Niraj Chhabra:
The investments of the funding vehicle for your goals, but an advisor is really there to help you structure your finances in a way that's going to get you to your goals.
Chris Dreyer:
Working on contingency fees can turn your income into a financial roller coaster. As a PI attorney, you're juggling an unpredictable cash flow while balancing your budget, paying down student loans and planning for the future. In this fiscal whirlwind, achieving financial freedom might seem like a distant dream. Let's not forget about those hefty taxes that come with each win, but there's hope. Understanding how to manage irregular income plan for long-term stability and make informed financial decisions is crucial for both your professional success and personal wellbeing in the PI field. It's about transforming that fiscal chaos into a strategic path forward into financial freedom. Today's guest is here to show us how to navigate these unique challenges.
Welcome to Personal Injury Mastermind, the show where ambitious attorneys come to learn, implement, and get results. We break down the proven tactics, separate the best firms from the rest each week. I'm your host, Chris Dreyer, founder and CEO of Rankings.io. Our guest today, Niraj Chhabra, Managing Director at SideBar Advisors, a financial advisory firm exclusively serving attorneys. Niraj and his team have extensive experience in addressing the specific financial needs of legal professionals, including the particular challenges faced by personal injury attorneys. In today's episode, we cover strategies for effective budgeting with inconsistent income, tax planning for large contingency fee payouts, and balancing immediate financial needs with long-term goals. Niraj will also share insights on how to manage student loan debt, plan for retirement and create a comprehensive financial plan tailored to the unique career trajectory of PI attorneys. All right, let's get on with the show.
Niraj Chhabra:
Let's start with the budgeting element. The first thing is making sure that we have an annual budget, not a monthly budget. So if I were to ask you, Chris, what's on your household budget? You're probably going to tell me your grocery bill, your mortgage. You're going to tell me about your phone bill, things of that nature. A lot of times people have "unexpected" expenses that come up throughout the year, but they literally adds up to tens of thousands of dollars in most situations. So particularly with PI attorneys, we want to make sure that we... They say as a general rule of thumb, you should have three to six months worth of expenses set aside in cash. Those general rules of thumb don't apply to people that work on contingency. It could be years before they get a case settled. So we need to make sure that we have enough money set aside and overhead for potentially three years, both on the personal side as well as the professional side. So that's the first thing, making sure that your budget accounts for annual expenses, not monthly.
Second is having an adequate emergency fund, which is going to allow you to pay your bills even if the bills don't get paid from your clients. So that's going to be what allows you to continue to keep the business open. I've actually heard from an attorney telling me that it made them a better lawyer, having an emergency fund. When I probed a little bit deeper on that, basically what they shared with me is when they didn't have an emergency fund, they were taking on cases, they had no business taking on. When they didn't have an emergency fund, they were negotiating their hourly rates. But by having an emergency fund, it almost gives you a little bit more confidence to be able to say, "This isn't my wheelhouse". It gives you the confidence to say, "I'm sorry, my hourly rate is X and that's what we're going to charge you."
Chris Dreyer:
Yeah, I love all that. And from a marketer's perspective, you take COVID, if you didn't have the cash reserves, you had to pull back, and what a unique I look at as an opportunity. Are there any other times where your competitors decided to just stop marketing the opportunity to acquire more market share if you did plan accordingly and budget properly? Let's take a step back. Most PI attorneys or many of them have a significant portion of student loan debt. They may have upwards of 200K. So how do you balance or recommend balancing the student loan repayment versus investing in the future and what's that look like? What's your general recommendation there?
Niraj Chhabra:
A lot of moving parts, especially in this dynamic student loan environment. We're fortunate enough to have Ian Murray on our team, and Ian is one of, I want to say six or seven certified student loan planners in the state of New Jersey. Maybe that number's grown since, but he's one of the few, and that's his wheelhouse. So we were recommending refinances before. We may not be recommending them at this current moment because interest rates are higher. Big question we get is, should I put the money towards a retirement account or should I put the money towards my student loans? Because you're dealing with attorneys, the answer is always, it depends on a lot of different factors, but one of them being interest rates.
