Doctors are particularly bad at managing their personal finances and financial well-being for several reasons:
- We hate to admit when we don’t know something
- We got into medicine to help people, not for the money
- We think of money as dirty in our profession
- We trust other “professionals” to act in our best interest and succumb to poor investments at the hands of financial advisors
But the reality is that financial well-being and personal finance are extremely important for physicians, just like anyone else. In fact, improving our financial well-being makes us better doctors. Trust me, I’ve lived it.
Even if you accumulated substantial debt as a medical student or resident, all is not lost. Making a few financially savvy decisions once you’re an attending can boost your financial well-being in the long-run.
10 Steps to Financial Freedom for Attending Physicians
1. Build Your “Why”
I put this first because it really is the most important step.
It’s the reason why you want to achieve financial freedom and financial well-being.
Without a reason, it will feel pointless when and if you get there. Any roadblock along the way will feel insurmountable. Your why is there to pull you through the hard times when you need it.
2. Pay Off Debt
This is a critical step to financial freedom that you should take as early as possible. Stop taking on new debt and get rid of any and all debt you have.
Each $1 you use to pay off debt is $1 that your net worth increases.
That’s what I am doing now. Every month, I throw huge sums of money at my debt.
3. Get Educated
Pick a personal finance or investing book and start reading 10 pages per day. And then try to read just one financial book each year. Or read one blog post every day — I do this in between OR cases. These are small efforts with huge dividends.
4. Protect Ya Neck
If you depend on your income to live, you need disability insurance.
Does someone depend on your income to live? Guess what, you need life insurance.
If you are practicing, you need malpractice insurance.
Get them. End of story. The price, especially for disability insurance is high. Pay it. To not is to set you and your loved ones up for potential financial catastrophe.
5. Optimize Your Contract (Current or New)
Fair or not, contract negotiation is the time when you set the foundation for what you will make and how you will make it.
So, if you’re negotiating your first contract, take the time to make it as favorable as possible.
If you already have a contract, go through it and determine what you would change if you could. See how close you are to renewal time. Plan out a strategy to make the next contract the best it can be.
6. Budget (Nike Style — Just Do It)
I get so much resistance from physicians in general about budgeting.
“I make so much money, why should I budget?”
Let’s get real. It’s because you have so much money that you need to budget. When I lived in New York City as a trainee and 66% of my income was going to rent and daycare, I didn’t really need to formally budget. I would just run out of money. There’s your budget.
But now that I’ve boosted my salary, it’s too easy to blow money on unnecessary stuff and compromise my future financial freedom. And I promise, budgeting doesn’t need to be difficult.
7. Max Out Work Retirement Accounts With Index Funds
Whether you’re an employee or run your own practice, you should have retirement accounts — 401k, 457, self 401k, etc. Use them to invest passively in low cost, broadly diversified index funds.
Most employers will match what you put in, up to a certain amount. Not taking advantage of this is literally leaving money on the table.
8. Contribute to a Backdoor Roth IRA
An individual retirement account (IRA) is a retirement account set up by you, for you. There are two varieties: a traditional IRA and a Roth IRA. The only caveat is that to take advantage of the tax benefits (tax-deferred and tax-free growth, respectively), you have to have an income less than $124,000 as a single tax filer. Most physicians have incomes higher than this.
But there is a legal loophole. You can contribute $6,000 annually to a traditional IRA, and then immediately transfer it to a Roth IRA. Yes, you will be taxed on the front end, but you won’t be taxed on the back end. So, you get tax-free growth. For some, it’s worth doing this, for others it’s not.
9. Invest in Real Estate
I truly believe real estate investing is a wealth accelerant that physicians are uniquely positioned to take advantage of.
Real estate investing, whether passive or active, in cash-flowing rental properties provides the benefits of cash flow, appreciation, equity build up, and massive tax advantages. Needless to say, this can really ramp up your journey to financial freedom.
10. Write a Personal Financial Plan
The process of actually writing a plan can seem daunting. But start simple and add to it as your financial acumen grows. You can use my actual plan as a guide — just copy down each section and tailor it to your situation.
A Unique Moment in Time
The early days of your career as an attending physician are incredible: you finally get to practice independently and help patients more directly. Maybe you’re moving to a new city or back home. Your salary increases. Your hard work is paying off. There is so much to be grateful for and to enjoy. And by all means, you should enjoy it.
However, also remember this is a critical window to set yourself up for financial success and well-being. Luckily, the two goals of enjoyment and financial freedom are not mutually exclusive.
Jordan Frey, MD, is a plastic surgeon at Erie County Medical Center and founder of The Prudent Plastic Surgeon.
Disclaimer: The author is not an attorney, accountant, or financial advisor. His expertise is in the field of medicine. Any information in this op-ed and its links should not be considered personalized financial advice.