Pay debt or pay yourself?

Young lawyers — and their paycheques — are up against a host of competing goals. Getting professional advice to help navigate those myriad interests is critical to long-term financial success, says Karen Sill, manager of financial planning at Lawyers Financial.

Lawyers are goal-oriented, and junior ones especially are focused on moving up the ladder in their careers as well as hitting other milestones like buying a home, starting a family, and paying off debt. In Canada, the average law student graduates with $70,000 of loans, a figure that’s even higher in Ontario. Recently, Sill is seeing an increased uptake of financial planning among younger lawyers, which she attributes to the sticker shock they experience over the price of housing.

“It’s more at the forefront of their mind because they’re looking at the burden of taking on a large mortgage on top of already significant debt levels, and also need a hefty downpayment,” says Sill. “They’re starting to plan a lot earlier, and we’re seeing more people realizing they need a second set of eyes to look over things and give them some direction.”

The first step is a basic budget: a deep dive into where you spend your money, Sill says. If you’re facing a deficit in cash flow, see where you can cut back. Look at the interest rate on your loans. Can you renegotiate a lower rate? And is anything you can cut in your budget to free up more cash to pay your debt? This is also a good time to think about disability or critical illness insurance, which is “something you want to have in place but don't ever want to have to use,” Sill says. The good news is youth and good health will buy great, inexpensive coverage that serves as a critical component of a solid financial plan.

It’s also important to look at your discretionary spending — all those things you could probably live without. When people have extra money in their budget, it’s common to put it towards paying off debt, but “maybe that’s a conversation to have with an advisor to make better use of that money based on your goals,” Sill notes. There’s an age-old debate between paying off your debt or investing, and while it’s critical to plan to repay those student loans once you’re making money, that conversation is unique to each person. Part of it depends on overall interest rates. If you’re paying 8% on a debt, the advice might lean towards paying it off as soon as possible, but right now, when Canadian interest rates are so low, you might actually be better off saving your money. Typically it’s a combination of both, but a professional can take into account your needs and develop a plan that fits best.

“You don’t have to go over it with a fine tooth comb, but get an idea of what you spend and where you spend it, and what areas you can revisit if you’re facing a surplus or a deficit,” Sill says. “While your goals are the foundation of your financial plan, your cash flow is the driving force.”

Lawyers Financial sponsors a variety of investment options for every type of investor. One that stands out for younger lawyers is the Robo-Advisor from VirtualWealth. Investors can go to the website anytime,

Robo-Advisor because it’s all online, which is appealing to the younger demographic, Sill says. Investors can go to the website anytime and take a questionnaire to determine their goals and how comfortable they are with risk. Their account is set up based on their answers. And because everything is automated – including a rebalancing feature that automatically realigns their portfolio when the markets shift – the fees tend to be a bit lower than more hands-on options.

It’s great for busy young lawyers because it’s efficient and they don’t have to do it on anybody else’s timeline — which means there are no excuses to not leverage it as a tool to plan for their financial future.

 “Some people want to close the door on the subject of their finances, but it doesn’t go away — and planning in your younger years is critical to long-term success,” Sill says. “It never hurts to start searching for an advisor you feel comfortable working with, and thinking about your short-, mid- and long-term goals.”

This article was produced in partnership with Lawyers Financial.