The way you manage your finances can determine whether you achieve financial success or end up missing your goals. As a doctor, developing a financial plan is crucial. According to the American Psychological Association’s annual stress survey in 2018, employment and money were the most common stressors for Americans. Where do you even start when it comes to creating your own financial plan? There is a lot that goes into financial planning. Having no plan at all can cause more stress in the long run.
When you enter your career as a doctor, you will generally have a large student loan debt to repay and employment contracts to negotiate. Sifting through the variety of insurance and investment options can be time consuming and overwhelming.
Ultimately, having a financial plan can lead to better financial management and understanding of how to apply the six money decisions to your own life. Here are thirteen reasons a doctor could benefit from working with a Financial Planner.
As mentioned, most of financial success is rooted from creating good financial habits. The saying “you can’t teach an old dog new tricks,” tend to ring true when it comes to money management. Nailing down the basics with a budget and net worth statement, then consistently tracking your spending is much easier when you have less line items to fill in your balance sheet. Once you are aware of what you own and what you owe, you can make confident decisions with your money and avoid living above your means. The longer you wait to face the fact of your situation, good or bad – debt or cash, the harder it is to change your spending habits.
Emergency Medicine Physician and Founder of Physician 360, Dr. Angela Fusaro, shared her thoughts about human tendency when it comes to money. Dr. Fusaro said:
“You're always going to find other things to do with money if you have access to it... Yes, you have willpower, but probably not an extraordinary amount to overcome all of human tendency. So let's do these planning pieces before you even have access to X amount of capital…because life happens, and when it happens and you have access to your savings, the outcomes will be different. I think putting that infrastructure in place so that our savings were happening almost without us even thinking about it, that was huge.”
As a busy doctor, finances may fall low on your priority list when life happens and its important to know that’s okay. A financial planner can be that consistent voice to take the burden of responsibility off of you by helping you simplify your money life and create sustainable financial habits.
Whether physicians are early or late in their careers, it’s important to start saving for your future. You have a demanding profession and your income generation gives you the opportunity for many investment options. Knowing which saving and investing options are right for you to manage your wealth is a job in itself. Any investment comes with risk and the higher the risk, the greater the chance of loss. A financial planner that specializes in physicians’ personal finances can help you leverage your wealth, so you can put your focus on what you do best instead of worrying about your money.
Most people think their biggest asset is their house, 401k plan, or automobile. Truth is, your biggest asset is YOU, especially after the worthwhile training you have braved through. Your ability to get up every morning and use your skills to help your patients is what makes you much more valuable than your house or other possessions. How will you protect yourself and your family? There are so many insurance options out there and a trained financial professional that understands those options can walk you through your choices to help you choose the best one for you.
No matter what your financial state is, everyone wants to know their money is secure. A sense of financial well-being is key to a person’s overall sense of well-being, according to a study published in the Journal of Consumer Research. This sentiment is experienced at every level of income. A financial planner helps you articulate your goals and turn them into an action plan. As you move through the year saying yes to the time, financial, and relational opportunities that move you toward your goal and no to the things that will distract from your goals, you will feel more confident. You'll know that you are on track with the things that you value and that your life isn't being watered down by things that are depriving you of what's most important.
Doctors are trained to be strong caregivers for their patients, which often results in suppressing their own problems. Most medical doctor trainees also face hundreds of thousands of student loan debt from undergraduate and medical school, causing their net worth to go far into the negative.
As these newly minted MDs go through training, it’s the “normal” time we humans start having kids and settling down. Working crazy schedules on a low salary can bring fear to anyone who must support themselves or their family. This high debt and low cash situation can bring an immense amount of stress to a young physician who is just trying to survive residency or fellowship. Bring on a global pandemic and residents are scared for their lives, having to come together to send demands to their employer, pleading for hazard pay, and increased disability insurance. A pandemic is an extreme case, but sadly the truth is: even during normal times, most employer-provided disability insurance only covers a fraction of a doctors’ salary, not to mention if a resident who was sick or injured during training and lost their ability to practice as a full-blown physician or dentist.
