For the first time since you can remember you have money. For years you have been watching your friends get established in their careers, buying cars and houses, while you toiled away in medical school, residency and even fellowship. Now, cash came riding in on a big paycheck and you feel almost giddy.
Certainly, the first reaction is to enjoy the money and buy a few frivolous things; let loose and free yourself from frugal living. I hate to throw cold water on your fun, but don’t loosen your belt too much. Spending willy-nilly is a financial rabbit hole and once you slip into it, you may not emerge. Here’s how to build a solid foundation for a secure financial future and be confident that you can enjoy yourself as well.
Find a Financial Planner
Before you make any decisions on how to spend your income, find a financial planner who has experience working with physicians. Don’t ask your best friend for a referral, (unless s/he is a physician); their financial planner can’t help you. Instead;
- Ask other physicians for referrals
- Your hospital may offer financial referrals
- American Medical Association Insurance’s Physician’s Financial Partners program pairs physicians with vetted financial advisors
One of the most important steps in managing student debt and building future wealth is finding a credible, certified financial planner/advisor. Physicians need careful planning for things like income distribution and insurance protection. Find a financial planner who:
- Will develop a financial plan that aligns with your long-term personal and career goals
- Will build your financial plan on a comprehensive picture of current and future financial needs.
- Conducts a risk analysis, evaluating finances and assessing timing and payments
- Has experience handling physician-specific financial issues including debt reduction, malpractice, personal and life insurance policies, efficient savings programs, excellent disability policies
Beware of fees!
Educate yourself and be very careful about what you pay for planning fees. According to the AMA, “Fees for veteran financial planners can start at more than $2,000, so it’s important to find a planner with the proper experience level.” Finding a Certified Financial Planner(CFP) at the beginning of his/her career can be a good match for a young physician. The fee structure may be more affordable than a CFP with 30 years’ experience. The AMA has good advice on the types and level of fees you should consider when you begin to invest. For example, “If you’re just starting to invest, normally you’re investing in mutual funds because you don’t have enough to diversify a stock portfolio. Advisors for these mutual funds charge a range of fees from 50 basis points, which is half of a percent, all the way up to 2 percent.”
What to ask
Make sure important questions are answered before you set your budget and allocate your income. You will need experienced advice to help establish a balanced distribution of income.
- Do I pay my loans off first?
- What debt refinancing program should I consider?
- What insurance protection do I need personally and professionally?
- How much life insurance do I need?
- Should I save for my children’s education or for our retirement first?
- How do I begin saving and how much?
You can free up money to pay down debt
A good financial planner should provide guidelines to help you navigate key lifestyle choices like whether to buy or rent a home, purchase a new or used car, and how to handle credit card debt. Each of these decisions carries tax and income considerations, impacts income distribution, savings and your ability to pay down debt.
When it comes to credit cards, it’s always a good idea to go easy. Most Americans are over extended by the free use of plastic. In fact, credit card debt is one of the top five causes of bankruptcy in the U.S. If you can’t pay your credit card balance in full every month, then you are increasing the amount of debt you are trying to pay down and inhibiting the ability to save.
Consider your benefits package as a savings plan
Every dollar that your company pays for insurance is a dollar that you can use to pay down debt or stock into a retirement savings plan. When you negotiate your salary and benefits package, make sure you know everything that the practice or hospital has to offer and bid for it.
- Health and life insurance
- Disability and robust malpractice insurance
- Child care, gym memberships
Negotiate for as many perks as possible. As one physician recruiter said, “Everything is stacked against the naive physician in training.” With a little research, you can sit down at the negotiating table prepared to gain maximum benefits that free up your own dollars for smart financial planning.
Save, Save, Save
The reality is that retirement is just around the corner. It will be here before you know it and you are going to need every day to save so you can retire well. The goal is to initiate retirement savings while simultaneously paying down student debt. Make sure that the retirement vehicles you use are paying a higher interest rate than the rates you are paying on your student loans. Beware of investing in money markets or savings accounts; their interest rates usually don’t keep pace with inflation.
Although advice is plentiful and consultants can be hired, it is difficult, to say the least, to start a new career and prioritize new responsibilities. Sometimes the simplest philosophy is the most helpful and so we turn to Robert Fulghum, author of All I Really Need to Know I Learned in Kindergarten, to give us the bottom line:
“Knowledge is meaningful only if it is reflected in action. The human race has found out the hard way that we are what we do, not just what we think.”