7 Financial Planning Tips for Physicians

Physicians and healthcare professionals serve an important role in society. They also lead very busy and hectic lives. In such a situation, it can be difficult to spare enough attention towards their finances like paying off student loans, investing surplus income, saving up for retirement, etc. Doctors may lack the foresight for adequate financial planning due to factors like low interest in financial planning, a lack of time, etc. This does not however make financial planning any less critical for doctors; it is something that these professionals should consider as soon as they start their internships. Reaching out to a professional financial advisor may be a good place to start as he can understand their needs, goals and offer a plan that will enable them to build their savings for the future.

If you are a physician looking to handle your finances in a better way, read on to know about tips that can help and steer you in the right direction.

Importance of financial planning for physicians

Most physicians and other healthcare professionals usually start their careers with student loans. They are often under the misconception that they need not have to worry about their finances as, more often than not, they are one of the highest-earning professionals in society. Moreover, even if they wish to take control over their finances, time simply does not permit it. However, in the long term, this affects their finances adversely. A lack of proper financial planning can end up with them making disastrous decisions, derailing their finances completely.

To prevent this, physicians must take financial planning seriously and focus on minimizing their debt and increasing their savings to set themselves up for a comfortable retirement.

Financial planning tips for physicians and healthcare professionals

1. Pay off your loans

Medical school is very expensive, and most students are forced to take a student loan to pay for it. Even if students wish to work while studying to help manage their debts, it is very difficult to have the time or energy or do so. Hence, the only time they can begin paying it off is as soon as they land a medical internship or job. Over the long term, the biggest eroders of your wealth are loans and the accompanying interest paid on them. This is why, as soon as you start earning, one of your top priorities should be to pay off your student loans or any other loans you might have. Doing this will free up your future funds for investing or any other goal that you may wish to focus on.

2. Create a solid financial plan

Most things in life need proper planning to bring in fruitful results. A doctor follows a proper treatment plan to cure their patients with certain goals in mind. Financial planning is no different. A proper financial plan is required, from the beginning where you pay off student loans to planning for retirement.

A good financial plan is customized according to the person’s long-term financial goals, risk tolerance, and other factors to decide how much a person should be saving on an annual basis, where they should be investing, and such.

Note: As for retirement, the most appropriate retirement plans for physicians are 401(k) plans, 403(b) plans, NGO 457(b) plans, 401(a) plans, government-sponsored 457(b) plans, and so on. As for self-employed physicians, SEP-IRA and solo 401(k) plans are recommended.

3. Start investing early

The early bird indeed does get the worm, at least in the world of finance. Not many realize the benefits of starting to invest from a young age. For physicians, it is recommended that they start investing as soon as they land an internship. Do not wait until you start earning a high salary to begin managing your finances.

Take advantage of the power of compounding. The only requirement here is that the investments stay consistent. The longer you stay invested, the higher your returns. Such high returns will also help tackle the negative effects of taxes and inflation on your wealth. Investing for the long term also provides a sense of financial security.

4. Live within your means

Lack of proper financial planning coupled with high income can be a recipe for disaster and is a predicament that most physicians can relate to. Given their high incomes, they might find it unnecessary to budget themselves. However, this often leads to them living beyond their means and maintaining a frivolous lifestyle which is detrimental to their long-term financial health.

While living in the present is important, it is unwise not to plan for life after you lose your source of income. In these situations, the 50-30-20 rule or the 70-20-10 rule is very helpful. According to these rules, the first part of your income goes towards your expenses, the second part goes towards your wants and any luxuries you wish to splurge on, and the third part goes towards repayment of debt or saving for the future. You can divide your money in any ratio which is most suitable for your needs. Making portions of your income in this manner can help you find a healthy balance to take care of both your current and future financial needs.

5. Have an emergency fund

Life is unpredictable. There are many things that could go wrong, such as an injury that prevents you from doing your job, sudden expenses, medical emergencies, and so on. You should not be forced into withdrawing funds from your retirement corpus in such situations.

Recently, many healthcare professionals quit their jobs during the pandemic due to terrible work conditions, insufficient wages, or emotional distress. Anything like this could happen to you, and you should be able to quit without worrying about the financial consequences of such a decision. You should work towards creating an emergency fund that can allow you to live within your means till the time you figure things out or find another job or source of income. Typically, an emergency fund should be worth at least 6 times your monthly income.

6. Protect yourself against unforeseen emergencies

Physicians need protection in four key aspects: life, health, disability, and professional liability.

  • Life: A permanent life insurance is not recommended for young physicians. A 20-30 year term life insurance worth somewhere between $1 million to $5 million is sufficient.

  • Health: Health insurance is a necessity to protect yourself against the exorbitant healthcare costs in the country in case you contract an illness or suffer an accident.

  • Disability: As a doctor, your biggest asset is your body. You should be able to protect yourself if any unforeseen event happens that may prevent you from doing your job. A $15-20k high-quality insurance is recommended.

