Show Me The Money!
A Crash Course on Financial Literacy and Money Management for Young Lawyers: A Post-Event Recap
by Adi Friedman and Connie Lam
The numbers are grim. There’s a 90% chance that women will have to be the sole breadwinner at some point in their lives. Many women are already behind in saving for retirement because of a gender wage gap of 22%, which leaves them with less money to grow over time. Combined with the fact that women tend to have a longer life expectancy than men, it is apparent that in the grand scheme of things, women will have to do more with less resources over time. Spurred on by these statistics, WLALA’s Young Lawyer’s Section hosted an event, “Show Me The Money!: A Crash Course on Financial Literacy and Money Management for Young Lawyers,” on May 14, 2015 at Sheppard Mullin’s offices in downtown L.A.
Stephanie Montaño, of Venable LLP, served as panel moderator as three financial experts guided attendees through the murky topics of money management, retirement, and estate planning. The fearless and wise speakers included: Tatiá MacKinnon, a Financial Advisor and Associate Vice-President at Ameriprise Financial; Lara Lamb, Director of Financial Planning at Abacus Wealth Partners; and Antreas Hindoyan, Partner at Hindoyan & Associates.
The program commenced with Ms. MacKinnon’s explanation of the “Four Cornerstones” of financial planning: (1) cash reserves, (2) protection planning, (3) taxes, and (4) investments.
The lessons learned are, first, everyone should ideally have a cash reserve – that is, money kept in a checking or savings account – equivalent to living expenses for 3-6 months, or 12 months if they are employed as a contractor.
Second, protection planning is necessary to ensure an alternative source of income in case of disability, whether temporary or prolonged. Options for protection planning include a disability insurance policy, life insurance, and long-term care policy. With the cost of in-home care averaging $300 a day, and the cost of nursing homes in Southern California averaging around $160,000 a year (which is projected to increase 11%) the panel stressed the importance of obtaining a long-term care policy, which is designed to cover the costs of chronic care.
Third, taxes, as one of the certainties of life, comprise an important part of any financial planning. Things to consider are the ways to increase savings by leveraging tax-wise investment strategies. Any incremental increase in savings can have a ripple effect on the total amount available in retirement, so learning how to gain control over your taxes can be helpful in maximizing the benefits of financial planning.
Lastly, the options available in investments are seemingly endless. Ms. MacKinnon shed some light on the key concepts and explained the differences between tax-deferred and tax-free investments, as well as the differences between equity and fixed income investments. While an ideal portfolio contains a mix of investments, the precise formula can best be determined with a careful examination of your personal goals and your ability to tolerate risk.
Antreas Hindoyan gave a sobering summary of special considerations that women must take into account when creating a financial roadmap. While some of the unpleasant realities have been summarized in the introduction, Mr. Hindoyan also elaborated on the higher likelihood that women will file for a divorce, as well as the tendency of women to postpone home ownership until they are in a committed relationship, despite home ownership being one of the best investments. Further, if women take a break in their career or choose to have flexible work schedules in order to care for children, it may be more difficult to climb up the professional ladder.
With those facts looming overhead, Ms. Lamb encouraged attendees to take control of their finances. Ms. Lamb presented the basics of budgeting and money management, such as the age-old advice of living within your means (Rule #1!). But she also delved into the specifics of building net worth by paying down debt and developing a budgeting system. The “snowball method” of paying down debt allows you to pay down the debt with the highest interest rate first. She also distinguished between good debt, which consists of an investment in an appreciating asset (such as a mortgage and education), and bad debt, which is an investment in a depreciating asset (think of a car or credit card). With regards to a budgeting system, she reaffirmed building a cash reserve of 3-6 months for irregular expenses, as well as funneling 12% of your gross income into savings. A general breakdown of a budget, subject to your own circumstances and personal goals, would be:
· 50-60% of your gross income going to fixed expenses;
· 15-20% of your gross income going to savings, such as emergency cash reserves; and
· 28-33% of your gross income going to housing, which is something to take into consideration when buying a house.
For those who want a little extra monitoring, she suggested having separate accounts to control discretionary spending and for irregular expenses, such as an annual property tax or car insurance payment.
Finally, the evening closed with a discussion on retirement planning. The speakers explained the differences between different types of retirement accounts, such as 401(k)s and Roth IRAs. While most people invest heavily in a 401(k), with a bit in stocks and nothing at all in a Roth IRA, this is a mistake. The speakers advised looking into a Roth IRA or Roth 401(k) to eliminate taxes on withdrawals made during retirement. A life insurance policy was also suggested as an additional alternative.
Additional topics discussed were the myriad of helpful options and incentives for first-time homebuyers, the importance of asset segregation for couples in which one spouse has malpractice liability, as well as the importance of estate planning. While people avoid estate planning because of its uncomfortable implications, the panel made clear that this is a mistake. Estate planning should be interpreted as a way to control property and assets in the present and to ensure that you and your family are taken care of. The same outlook should be had when confronting the equally uncomfortable topics of the advanced healthcare directive and the power of attorney. Both are crucial to the process of estate planning, as the durable power of attorney allows you to appoint someone to pay your bills and mortgage, file taxes, manage your real estate, apply for benefits, as well as initiate and defend lawsuits. Similarly, an advance healthcare directive allows someone you trust to act and consent on your behalf when it comes to daily medical treatment, hiring and firing medical personnel, and transferring care between medical facilities.
Overall, the evening was a great success, with our fantastic speakers providing quality information about how to best approach financial planning today, in order to prepare our lives for the future. We would like to thank Sheppard, Mullin, Richter & Hampton LLP for hosting this event. We would also like to thank iDiscover, LLC – an e-discovery software innovator providing support to Am Law firms and Fortune 500 corporations on complex document collections and productions – for generously sponsoring our event.
We encourage you to attend the next YLS event or to come out to the next Happy Hour on Saturday, June 20 from 3-5 p.m. at BJ’s Restaurant and Brewhouse, located at 10250 Santa Monica Blvd., in Century City!