Are you earning more in your retirement account than you're paying an interest in student loans? Are we going to qualify for student loan forgiveness? Is your marital status going to change? If it is, maybe that's going to change your payments and therefore... A lot of things are fluid with regards to student loans. So there's no one size fits all answer, but to balance it out, yeah, a lot of the PI attorneys are going to start making good money that they could start to make aggressive payments. It's just a matter of does it make sense balancing out the forgiveness, balancing out other goals that they might have saving for a house or things of that nature.
Chris Dreyer:
When it comes to the future of finances, many things come with an it depends answer, but what can help you take the right actions faster is understanding how you want your money to work for you and your family. Raj gives a prime example of funding children's education and how the rules of 5 29 accounts are changing.
Niraj Chhabra:
First thing is, are you and your spouse on the same page with regards to education? We work with a lot of lawyers that met in college and law school, and so they're both practicing attorneys. First thing is, do you both agree on the value of education or your role as education provider? So one parent went to law school at night because they had to work in the daytime and they really hustled to put themselves through school. The other one had mom and dad pay for their law school education. Now it's time to raise their own kids and one person says, "Well, I think we should be providing 100% of our kids' education. That's our responsibility as parents." And then the other person says, "Well, it helped me build character to go pay for my own education. I appreciated my degree." Well, you should know that as somebody who paid for your student loans, how much of a monkey on your back this was after you graduated and how far it held you back. Don't you want better for your kids?
So that's the first thing, making sure that you're both on the same page because you may not be. We're talking to PI attorneys, but I talked to you enough family law and divorce attorneys to know that infidelity might be the number one cause of divorce, but number two is financial disagreement. So making sure that you and your spouse are on the same page.
Let's assume you are. They've definitely relaxed the guidelines with 529 plans. So long story short, they could be used for... They don't just have to be used for college now. You could use them for trade schools, you could use them for K to 12 education, and if there's an unused balance with certain limitations, you might be able to get dollars from a 529 plan into a Roth IRA for your children. So if you're not helping them with their education, you might be jump-starting their retirement. Now, there's a lot of caveats. There's limits. They have to have earned income, things of that nature, but it does make the 5 29 plan more attractive. We just want to make sure that it's not coming at the expense of your retirement. So are you on track for retirement? Are you on track for some of your other goals? And if the answer is yes, fine, we could afford to at least in part, take advantage of some of these other vehicles available for your kids' education.
Chris Dreyer:
I love that. I just found that out about the 2024 because I was doing my son's 529 and I was really excited about that, about how they could be used a little bit more freely than in the past. And I love that you've hit the emotional side, the stressors that lead to divorce and the communication, the things that, those conversations that need to occur. Big picture, I'm going to be candid, when I think of... And there's different types of financial advisors, right? I always thought, well, I'm good with a vogal approach. I'm good with let's stick it in a VOO, balance it with some bonds, increase that proportion as I get older, maybe throw it a little in the international and call it a day. I got three index funds rocking, right? You read Tony Robbins books, you read what Warren Buffett has to say, the new Jordan Belfort book. They all talk about this as, "Hey, just stick them in these three and you're good to go." So for me it's like, in general, from standard wealth advisors, would I want to do that if I'm just going to stick them in the three index funds? What's the counter to that from your purview?
Niraj Chhabra:
Yeah, and I'm not opposed to it. We use a lot of index funds. We use a lot of ETFs, so I can't even say that I disagree with you in any capacity. What I'll say though is that let's take a look at the S&P 500. Most of the returns were really tied to seven companies over the last 12 months. So are you as diversified as you think you are? That's the first thing I would say. It doesn't mean it's right or wrong, just making sure that you understand the risk associated with those three particular vehicles that you just named.
My job as an advisor is not to try to beat the markets. I don't think that I have any unique expertise or access to resources that you do not. But we've been talking for about 15 minutes or so about different financial planning topics, maybe 10 minutes, and this is the first time we're talking about investments. What we were talking about before that? We were talking about budgeting. We were talking about making sure you and your spouse are on the same page. We were talking about tax strategy. We were talking about education planning. Should you put the money into the 529 plan? Does it make sense? Investments come later. I look at it like when you go to the doctor and you say, "I want X, Y, Z medication." They're going to say, "Slow down. Do we know that that medication is appropriate for you? Are there any side effects of this medication?" What are they going to do before they write that script? They're going to ask you to do blood work, they're going to do a physical, things like that. That's what financial planning is. The investments of the funding vehicle for your goals, but an advisor's really there to help you structure your finances in a way that's going to get you to your goals.