In addition to fears of becoming disabled and losing potential earnings, doctors also commonly face the risk of litigation in the workplace and even in their personal life. These harsh realities can be exacerbated when time for financial education is limited, leaving a doctor to either make financial decisions by trial and error or avoid taking action at all due to fear of the unknown. This is where a financial planner can educate a doctor on the basics of financial planning and help them get past their fears of student loan repayment, buying a house, planning for kids, and retirement to put a solid action plan in place.
Sometimes people object to writing down their goals or making a financial plan because they feel that it will restrict their spontaneity or ability to be impulsive. Once you get over the mindset of feeling constrained, you may actually feel more in control to make positively choices or even have more freedom to be spontaneous. Committing your time, money, and relationships to the things that are most important to you can lead to a sense of freedom. Working with a financial planner will allow you to see what is left over and guide you in deciding where a surplus of cash can be allocated. For example, if you've committed to setting aside money for your savings, travel, and lifestyle expenses that are most important to you, then there is a sense of freedom knowing when you have money left over you can use it to go out to eat or for supporting a friend's missions trip. Furthermore, while building your financial foundation, a financial planner can run the numbers and offer you scenarios for you and your spouse to choose the best possible outcome when using your hard-earned money.
Like your patient’s medical history, no two medical professionals are alike. One doctor may come out of medical school with mounds of debt and marry someone with zero debt, while two people could meet in med school and graduate as MDs with double the debt.
Our most common answer to someone’s financial questions is, “well, it depends.” Just like a student loan strategy, genuine financial planning is not a “one size fits all” solution, meaning it is not simply calculated by the numbers. Everyone's situation is different with many variables. A good financial planner looks at the big picture to understand the root of your money behavior, your current financial situation, and your personal or family goals. Then the numbers come into play, and the data is aligned with your custom action plan.
When explaining his perspective on financial planning, Dr. Sean Fox, Emergency Medicine Residency Program Director at Atrium Health, expressed the danger of being naïve and not knowing what questions to ask. You can be taken advantage of if you don’t know the vital signs of finances. Dr. Fox explained, “It's just like learning Spanish. I can read it in the book, but it's not helpful until I have to sit with someone and try to speak Spanish. And yes, I'm going to be terrible at it and their ears are going to hurt, but over time, the more I do that, the better the conversation goes. I think what would have been helpful to have those conversations earlier in my career so that when it did come time for me to transition to actually having decent money, it wasn't such a big gear shift.” Dr. Fox is not alone. Many doctors suffer from the affects of a huge jump in salary when they complete residency. They go from making minimum wage and working 80-hour weeks to making six figures when they enter practice. Doctors suffer when they haven’t made good financial habits. The large salary begins to dwindle, while student loans continue to linger. If you aren’t careful, like many doctors we see, you can begin living paycheck to paycheck.
With that said, financial literacy is not something most people are born with. It is learned like any other subject. Of course, one might have an aptitude for science or math, but applying that ability in real life is another story. Whether you are a doctor or teacher, honing your skills can be done through training and practice. A financial planner goes through a rigorous process to earn their CFP®. In addition to holding a bachelor’s degree, a CFP® Professional must complete a CFP Board-registered education program, pass the CFP® exam, demonstrate thousands of hours of financial planning experience, then pass the CFP Board’s Candidate Fitness Standards. This last step includes a similar ethical action to a physician taking the Hippocratic Oath. To earn the mark of CFP®, one must commit to acting as a fiduciary, which means acting in the best interest of the client when providing financial advice.
Navigating the student loan repayment options can be a complex process. Engaging professional guidance can help you feel confident in your plan. Because of the amount of time you spend in medical school, physicians’ careers start a few years later than their peers, and often the priority is repaying education-related debt. There are many methods of paying off student loans. One size does not fit all. The repayment plan you chose as a resident or fellow may not be best suited for you when you become an attending physician. Depending on where you are in your career, you might need to take the time to re-evaluate your plan.
The unpaid time between training and practice is probably the one area of planning that catches most residents and fellows off guard. Transition planning involves preparing for the financial and lifestyle changes that take place as you transition from training to practice. This isn’t the only transition doctors go through. Changing jobs, starting your own practice, having kids, and planning for your children’s college are all transitional milestones a financial planner can guide you through.
