Making the Switch to Freelance Law – Financial Considerations

by Meg Bartelt, FLOW Financial (Guest Blogger)

I’m a financial planner. My clients are typically mothers who work in the high tech industry, and I help guide them through their financial journey. The opportunities, the challenges, the “You have got to be kidding mes.”

The compensation structure in the legal industry can be just as idiosyncratic as the one in the tech industry. But if you’re planning to leave or have already left Big Law to work Freelance Law, then your financial concerns quickly become very simple (notice I didn’t say “easy”):

I used to make Big Bucks, and now I make (Much) Smaller Bucks. How can I make this work?

Getting a Handle on Your Cash Flow

Did I say “budget”? No, I didn’t. Come back here. Whether you’re contemplating the change from full-time to freelance, or you’ve already done it, you need to know where your money is going. Knowledge is power, or so my expensive college reassured me.

You can do this with pen and paper, spreadsheets, or with tools like Mint.com (which automates everything) or You Need A Budget (which doesn’t automate, but some people like the extra mental involvement this requires, and also the fact that you don’t have to give it credentials to your financial accounts).

What are your expenses? Divide your expenses into two categories: the ones you can’t avoid, and the ones you can. Unavoidable expenses include your mortgage or rent, insurance premiums, student loans, food, childcare, and taxes.

Let’s look at which expenses you can cut to help make this transition. Consider that some expenses associated with your current job might just evaporate: fancy clothes, full-time childcare, commuting costs, etc.

It’s probably wise to retain a few of these “unnecessary” expenses without which your life would be a Barren Wasteland (being from the Pacific Northwest, I need that twice-weekly latte at the coffee shop). The more you cut, the less stressful the financial transition will be, and the more likely it will be successful. Write this stuff down. Be honest with yourself.

Math lesson #1:
Current Expenses
– Job-Related Expenses that will disappear
– Expenses that you can cut without making yourself miserable
———————————
= Expected Expenses After Transition to Freelance Law

What is your income? Find out what kind of income you can expect from freelance work. Ask other freelance attorneys about their experiences, rates, and the amount of work you can realistically expect. Are there other sources of income in your household? Do you have a spouse with an income?

Math lesson #2:
Expected freelance income
+ Possible-Spouse’s Income
+ Other sources of income (investment earnings, etc.)
——————-
= Expected Income After Transition to Freelance Law

The math of prudent financial planning is simple: Your expenses should be less than your income.

Math lesson #3:

Expected Income After Transition to Freelance Law GREATER THAN Expected Expenses After Transition to Freelance Law = You should rest easier. While you might have to pare back on your expenses for awhile, you will not be jeopardizing your financial security by switching to Freelance Law.

Expected Income After Transition to Freelance Law LESS THAN Expected Expenses After Transition to Freelance Law = Well, you’re going to have to think through this a bit more. That is not code for “don’t do it.” It’s code for “think through this a bit more.”

If you haven’t made the change yet, revisit your Expenses and Income calculations. Can you further reduce expenses? If you really really want to get out of Big Law, Think Big. Can you relocate to a less expensive area? Downsize your house? Switch from private to public school? Only you can decide what is Off Limits.

If your switch to Freelance Law is only intended to be temporary (for example, for 4 years until your children are in school), do you have enough savings to supplement your household income without compromising your finances? I would have my Financial Planner badge revoked if I didn’t harp on the importance of not jeopardizing your financial Future for gratification Now.

But if you have a PLAN, and it involves drawing down on savings for This Long and then building it back up starting Then after This happens…go for it.

“But, I Really Really Want To Make the Switch!”

This said, at some point we have all said, “Screw logic. I can’t stand it anymore!” and then do what our guts tell us to do. Planning, logic, and concerned mothers be damned. I can’t argue against that categorically. As long as you don’t persistently stick your head in the sand, you’ll figure out how to make it work. You’re smart, right?

If you haven’t yet made the transition, here are some ideas for making the transition easier:
1. Make a plan. Set a date or a goal (“when I have $50,000 cash”). Write that down. Talk to friends and family to get encouragement and accountability. I think you’ll be amazed by how much comfort Having A Plan provides.
2. Start reducing expenses now. Use some of that Big Bucks Salary to build up a (bigger) cash cushion.
3. Does your employer offer any one-time compensation or other benefits that you could take advantage of before you leave? A bonus, free continuing education, conference attendance, contributions to your retirement plans? Just don’t get stuck in the “just one more year, and THEN I’ll be ready” trap.
4. Think about backup plans. Can you go back to work full time if necessary? Is there another direction your career could go if Freelance Law doesn’t work out? Those expenses that you were unwilling to cut before…could you cut them later?

Reevaluating Your Life

A transition this monumental–professional, mental, emotional, financial–is going to be hard. I hope it will be Awesome, too, but I can guarantee the Hard part. Along the way, I imagine you will reevaluate your priorities and your goals. This is good!

Transitioning to Freelance Law simply means you’re going to have less money for the things currently in your life. It might even mean changes to things that matter a lot to you. You might have less money to save for your kid’s college. Maybe you have to retire later. Maybe you have to pare back on enrichment activities for your kids. On the other hand, you will definitely have more time to pursue non-career-related activities. You will have more time and energy for other things (those fatally unenriched kids, for example).

Is the trade off worth it? Every family is different, so you will have to go with whatever works for you. Your choice.

If the answer isn’t obvious to you, if you’re really anxious about the whole thing, if you’ve already made the transition and are having trouble making the finances work, then I encourage you to consult a financial planner to help you walk through these issues rationally. You can find fee-only planners in these two organizations:

National Association of Personal Financial Advisors
XY Planning Network (I am an associate member of this network.)

Be smart. Be responsible. But also don’t waste your life in pursuit of someone else’s goals. Good luck!

Meg Bartelt

Meg Bartelt is the Founder and President of Flow Financial Planning, LLC, a virtual fee-only firm specializing in working mothers in the high-tech industry. She writes a weekly blog about financial issues confronting parents and high tech employees on her firm’s website: FLOW Blog. If you like what she says and want help making this transition, reach out to her at [email protected] or schedule a free 30-minute consultation.

This article is provided for general information only, and nothing contained in the material constitutes a recommendation for purchase or sale of any security, or investment advisory services. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.