304 | “If I Just Made More…”

One of the biggest lies lawyers tell themselves is that making more money would solve all their financial problems.

However, many make more now than in the past but still struggle.

Because the real issue is not the amount they make; it’s poor money management.

In this episode, let’s talk about why good money management is more crucial than income level and how to start thinking differently about your money.

• • the common misconception that making more money solves all financial problems
  • the truth about financial problems and making more
  • how we typically manage money that leads to problems
  • what happens when we make more but don’t address our money management habits
  • how to manage your money
  • the sacrifice required to achieve your goals
  • the key mindset shift that lawyers who improve their finances without receiving raises make
  • thinking differently about managing your money

• graphic showing increased “needs” with increased income

You’re listening to Personal Finance for Lawyers. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey friend. Welcome back.

Today, we are talking about the common misconception that if you just made more money, all your problems would be fixed.

I have talked with so many lawyers over the years who have told me some version of that statement, like I just need to make a little bit more. That’s the reason that I’m not able to save. That’s the reason that I haven’t been able to tackle my debt, or that’s the reason that I’m in all of this credit card debt.

But the thing is, it’s not true. Because when I press those attorneys about how much they’re making now versus how much they were making in the past, it always came out that they were making more now than they were at some point in the past, and that in that past version of themselves, when they were making the lower amount of money, they also thought, if I just made more, everything would be fixed. If I just made more, then I could save. If I made more, then I wouldn’t be racking up credit card debt.

So they’re making more, but the situation is not fixed, and the reason is because it’s not about making more. More money does not fix your problems. It’s about your money management. How you are handling that money. How you’re thinking about that money.

We often aren’t looking at that part. It’s not like, “Oh, let me fix the way that I’m managing the money that I already have. The problem must be that I’m just not making enough. I’ve got to make more.” For most people, there is no plan for their finances, so money comes in, and it goes right back out.

We are spending on our bills, our necessities, but we’re spending a lot on other things as well on things that we just want. And because there’s no plan and there’s no categorization of your money, there’s no saying “I’m going to spend this much on this and that much on that,” what often happens is, once you’re done covering your bills, your wants, there’s not any money left for saving, for paying off debt, for these goals that you have.

And then there’s also the concept of lifestyle creep, which I know we’ve talked about before. Lifestyle creep is basically when you spend more as you make more. I think we’ve all engaged in this in some way. Like I’ve said before, I don’t live the way that I lived when I was a law student. I don’t think that people should just live the way that they lived when they were in law school.

But you’ve got to keep that lifestyle creep in check. Because as you’re making more and you’re not managing it better, you’re not making a plan for it, and you’re just spending more then, yeah, you’re going to stay stuck.

I have worked with people who are making more than they ever thought that they would in their career. They’re making that goal amount where they thought they would be set if I could just get to this income, and they still feel the same tightness, the same stress, that they did at that lower income.

When you make more money and you don’t address those other parts, you don’t address the money management, you don’t address the way that you think about money, you’re going to handle that additional money the exact same way. That’s what’s happening with those lawyers that I’ve talked with, where they thought, If I could just make more everything would be okay, but they handled that additional money that they made the exact same way.

Making more money does not magically fix the way that you manage your money. That is a completely separate issue. And so if you don’t address the way you manage your money, you don’t address the way that you think about money, you don’t address the lack of planning around your money, you’re going to bring all of that to the additional income. And then that money, that new money that’s coming in, is going to flow out just as fast.

More money only amplifies the habits that you already have. So if you already have a good practice of saving money before you start spending then as you make more money, you’re probably going to save more money. If you already have a good system in place for being able to pay off debt, as you make more money, you’re probably going to pay off more debt.

If you don’t have any of those systems in place, and the plan for your money is essentially, “let me see what’s in my account to know whether I can afford this or whether I can spend,” you’re going to keep doing that. You’re going to see more money in the account, so you’re going to think, “oh, I can spend more.”

You have to address your money management. Money management is the key, regardless of your income. So you need to know how much money is actually coming in, because many people don’t know that.