Chris Dreyer:
I think it excites me more to speak on the investment side, but I think you'd certainly have to check the box on all those other things. So I'm not getting the dopamine hit that I get from talking about a 529 account compared to-
Niraj Chhabra:
It's not as much fun.
Chris Dreyer:
Yeah, right. Recently too, on the investment side, we'll stay there and then we'll circle back to just a couple other topics. Recently, they have the Bitcoin ETF, right? So you saw Fidelity chose to do it. I think Vanguard decided not to do it. Just in your opinion, is it a store of value or do you think of it more of as a specule to play?
Niraj Chhabra:
In my experience, with regards to all the cryptos, when people are approaching me asking me if we should be investing in X, Y, Z crypto, it's typically out of FOMO. They know that other people are making money and they just don't want to miss out on it. And if you're comfortable with X amount of dollars going into it, then yes, it could be a speculative investment. Do I think long-term it has some viability? Maybe. But I do think that people are all in on crypto, and I don't, from a diversification standpoint, I don't think I could necessarily support that messaging. My personal rule of thumb is when people who have had no experience or never asked me, "Hey, do you think we should invest in X, Y, Z stock?" no interest in any of that stuff, but then all of a sudden they're saying, "I heard about Bitcoin. My cousin is making money on cryptos. Do you think that we should be doing that?" And this happens consistently on a weekly basis with people that never asked me these questions before. To me that's a red flag. So that's my thought on the subject.
Chris Dreyer:
Yeah, I think we're definitely on that bull, the bull market. More and more people, my mom next week may be asking me at the next birthday party if she should be getting some Bitcoin. It'd be my trigger to sell.
Niraj Chhabra:
When was the last time she asked you for investment advice before that?
Chris Dreyer:
So my parents, never. I wish they would've.
Niraj Chhabra:
Okay, but that's my point.
Chris Dreyer:
Right, right. So that's a good trigger. That's a good sign. So you help with the communication, the planning, the IRA, the tax strategies, all these different components. Another, is succession plan a part of your services? Do you discuss the succession planning?
Niraj Chhabra:
We're going to help, not necessarily broker the deal or anything like that, but help them figure out what to be mindful of with regards to taxes and things of that nature because there can be some heavy tax consequences if not structured properly. So we can help them discuss what are some appropriate ways to go about exiting and working with their accountants, working with their brokers, working with the buyer, et cetera.
Chris Dreyer:
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I'm going to have a little fun here. I'm going to try to give you a scenario that will maybe not lean as much into... It depends. I'm in my upper 20s, I'm married. I got a kid. I got a little bit of student loan debt. I'm getting ready to go work for a firm, right? I'm going to be compensated nice, maybe at least 100K. And. They're like, "Hey, I heard you on Chris's podcast and I want to get out ahead of this." What's some of the first preliminary phases of working with you? Let's have some fun with that one.
Niraj Chhabra:
Essentially the first thing I would do is meet with them and their spouse just to see what is important to each of them have the conversation about education, is that... You mentioned kids, so is that a priority for them or is retiring early a priority for them? If we can't do both, what changes are we prepared to make? Is the other spouse working? What's their income? Does that move our tax bracket? So all of these are going to be the first things that are going to come into my mind and then working with me, we're going to go through a household budget because if we don't know how much we're spending, we don't know what's left over at the end of the month, therefore we can't figure out what retirement's going to cost. We can't figure out how much money we have access to on a month to month basis to put towards these different vehicles.
Well, let's assume we do all that. The next step is going to be figuring out where does the disposable dollars go? Is it towards their student loans? Is it going to be towards retirement? Are they saving for any big ticket items, new car, a new house, things of that nature? Because if that's the case, as great as these other vehicles might be, putting money towards your loans or putting money into your 401k may not help you get that down payment in two years. So those are some things that we're going to talk through.
