This blog post is part 1 of a series on Managing Your Finances and Becoming Your Own CFO, featuring insights from my financial planner, Angela Moore. These blogs will show you exactly why I love her. You can find her at ModernMoneyAdvisor.com, @modernmoney305 on Twitter and @modernmoneyadvisor on Instagram.
Managing your finances and becoming your own CFO is essential as you strive to become the CEO of your law firm. I always tell you to treat your law firm as a business. Business is money. This isn’t greed. It’s a fact. Money makes your business run. But a lot of lawyers still think the less you make, the better you are as a lawyer.
We need guidance when it comes to managing our money. Angela perfectly sums this up, she says, “We’re human and a lot of times we make decisions based on emotions. But when it comes to your money, you should be making a business decision.”
In this blog, Angela gives tremendously useful advice on the first step to managing your money: asking yourself these essential questions so you’ll know the right answers about how much you earn, how much you owe, how much you save.
Most people are financially lost
Angela: There’s an epidemic going on in the world, but especially in this country, and especially with young professionals.
- 58% of Americans have less than $1,000 in savings
- 75% of Americans are living paycheck to paycheck
- 32% of Americans aren’t saving a dime, anything
- Only 41% of Americans use a budget
In fact, 48% of the U.S. has less than $400 saved for an emergency. What that tells me is that when you go out somewhere, your friends or your family, even your clients, are likely living paycheck to paycheck.
There’s a lot of pressure for us to live our best life, but the truth is, a lot of people are lost and aren’t making the right financial decisions.
Take control of your own finances to lead by example
Angela: You need to be the person that steps up in front of everyone else and leads by example. It’s really, really important to not get caught up in what other people are doing because most other people are doing all the wrong things.
This is your corporation, you are your own corporation and you are the chief financial officer, so there are some simple questions you need to be able to answer.
I always start with this because I’ve worked with so many people and I’ll ask them, “How much do you make?”
They’ll say, “I don’t know. I need to go look at my paycheck. I need to find that out.”
And then I’ll say, “Well, how much do you owe on your student loans or on your credit?”
They’ll say, “Oh, I don’t know.”
“Well, how much are you living on every month?”
“I don’t know.”
How can you be your own chief financial officer if you don’t know anything about your own financial situation? Who’s supposed to know all of that?
Questions to ask yourself as your own CFO
Ally: Whatever you may have, you need to know what that money is. You need to know how much your firm is making every single month. These are numbers that you should be able to refer to in an instant.
This shouldn’t be something that takes more than two clicks to look up. Keep track of this information:
- How much do I make?
- How much do I owe?
- What are the interest rates on my debt?
- What are the payments?
- How much am I spending every month?
- At home?
- At your firm?
- On what?
- How much am I putting aside in savings?
- How much is in my checking account?
- In my savings account?
- In my 401k?
Angela: When you ask yourself these questions, you might find, “Oh, I have these three student loans and I have a car loan and I have a credit card.”
Write it all down. How much do you owe on those credit cards or those student loans? What’s your interest rate?
Put it all down on paper
Ally: I’ve been there myself. I didn’t even know how much my firm was making. There was no plan, there was nothing.
A really simple way to do this for your law firm is to have an Excel sheet. Put in every single dime that comes into your office.
Even if you have a case management system or if you’re using QuickBooks or whatever other system you’re using, your Excel sheet is your backup, or sometimes there’s a cash payment that comes in at $100 and let’s say you put it into your petty cash. Whatever you may have, you still need to know what that money is.
This is a matter of whatever works for you. I personally love the simplicity of an Excel spreadsheet. But whatever you do, you just need to take time out of your busy day and set aside an hour or two or whatever it is and literally just sit there and write down.
“This is life-changing”
Angela: Writing it down somewhere, you’d be surprised what it does to just see these numbers on paper. I do this with every single client.
Sometimes after that first session where all we’ve done is write out their budget, they’re like, “Oh my God, this is life changing.”
I haven’t even gotten started yet!
But just being able to see your situation on paper empowers you and enlightens you so much.
The first step to managing your money
Angela: Sometimes you see something and your reaction is, “Oh my God, I can’t believe I’m spending this much on groceries!” or “I can’t believe I’m spending that much getting my hair done!”
Just the little things for home that you don’t think add up– they do. And it’s the same for your business. You might be using this software and that software and this service and this freelancer and next thing, you’re spending all of your profit and you had no idea that all these little expenses are adding up to be so much.
Again, it’s just very empowering to see it on paper. Take inventory. The first step to managing your money is to just write down where your money comes and goes. Write it all down.