You need to know where you want that money to go, and part of that is identifying what’s important to you. What are the values that you hold? What are those things that make you happy? What are those things that you don’t care as much about? Because all of that is going to inform where you decide to direct your money.

But you need to be thinking about those things, and from there, you can create a plan that allows you to create more space between your income and your expenses, because you’re going to be cutting out those things that you don’t care as much about, or cutting down on those things that you don’t care as much about, but you’re making sure that you make room for those things that are important to you. Then, as you make more money, you’ve got this control over your expenses, now you’ve got a bigger gap between your income and your expenses that can go towards the goals that you have.

You also want to be mindful of the things that you may want but that aren’t as important to you as the goals that you have. Like I always tell my clients, you technically could afford this thing and that thing, whatever it is, but you would be spending all of your income to be able to do those things.

When you have financial goals like saving, paying off debt, investing, all of that, there has to be some measure of sacrifice. Because you are intentionally not spending every dollar you make so that you can make progress on these goals.

That’s a sacrifice, even if it’s not sacrifice in the way that we typically think about it, of like, “I can’t do anything that I want to. I have to sit in the house and stare at the wall,” right? It’s not that kind of sacrifice, but it’s sacrifice in that you aren’t doing something that you could technically do because you have the money to do it, but you’re intentionally deciding to spend less so that you’ve got money for the goals that you have.

All of that is how you fix the problem. Making more can help, but it’s not the magic pill that a lot of times people think it is, because if you don’t fix the money management habits, if you keep managing your money in the same way—or not managing your money, really—if you keep those habits with additional income, you’re going to end up in the same place.

I’ve worked with so many lawyers who did not get raises in the time that we worked together but who felt infinitely better about their finances, who were able to save tens of thousands of dollars or pay off tens of thousands of dollars of debt, and it’s all because they took a look at how they were managing their money and started managing it differently.

They stopped thinking about their money as just a way to buy more stuff, and they started thinking about their money as a way to achieve their goals and achieve more flexibility and options in their lives. And when you shift that perspective of your money, it starts changing the way that you handle it.

So I want you to take a look at how you are handling your money right now. Is the way that you’re managing your money conducive to the goals that you have? Is it conducive to fixing whatever issues you have in your finances? Because if not, then the answer for you is not making more money. You need to look at that first, get those systems dialed in.

Figure out how much money you have, what’s important to you, create a plan that aligns with those values, those things that are important to you, and then start creating that space between your income and expenses now at the income that you have now. So then when you do make more money, you actually will be able to see the benefit of it.

There is a great graphic. I’m going to link it in the show notes, which you can find at rhothomas.com/304. But the graphic is something I came across long ago in my finance blogging days, and basically it shows how we typically handle increases in income. And it’s this graph that shows your income going up, but your “needs” going up as well. And the point of the graphic was that as we make more, we slowly start to see things that we once considered luxuries as needs.

It might be something that we spent on, you know, one off here and there, and now it becomes this gradual, or now it becomes this constant part of our spending. And so your baseline spending goes up over time. You want to make sure that you’re creating that space between your income and your expenses, and you’re being mindful of your expenses so that as you make more income, you don’t end up like that graphic, where you’re making more but you’re also spending more, so you don’t get to see the benefit of it.

All right, so the main point in all of this is not that making more money is not helpful. I know that making more money can be helpful, but the more helpful thing is how you manage that money. Looking at your skills, how you’re thinking about the money, whether you’ve got a plan for it, all of that. That’s going to be infinitely more important than the amount of money that you make. And once you get that stuff locked in, then as you make more money, you’ll actually see the benefit, and it actually will help you further your goals.

All right, so that is it for this week’s episode. Thank you for being here. If you have not done so already, please take a second and subscribe to the show and leave a review. Both of those things signal to the podcast players that this show is valuable so that it gets pushed out to more lawyers who could use this information. And as always, I appreciate your support.

As we close out, friend, I pray that you take the information you learn here, apply it in your life, and open up to the realization that wealth is available to you. As you do that consistently, week after week, you’ll continue to take steps to take back control of your time, build wealth, and live the life of freedom and choice you deserve. Talk to you later.