The next question is where are we going to get more bang for our buck? Is it putting the money towards retirement or the current student loans? And let's assume it is retirement for our conversation. Should they be putting money into the Roth or should they be putting money into the pre-tax portion of their 401K? So a lot of the advice that attorneys will give is that you're in a higher tax bracket, then you will be at retirement. But think about who's giving that advice. It's the managing partner that's in the peak earning years of their career. So yeah, they'll probably be in a lower tax bracket. How does that 20 something year old compare? They're making less money than they probably ever will in their lives. So which way are they going to go? They're probably going to go up tax brackets. Even if they retire doesn't mean their income is zero. They're pulling money from somewhere, probably with their 401K, probably paying taxes on it. So maybe it makes sense for that individual to rip the bandaid off and pay the taxes upfront rather than doing it in the future.
Another thing that's going to come to mind with that 20 something year old couple is protection planning. Do they have adequate disability coverage to protect if it's a one income household, making sure that that's adequately protected? Even if it's a dual income household, we probably want to make sure that that's the case. Do they have adequate life insurance to protect their family? People think $2 million is a lot of money, but if you break it down, that's $100,000 a year for 20 years. That gets them into their 40s. Is that adequately protected from that perspective? Do they have aging parents that could be potentially living with them that they're going to be either physically or financially responsible for in the future? If so, how's that going to impact their overall situation? Do they have the proper estate planning documents? Do they figure out who's going to take care of the kids in the event something happens to them?
So a lot of different moving parts that we're going to want to address with a young couple. Again, we didn't even talk about investments, but there's just so many other elements of that client situation that we need to address.
Chris Dreyer:
Thank you for that. That was a lot of fun. I think that provides a very rounded... That was a way of showing your expertise and then that example of just how many components go into that.
Let's do just another scenario and you can have some fun with it, however you want to answer it is PI is contingency, right? So an individual gets a $4 million contingency fee. What kind of scenarios or maybe just... And that's super broad. I didn't give you the details, the ages, where they're at, but what kind of things would you do to help them with that scenario?
Niraj Chhabra:
A lot of it's with PI. It's a lot of cash flow management because they need to make sure that they have enough to cover their overhead. Let's assume that for easy numbers we get a million dollar settlement and for our purposes it's a collecting a third. Okay, our income for the year is 333,000 because we got the settlement in 2024. Great. Is it a comfortable salary? Yes. Is it enough to change the trajectory of your life? Probably not. Now, what happens if you get two of those cases settling in the same year? Now your income's not three 333,000. It's 666,000 for the year. Now you moved up tax brackets. Did you need that money? Did you really need it to change your lifestyle? Probably not. You got comfortable living off of your old lifestyle, so you don't need to double your income, but you still have to pay taxes on it.
Maybe that you'd look into something like a structured settlement that says, okay, don't pay me now. Pay me when I retire and need that money. Or don't pay me now. Pay me in 10 years when my kid starts college and I need the money. Or don't give it to me all in one lump sum. Give me a 10th of it each year for the next 10 years and I'm only paying taxes on the extra 33,000, keeping my tax bill low. So there's some creative ways that you could help reconcile the difference in the imbalances between the income coming in, the taxes and your lifestyle.
Chris Dreyer:
I agree with all of that. The more risk averse per side of me immediately thought to go get a leverage out and get a whole bunch of real estate to decrease my tax liability, but I think that the different scenarios and different risk tolerances. But yeah, I think exactly what you're saying is like, hey, your lifestyle, you already established your lifestyle for one amount of money. Now let's decide how we're going to do this, whether it's structured settlement or whatever investment vehicles you can think of.
Niraj Chhabra:
And I'm not disagreeing with you about purchasing property. We're property owners ourselves. We recommend it. The only thing I will say is did that save you from the income taxes? You still had to declare the income and it still shot you up tax brackets. So you could invest in real estate going forward, but it didn't help you in that scenario.
Chris Dreyer:
Absolutely. Definitely fair. Tell me about the free CLEs and networking opportunities you offer and tell our audience a little bit about those.
