A few weeks ago, I met up with one of my best clients, a highly respected physician, for coffee. We started talking about the financial challenges he faced when he started his practice and what it took to grow to the practice he has today. His answers intrigued me enough to conduct a little experiment.
I selected part of my email list of doctors to ask this question:
“Knowing what you know now, if you could go back and start your journey in medicine over, what financial decisions would you have made differently?”
This is a summary of the 5 most common answers to my question:
1. “I wish I would have paid more attention to my finances in my first few years out of residency.”
This is most likely the biggest mistake doctors make. As you make the transition out of residency and into your career, usually a much bigger paycheck comes along with that. Like any kid in candy store, you start to think about all the things you can now afford to buy. I mean you just spent the last decade or so working hard, long hours to get to this point. Don’t you deserve it?
Yes, so splurge a little, but also develop a plan and budget, and don’t fall into the all too common trap of “keeping up with the Joneses, or Kardashians.” A budget is the bridge to bonding with your money. When all your important goals are taken care of and funded, all the “leftover” money can be spent guiltlessly.
Action Step: There are plenty of online tools out there for creating a budget, but I am a big believer in writing things down first. Seeing it on paper really helps it soak in for some reason. BUDGET WORKSHEET
2. “I wish I saved more money.”
Translation: “Setting Financial Goals”
You made it! You’re now out in the real world, doing what you love, and making a lot more money. There is no better time than now to get organized and tackle your goals intentionally. Think of it as a “wellness approach” to managing your finances. It’s about having control over your money versus letting it control you.
Let’s not forget the elephant in the room, student loans. Not only are you late to the investment game, but about half of you also racked up over $200,000 in student loan debt along the way. Setting financial goals will help you create synergy between you and your spouse, and balance between managing your debt, establishing an emergency fund, saving to buy your first home, saving for college if you have, or plan to have, kids, saving for retirement, making sure you’re properly insured, and of course, having fun!
Action Step: Start by choosing 2 or 3 goals and calculate how to get there. CREATE YOUR OWN GOALS
3. “I wish I learned more about how to minimize taxes.”
Translation: “Tax Management and Retirement Planning”
Don’t forget Uncle Sam! A sudden spike in income is coupled with a higher tax bracket. The old adage, “a penny saved, is a penny earned,” quickly gains credibility when it comes to taxes. Understanding and taking advantage of retirement plans like 401(k)’s, Cash-Balance Plans, and IRAs, is a quick and easy way to start lowering that tax bill, not to mention protect your assets from creditors.
Establishing a brokerage account with tax-efficient investments may be another place where you can start investing your money to potentially earn more than what banks are paying, and not have it tied up until you’re 59 ½ years old.
Action Step: Contact your HR department or provider to obtain and review your companies Plan Document (or equivalent thereof), or if you own your practice, talk to a CPA or “fee-only” CERTIFIED FINANCIAL PLANNER™ to develop a strategy that works for your scenario.
4. “I wish I would have done my research on the Investments I chose”
Translation: “Investment Management”
“Investing should be more like watching the paint dry or watching the grass grow. If you want excitement, take $800 and go to Las Vegas.” This is a quote from Paul Samuelson, an American economist and Nobel Memorial Prize winner. As a doctor it is likely you’re considered what we in the financial world call an “accredited investor.” Basically, this means you’re considered more sophisticated, and you have more money than the typical investor, and therefore fall within a special status under financial regulation laws.
Being an accredited investor opens up the investment possibilities to more complex investments such as hedge funds, venture capital, and angel investments. In addition, you might fall prey to being sold long-term insurance products that, generally, may not be good starting points for your investment journey. Many of these come with added risk and fees, and require extensive due diligence. A good time to consider investments like these may be after you have fully funded your 401k, IRA, emergency fund, and other goals.
Action Step: Get started sooner than later. It’s not about timing the market, it’s about time IN the market. Leveraging a “fee-only” professional Investment Advisor can go a long way to avoid potential surprises.
5. “I wish I would have purchased life and disability insurance when I was younger.”
Translation: “Risk Management and Estate Planning”
Beyond medical liability insurance to protect your personal and business assets from malpractice claims, having appropriate life and disability insurance will make sure your family is taken care of should life deal you a bad hand. Many times, I find physicians are either under-insured, not insured at all, or simply in the wrong insurance products. The younger you are, the better rate you will get and less premium you will pay, all other things being equal. Starting while your young can save you money and get you insured while you’re still healthy. Unfortunately, I’ve come across people that have become uninsurable, which could really put your family in jeopardy if something were to happen to you.
Another important consideration that falls into the realm of risk management is the use of legal structures, such as Corporations, LLCs, and Trusts. A well-drawn out Estate Plan will protect your assets from probate, keep your family matters private, provide direction on how your assets are distributed when you die, select a trustworthy person to make medical decisions for you if your unable to yourself, and better protect your assets from creditors and lawsuits.
Action Step: Interview 2 or 3 Life Insurance Agents and Estate Planning Attorneys. Your CPA or Financial Planner may have some good referral sources you can tap into.
As a doctor, people need you and your time is extremely valuable, but don’t let it slip away. My hope is that this little experiment got you thinking and motivated to take action. Good luck with your financial endeavors and may you build a healthy and sustainable plan for your financial future!
*This content was written and prepared by Daniel Pichardo, CFP®, CRPC®.
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