Financial Planning Strategies for Early Career Physicians

As a physician, you’re highly trained in a skill set that a tiny fraction of the world’s population even dares to pursue. Of course, this requires focusing on medicine and nothing else for a seemingly endless amount of time. While it can certainly help you become an exceptional healthcare provider, the years of classes and clinical rotations tend to skip over financial planning. A good grasp on this critical element will allow you to become a doctor who also leads a life of less stress and more enjoyment.

Each of the following suggestions is nothing too earth-shattering when viewed individually. But when you string all the pieces (that apply to your specific situation) together, you create a defined path to a freer life for you and your loved ones.

Design Your Ideal Life & Clarify Your “Why”

What is important/valuable to you? Why are you working so hard today? If you woke up tomorrow and suddenly had all the money you’d ever need, what would your ideal life look like… today… 20 years from now… 40 years from now?

By answering these, and other related questions, you begin to define your own version of financial success. Ideally, this will establish a real motivation for acting on and sticking to everything that follows. A patient who has a clear reason for why they want to get healthy is likely going to be more successful in doing so than the one who is simply told they should (assuming they both have relative control over their outcomes).

Live Like a First Year Resident for as Long as Possible

It’s not a fun thing to hear, but you’ll sure be glad you did it! Living within your means and maintaining your standard of living as income rises are two of the absolute best steps to take in an effort to get ahead financially. This means doing so throughout residency, into fellowship, and even during the early attending years. The most recommended approach would be to do so until all student loans and consumer debt (if any) are paid off and you’ve built a solid foundation of savings.

Create a Realistic Budget

The best budget is the one that works for you. Being realistic means including all expenses – everything from fixed bills to money spent at restaurants and anything else you purchase on a semi-regular basis. It can take time to get it right, but going back through bank statements for a month or two is a good place to start. In going through the process, you may even identify things that you’d rather remove from your regular spending, freeing up more funds to put towards financial goals.

When building a budget, incorporate the practice of saving first and spending second. Treat any contributions to savings as a “bill” and automate it. By automating your savings, you’re more likely to build it up over time.

Build an Emergency Fund

Speaking of saving… a general rule of thumb is to keep an amount equal to at least 3 to 6 months of expenses stowed away in a savings account. Obviously, it’s not something you’ll easily be able to make magically appear instantaneously. But having the objective of steadily building up to this point over time must be a priority.

Maybe the most crucial reason behind this for physicians is that if you were to get injured and lose the ability to practice, a typical disability insurance policy doesn’t start paying benefits until after 90 days. There are plenty of other circumstances that could spark a financial challenge and having this element in place allows you to potentially avoid the negative effects of having to seek out other avenues, such as taking on credit card debt or pulling from retirement accounts early (or other investment accounts at inopportune times).

Implement an Appropriate Amount of Life & Disability Income Insurance

As a physician, you have substantial income-earning potential and human life value. These types of coverage will help to protect both of those for yourself and any family you may have. The importance of disability income insurance is generally greater for all early career physicians, while that of life insurance will depend more heavily on whether you currently have any family, or plan to down the road.

Because the cost of each of these insurances is based largely on an individual’s health and age, it can be beneficial to secure coverage earlier rather than later. The key is to coordinate policies that fit your specific situation and budget. Know, too, that they can be structured in a way that allows you to grow the coverage as your income increases over time.

Create a Strategy for Tackling any Debts

Focus first on eliminating any high interest debts, such as credit cards. From there, look next to student loans. While you may hear the terms “refinance” and “consolidate” thrown around a lot, know that they may not always be the best option given your situation. For some specific ideas on how to approach student loans, check out this article: https://studentloanhero.com/featured/ultimate-student-loan-repayment-guide-for-doctors/. The biggest takeaway? Find a way to get started on your student loans as early as possible.

Keep the Long Term in Focus

There’s a good chance you’ll want the flexibility to work less at some point down the road. There’s an equally good chance you’ll have gotten quite comfortable living a certain lifestyle when that time comes. In order to maintain your desired standard of living, it will require adequate retirement savings. Once you’ve checked off the boxes above, develop a plan for investing in your later-life peace of mind and hop to it! It’s cliché, but time really is a tremendous asset.

With a long list of suggestions in this arena, I’ll simply provide a few high-yield ones here:

  • If you have access to a match with your employer plan, take full advantage of it. It’s literally free money.
  • Roth accounts (and backdoor Roth conversions) may very well become your best friends, as they allow you to accumulate tax-free retirement assets. Understanding the tax implications of your retirement savings goes a long way.
  • Be aware that if your career path takes you into a business owner role, you’ll have access to even more retirement account options than the typical “employee”.
  • Finally, the actual investments within your retirement accounts should be carefully selected, as they play a big role in potential long-term success.

The order above is intentional, but not necessarily essential to eventual success. I can’t stress enough that the uniqueness of your situation and goals are the ultimate driving force. Beyond that, the single most important variable in all of this is to establish a plan early and act on it as soon as reasonably possible. Whether it’s in residency or your attending years, accomplish what you can.

Finally, if you choose to seek the expertise of a financial advisor, be absolutely sure they are transparent and have your best interests in mind. Identify a professional who you truly believe you’d be comfortable working with through the years.

Edward F. Jurgielewicz III

President

SMRU #1857959