Niraj Chhabra:
Sure. We try to be a resource to the attorneys, not just personally. Obviously we're knowledgeable on helping them with their personal finances, but we want to help them professionally as well, and that includes networking events. So once a month, we host a virtual networking event where everybody brings an attorney guest, and if you tell us the types of professionals you're interested in meeting, we'll do our best to find somebody in that space. So for example, PI attorneys may want to meet chiropractors or something of like, so we'll do our best to try to find somebody who is a good complement to your services. We recently started doing them in person again. So if you're in the New York City area, we're doing them about once a quarter. Even in New Jersey we're going to doing them. That's what we're doing from a networking perspective.
From a CLE perspective, we're able to offer credits. We're New Jersey based. New York. Reciprocity may apply in certain scenarios, but we have a number of different courses on things like financial planning for lawyers. Our flagship course is financial empowerment for women in law. So a lot of firms... That's always been our most popular course probably for the last 10 to 15 years. But what I will say is if your firm has a women's initiative or something of the like, this could be a good fit for those types of committees and things of that nature. Plus, in certain states and jurisdictions, it'll actually meet the DNI requirement as part of their CLEs that certain states do have. It's really interesting because we'll talk about the differences in financial planning between men and women, but we have a number of other courses that we offer to bar associations, law firms, things of that nature, and at the moment, they're still free.
Chris Dreyer:
Amazing, amazing. That's awesome. Where can our audience go to connect with you and to learn more about SideBar Advisors?
Niraj Chhabra:
Just go to sidebaradvisors.com and you'll find everything that you need. You're more than welcome to connect with us on LinkedIn. We're happy to help however we can.
Chris Dreyer:
There were a ton of solid insights in today's episode. Let's review the takeaways. It's time for the pinpoints.
Pinpoint one, financial security isn't just about peace of mind. It's about power. The power to choose cases that ignite your passion and showcase your expertise with a solid emergency fund, you're not just taking cases, you're crafting a legacy. Specialize and attract those cases you really want. Remember, when you're free to say no, you open to the doors to bigger, better yeses.
Niraj Chhabra:
I've actually heard from an attorney telling me that it made them a better lawyer, having an emergency fund. When I probed a little bit deeper on that, basically what they shared with me is when they didn't have an emergency fund, they were taking on cases they had no business taking on.
Chris Dreyer:
Pinpoint two, success in law isn't a sprint, it's a marathon. Align your practice with your life goals and watch your decision-making transform. This is about work-life integration. When your career complements your personal aspirations, you're not just winning cases, you're winning at life.
Niraj Chhabra:
We were talking about making sure you and your spouse are on the same page. We were talking about tax strategy. We were talking about education planning. Should you put the money into the 529 plan? Does it make sense? Investments come later. I look at it like when you go to the doctor and you say, "I want X, Y, Z medication." They're going to say, "Slow down. Do we know that that medication is appropriate for you? Are there any side effects of this medication?" What are they going to do before they write that script? They're going to ask you to do blood work. They're going to do a physical, things like that. That's what financial finance is. The investments of the funding vehicle for your goals, but an advisor is really there to help you structure your finances in a way that's going to get you to your goals.
Chris Dreyer:
Pinpoint three, smart finances are more than keeping the lights on. They light the way to exceptional service. Solid budgeting and tax management means you have the capital to invest in the areas that will keep your firm at the cutting edge with top tier talent and resources that wow clients.
Niraj Chhabra:
We need to make sure that we have enough money set aside in overhead for potentially three years, both on the personal side as well as the professional side. That's the first thing, making sure that your budget accounts for annual expenses, not monthly.
Chris Dreyer:
That wraps up this episode of PIM with Niraj Chhabra. You can learn more about him, grab his contact info and the resources mentioned today in the show notes. While you're there, pick up a copy of my new book, Personal Injury Lawyer Marketing: From Good to GOAT. And if you love what you hear, help a brother out and leave me a five-star review. All right, everybody, thanks for hanging out. See you next time. I'm out.
Just a reminder, this conversation is not intended to be recommendations for specific investment behavior. It's intended for informational and educational purposes only. This is not a research report or investment advice and not to be relied upon for the basis of investment decisions. Investment are advised to pass investment performance. It's not guaranteed for future price performance. Before making any investment, you should carefully seek independent legal, tax and regulatory advice.
