The biggest financial mistakes law grads make (and how to avoid them)

Law students face a unique financial challenge: graduating with substantial debt while starting their careers later than most professionals. According to Darren Wurz, founder of Wurz Financial Services, who works exclusively with lawyers, this combination creates specific pitfalls that can derail long-term financial success.

The most common mistake? Lifestyle inflation that keeps pace with income growth.

"The biggest mistake that I see across the board is continuing to expand one's lifestyle as your income grows," Wurz said during a recent interview. "Our incomes grow and we grow our lifestyles at the same time. So it's really important to understand what level of lifestyle you're happy at and maintain that happiness."

Instead of automatically upgrading apartments, cars and dining habits as paychecks increase, Wurz recommends channeling additional income toward debt repayment and investments. "As your income grows, grow your savings, grow the amount that you're putting towards your debt, grow the amount that you're saving and investing," he said.

The compound interest opportunity cost

Another frequent error involves focusing exclusively on debt repayment while ignoring investment opportunities. Despite the psychological appeal of eliminating student loans quickly, Wurz argues for a balanced approach that includes immediate investing.

"You don't want to miss out on the potential opportunity of growing your money in the stock market," he explained. "Some years the market gives us a 20% plus return. And those are great years that you want to be able to take advantage of."

The key is understanding rate of return comparisons. If student loans carry a 6% interest rate but long-term stock market returns average 9-10%, the math favors investing surplus funds rather than accelerating loan payments.

Wurz points to Warren Buffett as an example of compound interest's power over time. "The secret to his success is not necessarily his rate of return, it's just the fact that he's had so much time," he said. "Compounding is such a powerful force, but it takes time to get going."

Practical guidelines for new lawyers

For recent graduates, Wurz recommends saving at least 10% of income for long-term investments from day one, plus an additional 10% or more toward debt repayment. The foundation of any financial plan should be budgeting and expense tracking.

"One of the biggest complaints I hear from law firm owners is, I'm making all this money, I don't know where it's going," Wurz noted. "It's so easy to sign up for subscriptions and things that we forget about."

His solution involves using budgeting software to connect accounts and monitor spending patterns. The goal isn't necessarily restriction but awareness.

Alternatives to the big law grind

For students worried about crushing debt loads, Wurz suggests considering alternatives to the traditional strategy of working grueling hours at top-tier firms. Public sector positions and nonprofit work offer student loan forgiveness programs that can provide significant relief.

"There's quite a bit of student loan forgiveness available through working through a nonprofit," he said, noting similar programs exist for public defenders and other government positions.

Starting a solo practice represents another option, despite the financial uncertainty. "You can be profitable pretty quickly depending on the type of law that you're in, depending on the referral network that you've built," Wurz explained. "If you maintain a pretty lean operation, you don't have to have a staff."

The automation advantage

Perhaps the most actionable advice involves automating financial decisions. Wurz strongly recommends maximizing 401(k) contributions from the start of any legal career.

"It's so easy to start out the right way," he said. "If you're just graduating law school and you can start out by maxing out that 401(k) from the beginning, you're gonna be in such a great position later on because you're gonna start doing it and you're just gonna become normal to you."

The underlying principle applies beyond retirement accounts: remove emotion and decision fatigue from saving by making it automatic. As Wurz puts it, "That's why 401(k)s are so effective in helping people grow wealth."

This article was written with the assistance of artificial intelligence tools