As a physician, you spend countless hours working so that others can enjoy a healthy and fulfilling life, leaving you with fewer hours to spend on yourself and your finances. With your focus on your profession, you may fall victim to making financial mistakes that can add up over the long run. Here are four financial mistakes physicians make and ways to avoid them:
1. Not Saving and Planning Early
We enjoy the phrase “live like a resident” because it highlights the importance of spending prudently, even after a salary increase. As you transition from a resident to full-time practice and start earning more, there is always the potential for spending large, especially after living through years of careful spending during your education. Instead of splurging on the biggest and best, we suggest easing into your new spending potential and developing goals from the beginning for how you will manage your financial life. Not only are you facing student loan repayment, but chances are you’re older than a traditional graduate and you’re starting to earn and save later in the game.
2. Acting on Poor Financial Advice
Physicians are frequently approached by financial professionals using the title “financial advisor,” though some are only in the business of selling products – investment products, insurance, etc. Knowing the type of advisor you’re working with, if they’re legally held to work in your best interest and how they are paid are three critical points of information. A Certified Financial Planner providing financial planning is bound as a fiduciary, meaning they must work in a client’s best interest at all times. Many physicians are overwhelmed with unwanted advice from friends and colleagues. Relying on your financial advisor to help you weed through the noise can be very valuable.
3. Not Developing Your Financial Literacy
Yes, we just suggested you work with a financial professional to keep you on track, but that doesn’t mean you should ignore the world of finance. You should understand how your financial plan works and how life or world events can impact your plan. Both you and your spouse need to be involved in managing your finances so that neither is left vulnerable if something happens to the other. Also, having an understanding of the financial world could help keep you from being taken advantage of when it comes to insurance, exotic investment opportunities or even requests for loans from friends or family members.
4. Not Planning for Practice Ownership
If you plan to own or buy into a practice, integrate that goal and the financial aspects of it into your personal financial plan. If your goal is to own a practice, you need to plan for the purchase and also for the additional financial needs it may require, such as additional insurance, estate planning and tax planning. You may also want to plan for a reduction of income for a period of time as you may need to spend time on education and running a profitable practice and may not be seeing as many patients while getting started.
The financial demands on a physician are unique in every stage of their career cycle, from education and residency to building a practice and retirement. By planning early, protecting yourself with financial literacy and integrating your life and career goals into your plan, you should be better suited to successfully navigate those stages and overcome these financial mistakes. For more information on financial planning for physicians and medical professionals, visit SearcyFinancial.com/blog-posts.
Michael J. Searcy, ChFC, CFP®, AIFA®, is president of Searcy Financial Services Inc., a fee-only registered investment advisory and financial planning firm located in Overland Park. Searcy has been listed by Medical Economics in “Best Financial Adviser for Doctors.” For additional information, visit SearcyFinancial.com.