The goal of becoming a physician moved you through medical school, residency, establishing a practice, and possibly a side business.
Every stage of your journey requires special and careful considerations to protect you and your family’s financial health. Debt, real estate, family finances, tax planning, retirement are just some of the areas you need to consider. Successful financial planning for physicians is never one-size-fits-all. But some common principles can help put your best financial foot forward.
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What Makes a Doctor's Financial Planning Different
Physicians can spend up to 14 years bouncing between undergrad studies, medical school, and residency. That doesn't include fellowships or specialties, causing many doctors to carry the burden of huge student loans. The debt, combined with the time it takes to start earning a full salary, set the framework for the unique financial challenges physicians face.
Some physicians may also feel social or peer pressure to maintain the “wealthy” lifestyle often associated with the profession.
Most employer disability insurance programs that pay out a maximum of 60% of annual income, new doctors face the extra weight of ending up in financial straits if they are injured or fall ill. Physicians will also benefit from having medical malpractice insurance and a real estate plan.
5 Essential Pillars of a Doctor's Financial Plan
Medscape's 2019 Compensation Report found that the median physician income was $313,000 — a $14K increase over 2018.
But just because you earn well, and possess a wealth of medical knowledge, doesn't automatically mean you understand financial planning for physicians. Many doctors struggle with finances, an area they've had little time to explore in recent years, resulting in hasty decision-making, unforeseen financial hurdles, and the associated accompanying stress and anxiety.
While we all know that a little budgeting, saving, and investing can go a long way to securing your financial future, applying those skills can be challenging. Financial planning for physicians doesn't have to be complicated; our five-step strategy can help you start prioritizing and allocating your income today.
1. Understand your employment contract
Before you can start budgeting, you need to understand where your money is coming from. That's why knowing the full scope of your employment contract is essential for managing your finances correctly. What are you expected to do to earn your salary? Can you participate in independent or additional earning opportunities (such as private practice or consultations?) How about non-medical consultations? Can you take advantage of today's gig economy by contributing to medical blogs or other freelance opportunities? It's also important to know whether you're locked into a specific wage bracket or position.
2. Pay your future-self first
When you start allocating your income into different categories, don't forget to set aside money for your future self.
It's difficult to think of future expenses when you're busy dealing with looming student loans and other day-to-day costs.
Emergencies can happen without warning, disrupting your life and devastating your finances. To protect yourself and your family, start saving 20% of your income from day one. You can divide this 20% between an emergency fund and retirement. Your emergency fund can help you navigate unexpected hardships or accidents not covered by insurance. When it comes to retirement planning, compound interest is your savings' best friend. Paying your future self, before you start looking at vacations or restaurants sets the financial foundation to allow your practice to evolve and grow.
The steps you take today lead to future financial gains, including:
- private practice
- early retirement
- global practice
- volunteer work
With smart financial planning today, the only limit to your future is your imagination — not your bank account.
3. Develop a budget beyond student loan repayment
Budgeting isn't just for when you don't have money. Arguably, budgeting when you do have money is even more critical. While getting rid of debt, including student loans, should be a priority, but they shouldn't be your sole financial focus.
With your new financial security, it's worth remembering that you can and should own a home. Owning a home is more than a smart investment, but you're also protecting your future self against market increases that could potentially price you out of your desired area. And specialty lenders offer exclusive physician loans to help doctors achieve this goal. Physician loans offer low down payments, no private mortgage insurance (PMI)–thereby lowering your monthly mortgage amount, and physicians can qualify with deferred or income-based repayment (IBR) student loans.
4. Create a financial advisory board
Don't overlook the benefit of putting together a financial advisory board consisting of several financial professionals, such as a tax specialist, a mortgage specialist, an investment specialist, etc. You've just spent hundreds of thousands of dollars that you need to repay while securing your financial future. A financial advisor can reduce stress, free up some much needed time on your calendar, and put you in the best financial position possible.
5. Prepare for the unexpected
As a doctor, you know the truth behind the adage, "An ounce of prevention is worth a pound of cure." Apply that same philosophy to your finances and make sure you're prepared for potential mishaps. Having several months of rent or mortgage payment set aside, a few months of pantry staples, and even an alternate transportation method such as a bicycle can all have a positive impact on the outcome of your financial planning efforts.
You've done the heavy lifting to become a healthcare expert. Now it's time to let the financial experts protect your financial health.
If you have questions about how a physician's loan can help you achieve your financial goals, get started with My Perfect Mortgage. We'll match you with the right lender for you.
For more information on financial planning for physicians, check out these books available on Amazon or wherever your favorite books are sold.
- Financial Planning Basics for Doctors: The Personal Finance Course Not Taught in Medical School, by Marshall Weintraub, Michael Merrill, Cole Kimball
- The White Coat Investor: A Doctor's Guide To Personal Finance And Investing (The White Coat Investor Series), by James M Dahle