Ian Hu

2Hi all, I'm currently a civil litigation and estates lawyer at Carroll Haight Chown, and I've done a bunch of other things before that. So look me up on LinkedIn, I'll add you.

4Thanks.

6Yeah, it's called Canadian Lawyers Personal Finance, and we have about 800 members now. Every day it's growing, it seems, to the point where, you know, it's— I grow 10% every month, it seems. So I expect it to double by the end of the year. And it started because my wife is a physician, and the physicians have 20,000 members on the Physicians Financial Independence Forum. For him. So I thought the lawyer should have one too, damn it.

8So it's an interesting question, Pulat. The answer is no. And I never gave it a thought until— and I've only sort of recently realized this by looking back. I was studying philosophy and PhD, and I was funded by the program. And I had a little bit of student debt, mostly because tuition was low in those days. And one day I realized— it might not be one day, but I came to realize that I would never be able, as a philosophy professor, probably not a tenure-track philosophy professor given how I was doing, ever be able to have a family and raise them the way I was raised. And I thought, I can't be going day by day eating rice and canned fish every day.

9That's no way to live. And so I thought, that's what brought me into law, purely financial reasons.

12Okay the— I would say you're wrong. I think it's— and it's based on the definition of wealth, wealthy, that I like, which is basically getting to a point where you are financially independent. And what that means is getting to a point where you don't have to work. So that definition of wealth can be attained by anyone in any profession. You just have to spend little enough and save large enough that you can meet your expenses for the rest of your life. So you might reach that at 50, you might reach that at 70, but at some point you're going to reach, reach that where your savings are enough to last you until you die without having to work.

16Yeah I think you're talking you're relating money with, with the power to do things, and and that, that's certainly one way to look at it. When I think about wealth, I think about your net worth, okay? So what are your assets minus your liabilities? And if you take your assets minus your liabilities, and are you able to support yourself until you die without having to work again? Now, if, if let's say you have zero net worth, right? You take your assets, you minus your liabilities, and you're left with zero. But you make a million dollars a year in income. You have all the power that you're talking about, right, Pulat? If you're making a million dollars a year in income and you're spending, you know, and let's just call this after-tax income, and you're spending half a million on the charity that you want to run and the other half a million on, on the Lamborghini that you drive and the and the sailboat that you want to race and all of that.

17Then you have power, right? You have power with your ability to make income. The problem there though is, what if you're sick? What if something happens to you? What if you have a family? Well, the second something happens to you, you're in debt and you may very well be in very deep debt very, very quickly. And so I don't view that as wealth worth having, if you define worth— wealth in terms of the income that you can generate and the power that you can have by spending that income. Because you don't actually have power. What you are is you're chained to these projects that you have. You're chained to these goals that you have and you're chained to your income-producing job.

18The second you stop producing that income, you lose all of the things that you love. That doesn't seem to me to be a good place to be money-wise.

20Yeah, yeah, sure. Most personal injury lawyers make money either, probably I would say by contingency, which means you settle a file for, well, a person gets hurt, they come to you to sue the person that did the hurting. For pain and suffering, for the care that you're going to need, for any loss of income, and then you resolve that file usually by settling it and very rarely by going to trial, and then you get a percentage of that settlement. That's how most personal injury lawyers make money. Some of them are— do make money on an hourly basis, so they just bill like any other lawyer.

22I would say these days it's not easy. There's a lot of competition. It's not like it used to be. The insurers are better supported. They have their own legal teams in-house, and the public has in some ways turned to, toward a healthy amount of skepticism in regards to such files.

25so the business model there, Pulat, is to hire people, young lawyers to do the work for you, and you get a chunk of their billings.

28I mean, it's, it's, it's a, it's a, it's a, I mean, whenever you scale something, you have other problems. Right. But it is scalable. And one thing that lawyers have an advantage of is the monopoly. So since you have a monopoly on the services, your margins are high. And so you can, even if you're unable to scale by 1,000 lawyers, and there are law firms that are that big at the same time, your margin is so big that, or can be large enough that you're pulling in very high income.

30Sorry, just got my kid here. Yeah, I mean, certainly we all know about some firms that do a lot of radio and television and marketing in sports arenas, and they certainly seem to be able to draw in a lot of clients. If you can draw in more clients than you are able to do yourself, then you can scale simply by adding another lawyer.

