7 Financial Tips for Resident and New Physicians

Kyle Larson, CFP®

Dec 4, 2020

Ask any practicing physician and they’ll tell you stories about “that one patient” who thinks they know as much as the doctor does. Patients who’ve been to a website or two and may have read a few articles, so they believe they know better or might be reluctant to rely on the expert advice of a trained physician.

As an up and coming doctor, dealing with these types of “self-diagnosing” patients comes with the job. You’ll have patients with access to information, but no actual insight. You’ll meet many who know the terminology and the basic concepts, but have no training or background in your specific field. And you’ll treat people who think they can “do it themselves,” but don’t have the experience, and rarely have a plan.

Sure, these patients may be smart and can sometimes “get it right,” but every physician would agree that relying on the professional expertise of a physician – a trained, trusted advocate who knows more than the patient – is always the proper course of action.

So, Why Are so Many Doctors “self-diagnosing” When it Comes to Their Financial Planning?

By seeking the expertise of a financial advisor – especially early on in your career as a resident and new physician – you’ll learn how to achieve the success you’ve always dreamed about.

Prior to becoming a financial advisor, I was on my way to becoming a physician. I’m a competitive guy. I love a good challenge. And I like to fix problems. So off I went to help and heal the world, and hopefully make some good money doing so.

Like many young medical students starting their journey, I knew there would be long hours, many lessons to learn and lots of stress – but the prospect of financial freedom would make all the hard work worthwhile.

Or so I thought. I soon realized that while the clichéd statistic of “4 out of 5 doctors agree” may indeed apply to a new treatment or the next medical breakthrough, it’s certainly not the case regarding doctors who have actually mastered their financial freedom.

Why New Physicians Need a Solid Financial Plan

Frankly, the majority of physicians I worked with in medical school had no financial plan in place, no one to help them figure it out and no clue where to start. Sure, the doctors I met enjoyed their career and certainly seemed fulfilled and successful, but they were working very hard and their money just didn’t seem to be working hard for them.

Too many had spent their time building their own individual practice, but had spent very little time building their own investment portfolio. They had been so focused on helping others, they hadn’t focused on their own future. They were good at treatment planning for their patients, but not financial planning for their own retirement. They were smart and excelled at practicing medicine, but they weren’t practicing smart money management. Each of them were considered experts in their field, but every one of them needed the expertise of a trusted financial advisor.

I soon realized that while I enjoyed the challenge of medical school, the critical thinking involved and the ability to help others, my passion and problem-solving skills would be better served helping people in another way. Instead of “saving lives,” perhaps I could help in other ways by saving them from the “dark side.” I knew I could help people achieve more than financial freedom and help them live their very best life!

So, I traded my scrubs for spreadsheets, and now I help physicians as a financial advisor to ensure doctors know how to invest wisely, save smartly and are able to enjoy the lifestyle they’ve worked so hard for.

While the journey to become a physician is difficult, the lifestyle can be rigorous and the work may be hard, becoming a financially successful doctor shouldn’t be.

That’s why partnering with a financial advisor – especially early on in your career as a resident and new physician – is one of the best investments you can make. But some doctors need more evidence before they partner with an advisor like me.

Here are 7 reasons why resident and new physicians need a financial advisor:

1. Putting Together a Personalized Financial Plan

Simply put, too many residents and new physicians just don’t see the financial payoff of the “doctor lifestyle” early on in their career. It’s hard to make long-term financial decisions when your paychecks go towards paying your student loan debt. And by the time you realize it, you are either decades down the road or don’t know how to fix it properly or pivot for the future.

Every doctor is different. Even if you are “bad with money,” understanding that achieving financial success takes proper planning is the first step. You may not know where to start, but you do know you need to begin somewhere. That’s where partnering with a financial advisor comes in.

Just like in medicine, treatment plans are paramount. Goals are imperative. And showing improvement over time – a trend in the right direction – is the success metric of any sound medical plan. Why not apply that same logic when deciding to work with a financial advisor? You need a plan.

Without a plan and with no financial goals in place, achieving financial success is much tougher. No credible doctor would treat patients without a goal or a plan in place, right? So, why treat your financial planning like that?

A financial advisor can help you determine things like how much and where you should be saving money each year, establishing a risk profile and a plan to accomplish your goals, and how best to “rebalance” your portfolio if you happen to deviate from that plan.

For example, one of the biggest planning opportunities early on for physicians is a true ‘debt management’ strategy. Partnering with a financial advisor and creating a customized game plan for paying down your debt first – particularly student loan debt – versus saving for retirement, is incredibly important. Establish a plan. Adhere to it. And watch your wealth and happiness grow.

