling up and a difficult job market, but many of you will land well-paying law jobs. And when you do, you will, not unlike professional athletes, go from zero to hero quickly.
One thing they don’t tell you in law school is that how you manage that wealth will affect how satisfied you are with your career. This is the proverbial “Golden Handcuffs” dilemma. It describes a strange paradox: earning copious amounts of money won’t give you financial freedom. Once we make more money, we tend to spend it all, and then we can’t imagine making any less. This puts us at risk of working in jobs we dislike because we think we have no choice.
Your law degree can lead to many terrific careers. And, if you want the power to choose the job you want as opposed to the one you have to have (in order to pay your bills), you need to exercise financial wisdom once you get that first law job. The less dependent you are on a significant income, the more freedom you’ll have to build the career you want.
With that in mind, here are three principles to follow that will help you on your way to financial — and, thus, professional — freedom.
1. Pay yourself first
What do Warren Buffett, Tony Robbins and my immigrant dad have in common? They all espouse this approach in spades. It’s the simplest way to manage your money: for every dollar you earn, set aside a predetermined percentage that goes directly into savings and investments. The earlier you put this system into place, the better off you’ll be, by a long shot. (Compound interest is a beautiful thing.)
I would suggest putting away 20 percent of each paycheque. But if you really can’t, then start with 5 percent, and every time you get a raise, keep bumping up the percentage until you are, indeed, sending the first 20 cents of every dollar you earn to savings.
2. When you raise the ceiling, don’t raise the floor
This one is hard. Exercising restraint is always difficult, at least at first. When your salary rises, as it undoubtedly will, don’t raise your expenses with it. You will be tempted to. Don’t. If you do, you’ll continue to be living paycheque to paycheque. That’s no fun, regardless of how big that paycheque is. And worst of all, if you ever want to leave that job for something that pays less, your bad habits won’t let you.
3. Reward yourself when you do well
Finally, the fun part. I’m not advocating that you eat nothing but ramen noodles while billing hard-earned hours on Bay Street. I’m saying eat them on Tuesdays and Thursdays. (Kidding!)
You’re going to work hard for your money, so you should enjoy it. Once you hit your savings goals, you can have fun with the rest. But be strategic. Pay yourself first. Then, as the ceiling rises, keep the floor steady. And enjoy a lifetime of professional freedom.