It is a well-known fact that there is no ‘one plan fits all’ when it comes to financial planning. The premises of financial planning can vary based on several factors such as your financial background, your life goals and most importantly your source of income. Financial planning without considering the nuances of your profession is like defending a client without knowing what he has been charged for.
This month we’ll look at what specifics legal practitioners should consider while setting out their financial roadmap:
Know your income
The basics of any financial planning is understanding the nature and source of income. Legal proceedings often run into periods of several months to several years. As a legal practitioner you may be due to receive your fees spread across these long periods and not specifically at regular intervals, especially if you operate on milestone billings or on a success fee model.
Be mindful of this when estimating your future income.
As a legal practitioner you may receive success fees and milestone billings in lump sums as opposed to income at periodic intervals that a salaried professional would receive. Apply these larger sums of money prudently – you can opt to prepay any loans that you have and save considerably on interest cost. While availing loans look for those loans which incorporate minimal pre-payment penalty.
You can also opt for Systematic Transfer Plans. Investing via STP can help invest your lump sum money systematically into equity markets over a regular period when the market is performing differently. You can get the benefit of rupee-cost averaging by investing with help of STPs.
Need for a contingency fund
While every individual should have a contingency fund, this is necessitated more so for a legal practitioner who doesn’t necessarily enjoy stable income at periodic intervals.
So, it is important that you set up a contingency fund of around 3-6 months’ worth of expenses to cover your living cost during lull months.
Investing in liquid mutual funds can be a good way to achieve this as it gives you the dual purpose of earning returns with low risk and enjoying ease of liquidity.
Professional liability insurance
While still not popular in India, you can consider opting for professional liability insurance especially if you deal with high profile legal cases. This can provide you a cover in case you suffer losses arising from any negligence in performance of professional duties.
Your ability to earn is highly dependent on your individual skill and ability to practice, unlike a business that can be continued as your legacy after you retire. Even though a legal practitioner has no real retirement age but considering the high stress levels involved in the profession, it would be wise to begin setting up a retirement fund early. This can help you maintain your standard of living even when you want to slow down your work in your later years. You may consider investing in mutual funds as per your profile for this purpose.
Seek professional advice
Just as you would recommend that your clients consult you before taking any action in sub-judice matters, as a legal practitioner you can also seek out professional help to plan out your finances especially if your hectic profession does not allow you to dedicate adequate time to it. You may consult a financial advisor for planning your finances.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.