Kyle’s Financial Tip: Pay down high-interest debt first – credit card debt, personal debt, car loans, etc. Next, attack your annoying student loan debt repayment. Then, live well below your means for as long as you can!

2. Sound Advice From Actual Financial Experts.

Most people don’t know the first thing about medicine, so they rely on experts who stay focused on the goal, and who will take the time to answer questions, address concerns and actually help to improve their overall health. When they’re sick, they rely on the guidance, recommendations and expertise of a trusted physician to make them feel better. They seek out a doctor who is considered an expert in their field, is confident in their abilities and is armed with the latest insight and information.

Smart financial planning is the same. Financial advisors are simply “doctors” for your path to financial fulfillment.

Just like doctors do for their patients every day, financial advisors bring an evidence-based expertise and objective view to your finances. Finances are often emotionally driven, so trusting our experience and allowing us to help you achieve your financial goals by taking a holistic look at your personal and professional situation will ensure you maximize your success at every stage of your career, and well after.

3. Discipline To Live Within Your Means

As a resident and new physician with a long road ahead of you, living within your means – especially at the beginning of your career – is extremely important. It’s the foundation of wealth. Of course, it’s much cooler to buy fancy clothes, flashy cars and enjoy $500 dinners, but to avoid “hot” investments and ego-driven purchases takes discipline.

Sure, sometimes you’re gonna want to splurge. You’ll want to enjoy yourself. Once and awhile, you’re going to yearn for the finer things. An occasional “big purchase” is okay. But the smartest, most successful investors learn this lesson early – that “boring and average” aren’t bad when it comes to investing. Frankly, it’s all you need with disciplined saving habits.

Luckily, there’s actually a simple way to accomplish those things if you have time, are consistent and you’re willing to learn how to put your money to work for you. It’s called compound interest, and it can help you exponentially grow your wealth. And as a young physician, you have one of the biggest advantages out there when it comes to leveraging compound interest and planning for eventual financial freedom – TIME! So be disciplined with your spending and diligent with your saving. The simple fact is that WHEN you start saving outweighs how much you save.

By living as far below your means as possible, you’ll have ample money to invest and pay down debt and still afford your next car, your down payment on a second home, your next vacation, a nice boat, or to save for your children’s college fund. I’m not suggesting ramen noodles, three roommates and hitchhiking to work every day, but you get the point. 

If you want to be really financially successful and truly focus on building your net worth, you’ll need to resist the Hollywood version of the “doctor lifestyle” as much as possible. Yes, you’ve earned it. Sure, you deserve it. But ask yourself – do you really need it!

Kyle’s Financial Tip: Doctors typically get around 30 years to save up for retirement, so saving around 15% is the general rule of thumb for most savvy physicians. But if you plan to retire earlier than age 65, increase that number up to 20-25%. And if you want to maybe purchase a professional sports team someday, crank that up to 50-75%!

4. Having an Ample Emergency Fund

Emergencies are nothing new to physicians. They are trained to handle emergencies calmly and creatively. Hospitals have entire rooms dedicated to just dealing with them, right? Yet far too many residents and new physicians don’t think about having an “emergency room” for their own expenses.

Partnering with a financial advisor means you’ll be far more prepared for any “emergencies” within your own investment plan. This emergency fund will help you if a financial catastrophe occurs, including an injury that would affect your ability to work, sudden job loss, unforeseen medical bills, emergency pet care, car repairs, divorce, personal tragedy or worse.

Kyle’s Financial Tip: Emergency funds help alleviate the financial stress created by an unfortunate issue or unexpected major expense, ideally 3 to 6 months worth of your living expenses.

The goal is not having to dip into your retirement savings during those difficult times, so having an immediate emergency fund not only prevents touching any of your long-term investments, but it provides peace of mind and is crucial to financial success for residents and new physicians. Doctors deal with emergencies daily. So, have an emergency fund for when disaster strikes you personally or professionally.

5. Insights on Insurance and How to Stay Protected

Unfortunately, all too often doctors do not have enough of the most important types of insurance and they have too much of the types they don’t need. New and resident physicians have a high-income earning potential and need to protect that at all costs. The help of a knowledgeable financial advisor keeps this a priority. We help protect your biggest asset…YOU!