32It depends. If you do a certain kind of personal injury law where you're only handling files where there are, where people are very, very severely injured, right? Massive brain injuries or, you know, they become paraplegics, that kind of thing. Or, you know, what are called baby cases, right? Medical malpractice cases where you have a young— where you have a baby that pops out that may not have been properly cared for, then you're looking at huge damages for for each file. And so you only need to carry 10 to 40 files, and those, those are on the, what we're calling the top end of value, right? Whereas others, others will have volume practices where you'll have 100 to 300 files because the value is small.

33So there's room in personal injury, and I think in law in general, for volume or value.

35Yeah, because of ability to pay, right? In commercial litigation, you're usually looking at companies that can pay you. And if the value of the dispute isn't large enough to be worth disputing or worth paying a lawyer for, you're not going to see it. So a $50,000 dispute, you know, maybe people will go to a lawyer, maybe they won't, right? Maybe they'll go to small claims court and do it by themselves. $150,000, maybe they will go to a lawyer, so maybe you'll make some money there. And of course, the more complex it is, then the more, more you'll make, and so on. Yeah, so I think it is available. One thing I do want to say, by the way, Pulat, is there's often judgment amongst, I think, in our community about whether you are a volume lawyer or whether you are a lawyer that does, you know, complex high-value work, and I think that's a judgment that is best thrown out because either way you make a living and either way you can make a damn good living.

38I see what you're saying, yeah. At the end of the day, they get paid by the defendant, yeah.

40A part of the money, yes. Cost.

42And you need a pot of money that can pay you. It's not gonna be your own client, so you need another pot of money.

44Yeah, but keep in mind litigation funding is just a matter— isn't how— isn't necessarily how the lawyer gets paid. It's just about whether you get paid, you get some help with your funding upfront or you get it at the end. It's just about timing. You either get it at the front or at the end.

46Against your client, yeah.

48No, I'm just saying, yes, there's litigation funding, but it's not, necessarily to pay the lawyer, right? And even if it was, it would just pay a chunk of it. The way the lawyer gets paid is the— really paid is the settlement at the end by the— when the defendant pays.

50Yeah.

52Well, if you're talking out-of-pocket money, by far, yes. These days you get expert reports. When I first started, expert reports were $2,000 to $4,000, and now they're $6,000 to $15,000. The average expert is about $10,000.

54Just the report.

56Yeah, so it is hard for lawyers to, to build wealth, which is my definition of high net worth relative to expenses, right? By the way, the number is usually about 25 times. You want about 25 times your expenses. And that's the rule of thumb anyway. And the reason it's hard for us is because we hang out with other lawyers and our clients often have more money than we do. And when there's, there's an expectation that we drive around in a Porsche or in a nice BMW, that we wear a suit when we go to work, that we look nice wherever we go. There's an expectation that we have a certain look and feel. And I don't think that, that, and I think that's another expectation that should be thrown out.

57We lawyers are like anyone else, normal people, and if we live normally, if we live without our BMWs, if we live without our nice houses and without our private schools and so on, then we can build, we can build a high net worth. We can get rid of, or to put it, you don't even need high net worth, you just need to lower your expenses. So there, there's two ways which you just discussed: offense, which is making money and making more and more money, and defense, which is lowering your expenses. I think for a lot of lawyers, the offense is hard and the offense is limited, you know. If you're gonna make— the bulk of lawyers, you know, they're gonna make somewhere between $100,000 and $200,000.

58Very few are gonna see far above that. But you can control your defense. Maybe you're spending $100,000 of your $100,000 salary, leaving you with nothing. But if you live on 30 to 50K and you decide not to get that condo downtown and you decide to do a little commuting and you decide to buy a suit from, a cheap suit from the Bay instead of Harry Rosen, then you're on your way. And in The Millionaire Next Door, You know how much the average millionaire has ever spent on a suit?

60$400. $400. So the average millionaire, in other words, might be someone that you have no idea that they are a millionaire. The average millionaire in net worth might be someone that's next door.

62Yes.

64Yeah, the book was written before 2000, so it was before the boom. But yes, these days I would raise the bar higher, right? Maybe it's more than a million.

