When you have patients who need to make health and lifestyle changes, you encourage them to begin those new habits immediately. The longer a person waits to improve their diet, exercise more, or take medication, the more difficult it is to make those changes permanent. Plus, failing to follow the doctor’s orders means more potential damage being done to the patient’s health.
The same goes for your financial health. Nobody enjoys a fiscal physical anymore than they look forward to a doctor’s visit, so it’s easy to keep putting off necessary actions. But often our good intentions for improving our financial well-being never materialize into action—until it’s too late.
Whether you want to establish a strong financial future or get your current finances in better order, there’s no time like the present.
Before the year is over, here are seven money moves every doctor should make:
1) Check your credit score and improve it if necessary
Checking your credit score is like getting a physical. It’s a way to understand your overall financial health.
Your credit score informs lenders and other interested parties of your credit risk. It is based on a number of factors, including how much debt you have relative to your income, and whether you’ve paid past debts on time.
Many people assume their credit is fine. Others avoid checking because they know it’s not.
What you don’t want to happen is to be close to buying a house, car or other big-ticket item and discover you have poor credit. This will either prevent you from borrowing money from traditional lenders, or cause you to pay a higher rate of interest than you would have with good credit.
Another reason to check is that there may be inaccurate information adversely affecting your credit score. A checkup may also reveal identity theft.
If your credit score looks like a bad cholesterol reading, there are ways to improve it, such as lowering your credit card balances, paying your bills on time, and fixing any errors on your credit report.
2) Determine a course of action for student loan repayment
The sooner you repay student loans, the sooner you’ll free up your income and the more your credit score will improve.
If you have the means, pay more than the monthly minimum payment, which will save you interest in the long run.
If you’re in a position where you need to lower your monthly payment, you can look into refinancing options through private lenders. If you have federal student loans, the Federal Student Aid Office can work with you to development a repayment plan.
3) Consolidate personal debt and credit cards
If you have several personal loans, medical bills, and/or multiple credit card balances, you should consider consolidating those unsecured debts into one loan.
In addition to simplifying your life to one monthly debt payment, you can also potentially lower your interest rate and the amount of money you spend each month on loan payments.
Debt consolidation can be done through:
- Transferring debt from high-interest loans and credit cards to a low-interest credit card
- Taking out a debt consolidation loan and using the loaned funds to pay off the balances on your unsecured debt
- A home equity loan if you have sufficient equity in your home
4) Get an insurance checkup
Part of being fiscally responsible is minimizing the risk of a catastrophic event ruining your’s or your family’s finances. Lenders require property insurance if you finance a vehicle or take out a mortgage. You must also legally carry malpractice insurance to practice medicine.
But what about insurance that isn’t required by a third party but is nonetheless necessary? Do you have long term disability insurance if an injury or illness prevents or limits you from practicing medicine? How would your family and loved ones get by without your income if you die unexpectedly?
It’s never pleasant to consider worst-case scenarios, but you should meet with an insurance agent as soon as possible to discuss your need for long term disability and term life insurance.
5) Create a budget designed for a resident
It’s easy to spend every dollar we earn. American culture encourages overspending on luxury cars, large homes, the latest technology, frequent dining out, and lavish vacations.
It’s even easier to fall into this trap as a physician with a high income who may also want material items to deal with the stress of their careers.
But no matter how much or how little you earn, you need to save money. Having money in savings helps you deal with emergencies and surprise needs that you didn’t budget. It also minimizes the need to borrow money and pay interest on credit cards.
Saving money is easier if you know where and how much you spend on household items, bills and other expenses. Set a budget that includes savings and unforeseen expenses, and stick to that budget no matter what tempts you to overspend.
6) Start contributing or increase contributions to your 401(k)
Time is money. This old cliche is still very relevant when it comes to saving for retirement. The sooner you begin contributing and the more you set aside, the more you will potentially have for retirement.
If your employer offers a 401(k) plan, you should be contributing as much as possible. Take advantage of any matching funds your employer provides as well.
The money you contribute to a 401(k) is excluded from your taxable income, up to the current annual maximum of $18,000 for people under age 50 and $24,000 for people 50 and over.
In addition to the tax deduction for contributions, 401(k) plans grow on a tax-deferred basis. This means you won’t pay any taxes on the account assets until you begin withdrawing funds in retirement.
7) Open an IRA
Whether or not you have access to an employer 401(k) plan, you should also take advantage of Individual Retirement Accounts (IRAs). These plans allow you to save up to $5,500 annually — $6,500 if you’re 50 or older — for retirement.
As with 401(k), contributions to a traditional IRAs are tax deductible and the assets grow tax-deferred until you begin withdrawals.
IRAs also provide an option called a Roth IRA. The difference with a Roth is that there is no tax deduction for contributions, however the distributions you take out in retirement will be tax-free income as long as you meet certain qualifications.
An IRA will also come in handy if you switch jobs and want to roll your accumulated 401(k) assets into your own retirement plan. You can typically do this without any expenses or tax penalties.
You can open an IRA through banks, mutual fund companies and brokerage firms.