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In the 2021 study conducted by the American College of Physicians, measuring the level of financial preparation of doctors with the participation of more than 1900 health professionals. We can find some teachings that doctors in their last years of service leave to their colleagues:
- “Don’t try to keep up with the Joneses, especially if the Joneses are in subspecialties or surgical fields. Don’t let your spouse/partner lead you into that trap, either.”
- ” Even though you think you know what you’re doing. Hire a professional, and don’t be an armchair financial planner.”
- “Learn about finances!”
Most doctors don’t have time, and many like to handle their finances by themselves. Because of that we have prepared this publication to be a self-check of your financial health.
Like any good diagnosis, let’s start by reviewing some symptoms or dangers that help you determine what points you can improve in your family finances.
For each of these dangers that we are going to present, you must think about your specific strategy or plan to correct it, remembering that a goal must be measurable and controllable over time and not just a good wish or intention:
First danger for physicians: not having enough money to maintain your quality of life in the Retirement
According to the study mentioned above, 90% of doctors indicate that; your most important financial priority, regardless of where you are in your career, is having the Retirement you deserve.
Since many of you work for hospitals, you should already have a 401K – 403B retirement account; well, you know that you should maximize your contribution to these accounts. In this way, you can obtain the matching contribution that employers give you.
3 out of 10 people are not maxing out their employers matching contribution and are losing this free money from the company you work for. According to a CNBC article, this is one of the top ways to achieve financial independence in Retirement.
In this case, the most important questions to ask yourself are:
Am I maximizing my contribution to get the most out of the company’s contribution? And when my income goes up every year, do I increase the contribution?
If you answered yes to these questions, the next question would be:
Am I maximizing my opportunities to grow my money tax-free for Retirement in as many tax-advantaged accounts as possible?
Contributions to your IRA accounts
You can also contribute to IRA or Individual Retirement Accounts, which come in two varieties: Traditional or Roth IRA; If you already have a 401K plan, remember that you can also contribute to these accounts and thus have more incredible tax benefits. However, it’s always good to take into consideration the limitations on how much you can contribute and whether you can take the amount you contributed off from your tax return.
Finally, within this section is to know if you have a clearly defined strategy, where you establish how much you should be saving and whether or not you will be able to meet your goal of having a comfortable retirement after so many years of work.
At this point, there is no fast track. Using a simple calculator to estimate how much you will need in your retirement is not the best way. According to the American College of Physicians, 73% of late-career physicians rely on a Financial Planner; they want you to be a CERTIFIED FINANCIAL PLANNER™.
The most important thing is that the vast majority of those who use it; point out that they feel much more confident that they will achieve their financial goals.
Many physicians are DIY – Do it yourself
For this reason, we suggest taking into account the following factors in your projections:
- Important expenses that you will have in the future: moving or buying a house, educational expenses of your beneficiaries.
- Impact on your investment portfolio of market declines; And, if those occur right in the year of your Retirement. So how should the composition of your portfolio change over the years?
- Recurring expenses: vacations, car changes, etc.
- Social Security, what happens if you take it before or after Retirement.
- Impact of saving in accounts with tax benefits and whether you must save in taxable accounts.
Also, remember that although many physicians point out that one of the main reasons they do not go to a Financial Planner; is due to costs or because the financial advisor ask them to have a big investment portfolio in order to just analyze if you will be a good fit for them. There is a new financial planning trend by the hour, in which you only pay for what you need, and in general, the cost per hour ranges from $150 to $350, on average. Being ideal for those seeking a second opinion.
Second danger for physicians: The more you earn, the more you spend, and the more you get into debt
It is understandable that after so many years of studying and after having gone through all that stages of the beginning of your career, you finally start to have a better income and have, within our consumer society, the propensity to spend more.
We must remember one of the phrases shared by one of the veteran doctors in the study that we pointed out before where he says:
“I wish I had lived on the same means after residency for several years to save up and catch up on debt.”
But the vast majority of doctors don’t know how much they’re spending each month, and that is where you should ask yourself, how much do I really spend per month? And am I including non-recurring expenses such as vacations or others, and to know how much you actually you spend yearly with all your expenses.
What is not controlled cannot be improved, so we share some websites or apps that can help you with this activity:
Among many others expense and cash flow software solutions, please do not be scared when you see the amount you are spending. Also, stay away from debt with credit cards now; interest rates are at their all-time highs.
Methods to pay your debts
The other question you should ask yourself; In case of having credit card debt, it is, what is the plan that you are going to apply to pay them as soon as possible; being able to choose between two methodologies:
- The avalanche method: first paying off the debts with the highest interest rate.
- The snowball method; paying the smallest debt, then moving on to the next debt and feeling like you can do it and go little by little.
After paying the card debt, you have to establish a strategy to pay off your student debt; and understand the financial impact this has over time; likewise, evaluate whether you qualify for aid programs to reduce this debt, such as Public Student Loan Forgiveness. And consider being very careful when considering debt consolidation strategies in these times of high-interest rates.
But it’s definitely something worth thinking about; taking into account that, depending on what moment you are in your professional life; student debt is listed as one of the top concerns for doctors. So, what is the strategy you have prepared to attack these debts?
Third danger for physicians: falling into the hands of an unscrupulous financial adviser or insurance salesperson
Physicians are one of the professionals with the highest income possibilities in the United States, It is natural that many sellers want to offer their services to you, which is not a bad thing, but not all advisors are the same.
Here is a short list of points that you should always take care of:
- In very few cases, you will need a life policy; that combines coverage in the event of death and a savings plan. Those called Term Policies or Term Life are much better, where you buy protection in case of death. All those called Whole Life or Universal Life are very expensive and suitable for the one who sells them and not so much for the one who buys them.
- Not always the nicest advisor or the one that all your friends use is the best one for you; always before interviewing with the financial adviser, review his data in BrokerCheck; To see if he has any complaints and if he really has the licenses he claims to have and if they are current.
- On the other hand, you are not looking for someone who wants to sell you the financial product that best suits the adviser; but the one that suits you best, so we always suggest supporting you with a Fee-Only Advisor; that always puts your interests ahead of theirs.
- You need to know if your adviser has gone through strict quality control and is certified; to provide you with advice on planning your finances, and there, without a doubt, a CERTIFIED FINANCIAL PLANNER™ is the one.
Have you checked if your advisor meets these characteristics?
Lastly, of course, having temporary and permanent disability policies and covering any case of lawsuits for malpractice is essential. Still, it is also important to know if you have the right policies.
Additionally in conclusion, we can say that your financial world has 4 dimensions that you should always keep an eye on:
- Income and expenses: always look for the income to be greater than what you spend, but you must know how much you spend.
- Money in banks and investments: always have money saved in the bank for your short-term emergencies; another more significant part invested, and if you are going to make speculative investments, establish the maximum percentage you can lose.
- Assets and debt: knowing that, except for your mortgage, the goal will always be to pay all those debts first, which are well above the inflation rate for the year.
- Protection: have your testamentary documents, powers of attorney, or Trust ready, as well as the primary policies (Life, Disability, Liability Insurance)
- If you fell that you don’t have time to do all this review, or you want a professional expert to give you a second opinion. In that case, the hourly financial planning is your best option, using only what you need.