AssociateSpeak

Financial investments are incredibly important to lawyers.  As an associate at Biglaw, you’re making more money than you’ve ever made at a previous job, and–for those transitioning straight from the poor student lifestyle–it must feel like highway robbery at first.  But what do you do with all that money?  You can put it into a checking or saving’s account, earning a paltry interest that likely doesn’t even cover the costs of inflation.  Or you can invest it.  Your firm makes it easy for you to take that first step.  They automatically enroll you into a 401k plan, and most firms contribute to it.  And unless you need all the money immediately, most associates max out their annual 401k contributions.  Once you start investing in your 401k plan, you may take the next step to also invest some of your liquid savings in the stock market.

Over time, the average stock market return is roughly 10%.  The actual performance varies every year, and as everyone knows from 2008, involves considerable risk.  But what if I told you that there was a guaranteed way to earn triple that return (30%+) with no risk?

Since the holidays are coming up, I decided that the theme for this week would be vacation time.  Today, we discuss how investing in your vacation time can pay big dividends in the future.

Each year, as an associate at a law firm, you accrue vacation time.  Depending on your firm’s policy, vacation time can vary from two to four weeks a year.  A vacation week is really not a “week”; it’s more like five days, because weekends don’t count.  But if you really want to be precise, it’s not even really five “days”; it’s actually a specific number of hours.  Usually, that number is 7 or 8 hours per day.

Let’s assume that your firm has a three-week vacation policy per year.  You accrue a fraction of this time every day you go to work, until it adds up to the three weeks at the end of the calendar year.  Assuming you took no vacation, we convert those “three weeks” into the actual vacation time that you have accumulated; at 8 hours a day, you would have received credit for 120 hours of vacation time.

Here’s the important part: those 120 vacation hours are directly correlated to your current pay scale.  Because your pay scale generally increases significantly over several years, the 120 vacation hours will be worth a lot more in the future than now!

Let me give you a real life example.  A number of years ago, before starting salaries for first years jumped to $160,000, entry-level associates at top firms were paid $125,000.  Sarah works at firm X for four years.  By the time she leaves, her salary has risen to $170,000 due to the tiered compensation plan and also due to salary wars among firms.  Her first-year vacation time is worth 36% more now than four years ago.  If she was wise to invest this vacation time starting from her first day of work, she’ll leave her firm with a homemade golden parachute worth enough to buy a nice sports car.

You may be wondering at this point, “Well, that’s nice, but doesn’t that mean that I essentially can’t take vacation in order for this to work?”  Nope!  In my next post, I’ll discuss how to legitimately take a vacation while still calling it a work day.

In the interim, if you are a current associate, contact your benefits administrator to determine how your vacation time accrues, whether there’s a cap, and how to calculate your vacation time as an hourly wage.  Every law firm has its own vacation policy, and it behooves you to understand exactly what it means for you.

Disclaimer:  The information provided in today’s post is intended to be for educational purposes only, and should not be construed as legal or financial advice.  Law firms may have a vacation policy with a “cap” for maximum accrued vacation days where any unused vacation days over the limit are lost.  The strategies discussed herein are based on California Labor Code Section 227.3 and are therefore applicable only to California employees.  For more details, go to http://www.dir.ca.gov/dlse/FAQ_vacation.htm.  If you are not employed in California, please refer to your state’s labor laws to determine if there are similar provisions.