In this week’s edition of Things I Wish I Knew, New York attorney Joleena Louis shares helpful advice on how to better manage the inconsistent budget of a solo law firm.
One of the most difficult aspects of being a solo lawyer is the unpredictable income. This uncertainty is a reason why many lawyers hesitate to hang their own shingle.
Though my income has become more consistent over the years, it’s still vastly different from the reliability of a regular paycheck. It’s definitely not an easy life, but it’s certainly doable if you have the right plans in place.
Here are some of my tips to help with just that:
Create a Skeleton Budget
The most important thing you must do is determine the bare minimum you need to cover your basic personal and business expenses.
My bare minimum includes my rent, utilities, food, cell phone, office rent and my case management software.
These expenses make up the absolute minimum I have to bring in each month to keep everything afloat. Knowing this amount will help you determine what to save for leaner months.
Plan for Additional Income
There will be times (hopefully) where you earn enough to cover more than your skeleton budget. Having a plan in place will help you put the extra money to good use.
I have a prioritized list of things to spend on when I have available funds. Things like adding to my emergency savings, CLE’s & attorney registration, marketing and upgrading equipment. I make these plans and budgets for both business and personal expenses.
Pay Yourself a Salary
Pay yourself first! This was extremely difficult for me to do, but once I started paying myself regularly I was a lot less stressed about my personal bills.
After creating my skeleton budget, I know the minimum I need to pay my basic living expenses. So every two weeks I transfer enough to cover those expenses from my operating account to my personal account. No matter how much or how little my business brings in each week, I still pay myself the same amount.
If I have a surplus after paying all my other expenses and adding to my savings, I’ll pay myself a bonus. But with this system, at the very least I’m ensuring my basic expenses are paid.
Open Multiple Savings Accounts
You need to open several savings accounts or one account that allows you to treat it like multiple accounts. I use Capital One 360 for this purpose.
Saving is essential to survival. Even if you don’t think you can afford it, you have to set aside money for emergencies, slow periods and your retirement.
A few months ago my computer, which was no longer covered by warranty, just stopped working. This was the second time this happened to me, but I was prepared by having some cash saved up to equipment malfunctions.
Having an emergency fund has also allowed me to pay for multiple flights between New York and Ohio to help my mother during her chemo treatments. I would not have been prepared for this unanticipated expenses if I hadn’t been aggressive about saving for emergencies.
You can create multiple accounts for various purposes. My business slows down around the holidays so I know I need to set aside at least two months expenses. I also have an account for taxes, to save for a vacation, for conferences and a general emergency fund.
You know exactly what you have for a specific purpose and you are less likely to use it for something else.
Get Paid Up Front or Right Away
A lesson I learned early on was to never depend on money that is not already in my bank account. You can’t pay your bills if your clients don’t pay you.
Whenever possible, get paid in advance. And make sure your payment terms are clearly laid out for your clients. I make a point to all my clients that I need to be paid up front before I work on their case.
Surviving on an inconsistent budget can be difficult. But the right strategy can help make the peaks and valleys a much more tolerable.