When talking about her current financial situation and opening her own Direct Primary Care practice, Dr. Mendelsohn expressed, “It's been really neat to see those financial decisions from a decade ago come to fruition.” She has been in practice for over a decade and began working with a financial planner when she was a resident. She continues to say, “I was eating rice and beans and [my financial planner] helped me dig myself out of debt and fear – he has given me the confidence to know that I could do something different and plan ahead so that I could open my doors at my new practice.” Starting a business can be emotionally and financially draining if you have not put a solid plan together. Whether you are transitioning in your career or into retirement, planning and thinking ahead can help prepare you for those exciting, yet stressful times.
Financial incompatibility is one of the most common reasons for divorce. As we all know, the world of marriage finances is not cut and dry. The most stressful times in our lives often have a financial component.
There are many common myths embraced by couples concerning marriage and money, especially when one or both of you are a practicing physician with your own rigorous financial goals and busy schedule. While these personal tendencies can exist without issue when you’re single, they can easily become points of tension once you’re married. A financial planner can understand your situation and act as a third-party intermediary to help you discover where your money management tendencies originated. With an outside perspective, you and your spouse can determine which practices may lead to inefficiency and find solutions to fix or prevent those sources of money tension. Sounds like a marriage counselor, right? Financial planners are obviously not licensed to offer marriage counseling, but they are in a unique position where they have had discussions at length with you about your financial situation and goals. They also understand money management tendencies and how to help you and your significant other align their priorities together to benefit your family as a whole.
Do you have one of those drawers in your kitchen full of paperclips, extra pens, a random business card, or an unmatched sock? It’s basically the junk drawer, right? When you find something laying around and don’t know where it goes, we just put it in there. Our financial lives can look the same way. Just as Marie Kondo’s clients hire her to tidy up their houses, financial planners can help you clear out the financial clutter and focus on the more important things in life.
In our practice we often meet doctors who have had really good intentions to make smart decisions, and so they’ve opened accounts to save for the future, or they’ve bought different kinds of insurance, but they’ve never really had any over-arching advice or plan. So they accumulate different products or policies with no real concept of how they work together to move you toward your goals. Sound familiar?
Are you on track for retirement? This is a question you might want to answer before it's too late. It’s critical to start putting money into a retirement account as early as possible. The longer you have to plan and save for retirement, the more assets you can acquire to ensure you can live a happy life once you transition from a noble career. Thanks to compounding interest, a few dollars invested early in a career can make a big difference in the size of the nest egg at retirement.
Saving and investing comes with challenges and takes time to research and understand available options. Doctors are often bombarded with investing options from every angle and with limited financial knowledge, sifting through those options can be daunting. Does buying into a surgery center make sense for your current situation? Will the profits from selling your medical practice fund your retirement? Unfortunately, you may not receive the amount of profit you expect from selling your medical or dental practice. Even if the proceeds won’t fund your full retirement, a comprehensive financial planner offers you multiple scenarios to supplement your goals.
It has been shown that financial managers achieve a better financial return for clients than individuals attain on their own. For the cost of a .5 to 1 percent of your portfolio, they seek to provide strong results.
By working with a financial planner, you will have the assurance of knowing your hard-earned money is being personally managed and is in turn working for you to help you achieving your financial goals. Life is always changing and it is important to have a professional help you and your assets through both good and bad times.
Doctors have a unique set of financial opportunities and challenges. When it comes to your financial planning and investment needs, Spaugh Dameron Tenny can provide the perspective and experience your profession demands at any stage of your career.
Our clients often say they wish they could have started their financial plan sooner. So, what are you waiting for? We offer a complimentary discovery call to any doctor who has financial questions.
If you are looking for more information for how to plan financially, connect with one of our financial advisors to help you get additional clarity through the process.
For over 50 years, Spaugh Dameron Tenny has provided comprehensive financial planning for physicians and dentists across the U.S. In addition to providing personalized advice, we walk our clients through their options to help maximize finances and maintain financial security.
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