Insurance options for residents and new physicians can be overwhelming and knowing what’s optional versus what is obligatory can be confusing. Circumstances certainly vary, but the most important types of insurance are typically life, disability, health and professional and personal liability. Every situation is unique, but a few general insurance guidelines include:

  • While you likely shouldn’t need permanent life insurance, anywhere from $1 million – $5 million of 20-30 year level term life insurance should be ample for young doctors just starting out (amount depends on your specific circumstances).
    • Financial Tip – Know your options. Cash value life insurance, like whole life or variable life, are products designed to be sold, not bought. They are inappropriate for the vast majority of people on this planet, including physicians, so choose wisely.
  • Since your earnings are your biggest asset, having between $10-$15k of high quality, personal, own-occupation disability insurance is imperative (amount needed depends on your income).
  • Make sure you have health insurance in place to protect against medical emergencies and unexpected health problems.
    • Financial Tip – If healthy, an HSA plan allows you to save into a tax-advantaged account. This is the only financial account with triple tax benefits!
  • For malpractice insurance, between $1-3 Million is the standard for resident and new physicians.
  • And for extra liability protection, $1-3 Million of umbrella insurance is recommended, with accompanying high liability limits on your property and casualty insurance.

6. Understanding Retirement Planning and Tax Management

New and resident physicians are more computer savvy than ever and many decide to “do their own taxes online” to save a few bucks. Sure, they may receive a small refund from year to year, but financial advisors know that the true gains and smartest savings are found by changing tax behavior throughout the year.

Saving on taxes now is important, but it’s imperative to do so while also saving efficiently so you’re not paying ordinary income tax on everything in retirement (ie. tax deferral is not the only answer). It’s a balance. That’s why partnering with a knowledgeable financial advisor is one of the smartest things you can do as a resident and new physician. A financial advisor will help you:

  • Gain a better understanding of the tax code, tax laws and how to maximize your after-tax return produced by using tax-efficient investments.
  • Take advantage of retirement savings options – 401k/403b, Backdoor Roth IRA contributions, Health Savings Accounts (HSAs – if healthy) and after-tax savings.
  • Utilize tax-deferred retirement plans, not only for tax arbitrage but also for asset protection.
  • Create a personalized retirement plan and provide guidance so you can save to accomplish short-term goals (buying a home) and long-term goals (retirement). 
  • Figure out if setting up a business (S Corp, LLC, etc.) will provide tax savings, unique retirement plan opportunities and asset protection benefits.

Kyle’s Financial Tip: Take advantage of the simple tax shelters available to you. For most doctors, every dollar put directly into a retirement plan like a 401k or an IRA can save around 40 cents in taxes.

7. The Benefits of Proper Estate Planning

Residents and new physicians are typically young, often single and too focused on starting their own careers to be concerned about what could happen at the sunset of their career or if they die. It’s too far off in the future and few doctors plan for it. Sure, it’s an uncomfortable topic to discuss, but it’s imperative that proper estate planning is part of your financial goals.

In all likelihood, new doctors don’t have a lot of assets to protect when they’re just starting their careers, but they will. Residents and new physicians are just beginning their journey, so proper estate planning and continuous check-ins is essential when it comes to true financial freedom later in life.  

If you are married and/or have children, you need to make sure things are taken care of if the worst case scenario happens. From a proper will to guardianship of your children to sophisticated planning opportunities to creditor protection opportunities and more, there’s a lot to figure out. But relax – with the assistance of a financial advisor, you’ll better understand and be able to compare all your options. And knowing you don’t have to worry about any of this later in life provides important peace of mind as you begin your career.   

Kyle’s Financial Tip: Keep a secure document or digital file with all your passwords and the locations of important paperwork like your 401k/403B, life insurance policies and related documents – including names and beneficiaries on all of them; and be sure to let someone know where it is!

Partnering with a Financial Advisor is a Smart Decision

Having attended medical school and getting to work alongside both resident and new physicians and seasoned doctors decades into their career, I have a unique perspective on the pitfalls to avoid and the planning that’s needed to ensure financial success.

Doctors are experts in their field and are among the smartest, most sensible and most successful professionals around, which is why prioritizing your finances with professional help from a financial advisor early in your career is one of the smartest decisions you’ll ever make. 

The fact is, with a diverse, personalized financial plan in place – one customized to your specific needs and wants and rooted in data driven decision-making – financial “wellness”, like the human body, can be planned for well in advance. And like some actual illnesses, many financial woes are preventable if you catch it and treat it early enough.

Like a sick patient relies on your expertise to heal, you should rely on a financial expert who understands the power of proper financial planning. By consulting with an expert as a resident or new physician, you’ll be able to see the fruits of your labor far earlier in your career rather than waiting until it’s too late, if at all.

Rather than “self-diagnosing” your own financial health, partnering with a trusted financial advisor means you’ll learn all the ways that your money can work toward your personal and professional financial goals. Most importantly, it provides the peace of mind needed to know your money is truly working for you.

As a resident or new physician, working with an experienced financial planner is among the smartest things you can do in order to truly enjoy the satisfaction of being a doctor, the status you’ve earned and the success you’ve always dreamed about.

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