- My LS
Building financial resilience through this current climate
Richard Ollive, senior financial consultant at Wesleyan, the specialist financial services mutual for lawyers, talks about the three Ps and how to make sure your personal and practice finances are in order.
2020 has brought challenges for us all. From new professional working arrangements, to managing new and different client asks, the changing landscape has kept most lawyers busier than ever before. As a result, the work that goes into building a long-term financial plan has understandably fallen by the wayside for many.
But a little prep now can set you up for a financially resilient future.
For those looking to improve their personal finances, I’d suggest starting with the three Ps – planning, pensions and protection – and for those juggling practice finance, it’s time to talk cash flow.
For some, the pandemic has meant reassessing life ambitions. Maybe you’re considering early retirement or buying into your practice. Once you know what your goal is, you can work backwards to calculate how much you need to save each month to make that happen.
This involves going back to basics and planning. By looking at your monthly incomings and outgoings and assessing each line item on a case-by-case basis, you could uncover extra savings to be made (cancelling the unread magazine subscription, for example) or reveal gaps in your financial plans, such as a missing insurance policy.
If you find yourself with more cash than you expected, investing could be an option. Investments aren’t a quick profit, but can, if left untouched over the long-term, grow in value. Of course, any investment can go down as well as up and it’s important to consider your risk appetite before putting your money in the market.
One option for investors looking for a ‘safe pair of hands’ is a With Profits ISA. It’s a market-based investment that ‘smooths’ the ups and downs in market conditions – it holds back some of the profit from the peaks in market performance and distributes them when market conditions aren’t as strong.
When it comes to the long-term, the biggest saving goal for most lawyers is their pension. Our survey found lawyers expect to need an average of £48,458 a year in retirement.
To make sure you’ve got what you need for retirement, you need to look at how much you’re putting away each month now.
I advise all my clients to make sure they are taking advantage of any workplace pension scheme offered by your practice – whether you’re in-house or private, your employer has to provide it and its essentially free money for the future.
However, it’s not a case of putting as much away as you can as the Lifetime Allowance and Annual Allowance limits how much you can save tax-free into your pension pot so check how much you can put away and stick within these limits to avoid a tax charge.
The final P is protection. I see a lot of legal professionals who insure their home, pets and cars but don’t consider insuring themselves.
Whether that’s income protection to cover household bills if you are unexpectedly unable to work due to illness or injury, or life insurance which pays a tax-free lump sum in the event of your death, it’s important to think about the safeguards you can put in place now to protect your and your family’s finances.
For practice lawyers there is also the business’ finances to consider. Whether it’s freeing up cash flow to invest in the latest software, for training or to revamp your practice, there are different funding options available.
For example, asset finance allows you to borrow specifically to cover the cost of a new piece of software or IT equipment. Alternatively, there are more traditional lending agreements for bigger purchases like property or an acquisition.
And of course, there are the more typical financial concerns to think about too. Take professional indemnity insurance, for example. It can be a significant outlay and put pressure on cash reserves to pay. Speaking to your provider about spreading the costs or taking a loan out to cover the fees could be something to consider.
For some lawyers, the pandemic has driven a desire to purchase a practice. It’s a major financial commitment and can be expensive too. For those looking to do this a professional adviser can help you make informed decisions on the best steps to take.
The process of financial planning is never a simple process but, with a little time investment, can set you up for the long term. If you’re unsure about where to begin, speak to a financial adviser who’ll be able to advise on the best way forward.
To help with this, Law Society strategic partner Wesleyan are offering a free to attend webinar offering practical advice on how to build financial resilience and help guide you in navigating these unprecedented times.
Views expressed in our blogs are those of the authors and do not necessarily reflect those of the Law Society.