  • Professional Liability: Physicians are very vulnerable to lawsuits due to the nature of their jobs. A $1-3 million malpractice insurance is recommended.

Apart from these, umbrella insurance is recommended to protect against any extra liabilities that are not covered by the aforesaid policies.

7. Create an estate plan

While it is morbid and depressing to think of what happens after your death, it is also necessary. High-earning physicians may have considerable wealth. Given the global health crisis and other dangers, it is best to be prepared for the worst. It is advisable to set up beneficiaries for all your assets so that they can be transferred to them in the most tax-efficient manner in the event of your death.

Should physicians consider fee-only financial planning?

Given their limited financial knowledge and expertise, it is recommended that while making important financial decisions like financial planning, estate planning, insurance, and so on, physicians should first consult a financial advisor.

Just like how patients are advised not to self-diagnose due to their lack of knowledge, doctors are also advised not to take matters into their own hands without proper information and seek the advice of financial experts. While choosing an expert, it is important to keep metrics like qualifications, certifications, motives, and other factors in mind—the most important of these being trustworthiness. Just like a patient would not entrust their health into the hands of an untrustworthy doctor, you should not entrust your financial matters to a person you do not trust.

There are two major kinds of financial advisors who differ based on the fee structure charged by them - fee-only advisors and fee-based advisors. Fee-only financial advisors are paid a flat rate for their services rather than a commission. Since a fee-only financial advisor is directly paid by the client for services rendered, there are less chances of any conflict of interest arising as their income does not depend on the products sold by them. It is advised that you seek the services of a fiduciary advisor rather than a non-fiduciary advisor, as they are legally obligated to act in your best interests.

To conclude

Personal finance is a crucial aspect of every professional’s life. More often than not, physicians and other healthcare professionals lack the necessary skills to manage their own finances because of intricacies involved, like paying off debts, investing in tax-saving instruments, preparing for retirement, formulating a financial plan, etc. To aid in this process, a trustworthy fiduciary advisor is recommended. Before you hire one, be sure to check their qualifications and motives.

Use the free advisor match tool to match with an experienced and certified financial advisor who will be able to guide you effectively and help you effectively manage your finances to safeguard your retirement years. Give us basic details about yourself, and Paladin Registry will match you with 1-3 professional financial fiduciaries that may be suited to help you.

The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice. A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.

You may also be interested in

Popular Articles

Are you Overpaying Your Financial Advisor?

How Financial Advisors Can Help Clients Prepare for Future Inflation

4 Important And Free Online Financial Calculators

Should You Put All Your Money With One Financial Advisor?

Cash Flow vs. Goal-Based Financial Planning

4 Financial Planning Tips For Your Family

8 Financial Planning Steps To Take To Help Ensure Financial Wellbeing

2022 Financial Planning Trends and Their Implications

9 Good Financial Habits to Improve Your Financial Success

5 Financial Planning Tips for 5 Stages of Life

Why Work With a Registered Investment Advisor?

7 Financial Planning Tips for Physicians

How Asset Management Can Increase Your Wealth

What Is the Difference Between a Wealth Manager and a Financial Advisor?

Key Components of a Good Financial Plan

Why It Is Important to Revisit Your Financial Plan in 2022

10 Critical Financial Planning Mistakes People Make

How to Find a Financial Advisor You Can Trust

What Is Personal Financial Planning and Why Is It Important?

Private Wealth Manager vs. Financial Planner: What’s The Difference?

What are the Costs of Hiring a Financial Planner and Is Hiring One Worth It?

Are Financial Advisory Fees Tax Deductible?

8 Ways A Financial Advisor Can Help You Manage Your Finances

5 Reasons Why You Should Share Complete Information With Your Financial Advisor

6 Ways an Effective Financial Plan Can Help You in a Financial Crisis

8 Reasons Why You May Need a Financial Advisor

Do I Need a Portfolio Manager or an Investment Advisor?

Why Should You Hire a Fiduciary Financial Advisor?

Should You Hire an Independent Financial Advisor?

Top Financial Regulators That Oversee Financial Advisors

8 Important Things to Discuss With Your Financial Advisor

The Importance of Portfolio Diversification in Your Financial Planning

How To Get Impulse Spending Under Control To Achieve Your Financial Goals

Achieving Your Financial Goals with the Help of a Financial Advisor

How Financial Planning Can Help You Adapt to Market Fluctuations

8 Tips For Your Virtual Meeting With Your Financial Advisor

How Taxes Affect Your Long-Term Financial Planning Goals

Important Aspects of Financial Planning in the Age of Digitalization

Six Important Ethical Standards to Expect from Your Financial Advisor

7 Reasons to Hire a Financial Advisor

How to Evaluate the Performance of Your Financial Advisor

Get matched with the best financial advisors near you to guide you towards your financial goals