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It's not always easy navigating our financial lives. This is also true for physicians. While physicians often make a lot of money, you might not think that financial planning for physicians is necessary, but it's one of the most important ways to handle your finances.
Just like anyone else, medical professionals can get caught up in the excitement of making a lot of money and need help to handle it properly.
Here are the top things you must know about financial planning for doctors.
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Financial Planning for Physicians at Every Stage
Physicians go through many income phases, including those with very low pay. As a result, financial planning can feel overwhelming and nearly impossible, and then suddenly, it blossoms into a much richer and plentiful income.
Knowing how to create a physician financial plan and achieve financial security at every stage is important when considering finances for doctors.
The Challenge of Transition
No one can reach their financial goals overnight, even when their income changes drastically. The key is understanding how to slowly transition from one phase to another, keeping your financial goals in check rather than elevating your lifestyle and forgetting about your quest for financial freedom.
Residents and Fellows
During your residency or fellowship, you're just getting your feet wet. You have your medical degree but aren't quite a fully credentialed doctor. In addition, your income is far from what you'll achieve when you're a fully credentialed doctor, so financial planning is important at this stage.
You might start working on your student loan debt or ramping up how much you save for your emergency fund and retirement planning. But you're likely still getting used to everything at this point. Focus on getting out of debt, especially credit card debt, and living below your means to avoid more debt.
Attending physicians are at the top of their earnings capabilities and have a chance to prepare themselves financially for the future. At this point, your financial advisory services likely helped you build portfolios that can see you through the next few years, so now it's about portfolio monitoring.
As you age, your risk management techniques should focus on more conservative assets, whether you plan to retire early or work through retirement. You will solidify your financial plans at this stage and should work closely with your physician financial advisor to devise a plan to reach your goals.
Practice owners take on many more responsibilities. First, of course, you have your family and household income and debts to consider, but also those of your practice. Working with financial advisors for physicians is essential at this point because you must focus on tax planning, benefits for your employees, and focusing on your personal asset protection.
Financial Challenges Physicians Face
Many people look at physicians and think they have it made. This is because they make so much money that they don't have to worry about their finances.
This is the furthest from the truth, though. Physicians face many financial challenges and should know how to address them.
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Mental Health and Financial Stress
Financial stress can lead to mental health issues, including anxiety and depression. Physicians are just as much at risk for these issues for various reasons. Making a lot doesn't mean you have financial literacy or understand how to handle your finances.
Suddenly making a lot of money after residency can be tempting, causing young physicians to experience lifestyle creep, spending more money than necessary, and leading to unnecessary debt and financial stress.
Managing Extreme Student Loans
The average physician has six times the student loan debt as regular graduates. This can make it much harder to get ahead of your financial planning. To manage the much higher debt load, physicians should do the following:
- Get a handle on the total amount of debt
- Apply for the income-driven repayment plan that suits their capabilities the most
- Consider applying for student loan debt forgiveness
- Work with financial planners for physicians to carefully plan your budget, savings, and retirement planning
- Find ways to make extra payments toward student loans
Financial Planning for Physicians Checklist
Financial planning for physicians isn't much different than financial planning for someone in another profession. It's about balance, living below your means, and understanding your goals so you can tell a certified financial planner what you want to achieve.
Financial literacy is the key to financial independence. Understanding how to budget, save, have retirement plans, live below your means, and avoid debts is important. When you understand the basics of financial planning, you can quickly move into wealth management and planning for your future.
Build Strong Financial Habits
Strong financial habits are the key to success, regardless of your profession, especially physicians. Early planning and saving will help you reach your retirement plans, whether you want to retire early or work well into your 60s or 70s.
Financial habits start young, so the sooner you create the habit of saving money, not overspending, and avoiding credit card debt, the easier it will be to maintain those habits moving forward.
Structure Your Budget
No matter how much money you make, budgeting is always necessary. Your budget should include money for necessary expenses, such as housing, transportation, medical costs, insurance (health insurance, life insurance, and disability insurance), food, and clothing.
It should also include money for emergency fund savings, retirement plan savings, and money for fun spending. When you have a budget set, you're less likely to overspend just because you know you make enough money. There's no reason to keep up with the Joneses or spend every dollar you make. Instead, be intentional with every dollar, and you'll have a much easier time reaching your financial goals after medical school.
Choose Investments and Secure Assets
Everyone has different investment management strategies. The key is creating your strategy to meet your goals. First, prioritize your goals according to your timeline and what's most important to you, and then work with a private wealth advisor to help you achieve them.
Securing your assets as a physician is one of the most important tasks you can do, especially if you're a practicing owner. However, a financial advisor can help you with asset protection so you don't put your hard-earned money and your future at risk.
As your earnings increase, it's important to change your financial plan. However, don't assume your current plan will work. Instead, review your new income with your financial advisor to determine the necessary changes.
For example, will you invest more money, buy real estate, pay off your student loans sooner, or something else? Weigh the pros and cons of each decision to help you determine the right moves.
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Review your contractual obligations for all student loans to ensure you stick to them. When your income increases, consider increasing your payments so you pay less interest and pay the loans off sooner.
Find Insurance to Protect Assets
Work closely with your financial advisor to protect your assets as you get into your career. Whether you need to set up a trust or purchase a specific insurance policy, consider your options carefully and continually review your situation to ensure you aren't leaving any assets unprotected.
Raise and Maintain Your Credit Score
No matter how much money you make, your credit score is always important. It's how you'll secure financing to buy a house or car. It will also play a role if you open your own practice and need funding.
Make sure you pay your bills on time, keep your debts to a minimum, and don't apply for new credit unless necessary. If you have credit card debt, try keeping it at 30% or less of your credit lines for the highest credit score.
Make Wise Financial Choices
Finally, it would help if you made wise financial choices. Spending as much as you want as your income increases can be tempting, but it's not wise. Instead, try the following:
- Live Below Your Means - Don't spend money just because you have it. Spend what's necessary to have the basic necessities and pay off those medical school bills, but don't buy a luxurious house just because you can or buy a new car every year because you have the money. Instead, be intentional with your money and live below your means.
- Get Married at a Low Cost and Maintain Your Marriage - When you're ready to get married, don't go overboard with an extravagant wedding just because you have extra money. Instead, keep it low-key and save money for your future.
- Plan Ahead and Minimize Education Debt for Your Kids - Save for your children's college education early. Use tax-advantaged accounts, such as 529 savings plans or taxable investment accounts, that help minimize your child's student loan debt.
- Educate Your Children on Finances - Your kids are never too young to learn about finances. Teach them how money works, the importance of saving, and planning for the future. Then, each year, as they mature, add to what they've learned so your kids have full financial literacy when they reach adulthood.
Where Can Physicians Find Personal Finance Advice?
There are many resources for physicians to get personal financial advice regarding their cash flow and plans, such as MYRA. We help established and young physicians with financial preparedness to ensure they can reach their financial goals.
Financial Planning for Physicians- The Bottom Line
Financial planning for physicians is one of the most important factors in a physician's life. You can make as much money as you want, but if you don't understand how to manage it, you can end up like many physicians and have financial troubles.
If you're ready to reach financial independence, it's time to work with a qualified financial advisor at MYRA to help you reach your goals.