66Well, I'm going to say not only does it— is it easier to control and it carries less risk, but I'm also going to argue it's better for your life. It is better for you not to feel like you got to keep up with others all the time. It will make you happier not to compare yourself with other lawyers who have huge offense, right? You will be less stressed if you have less expenses in your life. You will not be worried about losing your job or getting a lower paying job. Because you can handle that. Your expenses don't require you to get that, a bigger job. So you're going to be less stressed, you're going to be happy because you're not comparing yourself with others, and you're going to be able to focus on what you— what, what I was going to say should, but you're going to be able to focus on what you want to focus on as opposed to what the consumerism makes you focus on, which is your you have the freedom to focus on your relationships, to focus on your family, or whatever it is that you want, because you're not busy just trying to meet your expenses because you're spending too much.

68Well, we, we do have people that do live in Toronto that are young that are doing pretty well on the website. On our Facebook group, and I think as a whole they spend very little. I speak with— when I speak with young lawyers, they often tell me that they have an apartment downtown overlooking the lake. Pulat, an apartment downtown overlooking the lake, that's well over $1,700, it's probably over $2,000 a month now, right? I can't even guess how much that costs. When I was a young lawyer, I don't mind saying I lived at home. I was at home for a couple years, you know. I lived in a— when I came here and practiced in Barrie, I lived in a basement apartment.

69I didn't live downtown by the lake until my income was much higher, and then by that time I got married and so on. So you have to make choices that coincide with a value system that is outside of reward. I think it's helpful to stop thinking in terms of, I have done something good, so I'm going to reward myself by spending money. I have a really good job, so I'm going to reward myself by living by the lake. I settled a big case, so I'm going to reward myself by getting a nice car. I had a huge bonus, so I'm going to reward myself by getting that, that nice suit or going on that huge vacation and so on.

70I think that's, that's a way that we often drive ourselves, and, and there's no need for that. You don't need to reward yourself with money.

72Yes. Or as the as the authors in The Millionaire Next Door say it, it's artifacts. Social artifacts.

74Well, that's the argument, isn't it, Pulat? And that's, that's the bigger argument about what whether they would have started that even if the wealth wasn't there. And I'm going to argue that Jeff Bezos and Bill Gates would have started Amazon and would have started Microsoft even if they weren't gonna— even if they were not going to end up having billions. I'm going to argue they were driven by that because they loved it and they had nothing else but to do what they did.

76But, but it's funny because when you think about not doing things for the money well, first of all, there's very few Bill Gates and, and Jeff Bezos out there. They didn't do it for the money and they were very successful. There are others who don't do it for the money and become nothing. We never hear about them, right? Survivorship bias. But what I'll say about the funny thing, if you stop caring about money, right, if you stop rewarding yourself with buying things if you stop spending, right, you're going to end up saving tons and tons of money. And so the paradox— the paradoxical result of not putting any stock in money is that you're going to become filthy rich because you're going to have such low expenses and such high savings.

78Yeah.

80Well, and in fact, something that you see is, is people that grew up poor and then they, they have a lot of income, sometimes the instinct there is to spend. Sometimes people that grow up poor and then end up with a lot of income, they're the ones that want to do the most signaling. Because while they were growing up poor, what did they see in their rich friends? They saw people driving around in Beamers. They saw people going on ski, ski, ski trips. They saw people having things that they didn't have. And so to them, being rich equals having things, equals signaling. That is what it means to be wealthy for them. And of course you see that with, you know, stuff like the Kardashians, right?

81Culture— our culture and media repeat the false lesson that being rich means having rich things and doing things that cost money. But that's not what being rich means. Being rich means having a ton of money in the bank. Your money is in the bank. It's not in your car. It's not in your house. It's not in your suit. Your money's in the bank. That's true wealth. And if there was a TV show that talked about millionaires living like real millionaires, it would be very, very boring because you just sit around not spending.

83Look, for me build— building wealth is about freedom, okay? If, as lawyers, we all have this freedom, we can go out and start our law firm on our own at any time, or if we're unhappy doing whatever it is we're doing as an employee or doing something for someone else. But there's another freedom that you can have, and that's when you have saved enough or are on the road to saving enough such that your, your net worth or your wealth exceeds your expenses by many, many times. And when you get on that road, you, you feel more and more freedom. You have the freedom to think what you want, And I think it's a mistake to think that you don't, that you already have that freedom.

84Typically you don't. You come home and you're tired and you're exhausted and so on. You have the freedom to do what you want. You have the freedom to say what you want because there's no repercussions for you in terms of money. And if you can get to that point or you are on the road to getting to that point, it's a very, very satisfying feeling. So for that reason, think about your finances and think about how to get financial independence.

86Thanks, Pulat.