The Dumbest Things Attorneys Do With Their Money (And How to Avoid Them)

Attorneys are among the most highly educated professionals, known for their sharp minds and analytical skills. But when it comes to managing personal finances, even the smartest attorneys can make some remarkably poor decisions. Earning a high income often leads to financial pitfalls if not handled with foresight and discipline.

Here’s a closer look at the dumbest things attorneys do with their money—and how to steer clear of these common mistakes.

Overindulging in Lifestyle Inflation

One of the biggest financial traps attorneys fall into is lifestyle inflation. It’s tempting to reward yourself for years of grueling school, late nights at the office, and endless billable hours. But upgrading to a luxury car, buying a massive house, or splurging on designer goods can quickly turn into an unsustainable financial pattern.

The fix? Set clear financial goals and stick to a budget that prioritizes savings and investments. It’s fine to enjoy some of your income, but be strategic. For example, cap lifestyle upgrades at 10% of any raise or bonus.

Ignoring Student Loans

Law school debt is a reality for most attorneys, but pretending it doesn’t exist doesn’t make it go away. Many attorneys delay tackling their student loans, thinking that high income will eventually take care of the problem. Meanwhile, interest accrues, and payments barely chip away at the principal.

The smarter move is to create a repayment plan. Decide whether an income-driven repayment plan or an aggressive payoff strategy works best for your situation. Automate payments to stay on track, and consider allocating bonuses or tax refunds toward your loans.

Betting Big on Risky Investments

Attorneys often get pitched on “sure thing” investments: private equity deals, startup ventures, or speculative real estate projects. While these opportunities can be lucrative, they’re often accompanied by high risk and minimal transparency. Without proper diversification, a single bad bet can severely impact your finances.

Stick to a diversified portfolio. If you’re tempted by a high-risk opportunity, limit your investment to an amount you’re comfortable losing and consult with a financial advisor who understands your goals and risk tolerance.

Failing to Plan for Taxes

Attorneys often underestimate the tax implications of their income, particularly when bonuses, partnership distributions, or side businesses are involved. Without proactive tax planning, you could end up owing a significant amount at year’s end—or worse, facing penalties for underpayment.

Work with a tax professional to identify strategies like maximizing retirement contributions, taking advantage of deductions, and using tax-efficient investments. For partners or self-employed attorneys, consider setting aside a portion of each paycheck in a high-yield savings account for quarterly estimated taxes.

Over-Reliance on Cash Savings

A substantial cash reserve feels safe, but holding too much cash can be a mistake. Cash earns minimal interest, meaning its value diminishes over time due to inflation. While it’s important to have an emergency fund, anything beyond six months of expenses should be invested to achieve growth.

Shift excess cash into a diversified investment portfolio. Whether it’s through a taxable brokerage account or retirement plans, your money should be working for you instead of sitting idle.

Neglecting Retirement Planning

It’s easy for attorneys to focus on short-term financial goals and forget about retirement. Some assume their high income will allow them to catch up later, while others simply put retirement planning on the back burner. Either way, delaying contributions can lead to missed opportunities for compound growth.

Start early, and make retirement savings a priority. Max out your 401(k), contribute to a Roth IRA, and consider backdoor Roth contributions if your income exceeds the limits. Automate contributions to ensure consistency and review your portfolio annually to align with your goals.

Lack of Professional Financial Guidance

Attorneys are experts in law, not necessarily in finance. But many try to manage their finances alone, believing they can figure it out without professional help. This DIY approach often leads to missed opportunities, poor investment decisions, and unnecessary stress.

A financial planner who specializes in working with attorneys can help you create a comprehensive plan tailored to your unique needs. From optimizing tax strategies to planning for major expenses like a partnership buy-in, professional advice can save you time and money.

The Bottom Line

Attorneys are in a unique position to build significant wealth, but high income alone doesn’t guarantee financial success. Avoiding these common pitfalls requires discipline, planning, and sometimes a little help from the pros. By taking a thoughtful approach to your finances, you can make your money work as hard for you as you work for it.