Between confusing terms and the lack of short-term advantages, many would rather continue on as they are without confronting their own financial health. For high-income medical professionals with sizeable paychecks coming in, you've got nothing to worry about, right?
Taking care of your money now is vital to maintaining financial health and wellness long-term. And without proper planning for now and the future, your finances can quickly spiral out of control if catastrophe strikes.
Let’s take a look at what financial wellness look like, along with a handful of actionable steps you can take to improve yours today.
Financial wellness refers to the overall health of your money. Financially healthy individuals spend within their means, pay off their debt in a timely manner, save for the future, and maintain good credit. They protect their family with life insurance and their income with disability insurance. People who are financially unhealthy do the exact opposite: spend more than they earn, fail to prepare for future emergencies, avoid paying down debt, have a poor credit history, and neglect their insurance needs.
Decision-making aside, people who are financially healthy and unhealthy differ in stress levels as well. Those who are unprepared for the future are much more likely to feel deeply stressed out about their finances, while those who are prepared don’t feel nearly the same amount of pressure. Financial stress is difficult to avoid completely, but you can greatly reduce your own by becoming more financially healthy.
There are many different ways you can work to improve your financial health and wellness. From fine-tuning your budget to paying down debt to making savvy investments, there are countless ways you can make your money work for you. But it all starts with understanding your finances in the first place.
1. Become financially literate
One of the reasons why so many individuals struggle with financial wellness is that they view their finances as a mystery that can’t be solved. They become overwhelmed with confusing terms and ideas and use this as an excuse to procrastinate learning about their money. In many cases, this can be attributed to a lack of financial literacy.
But learning about your money is the only way that you can ensure that your finances are healthy. Take the time to research how your money should work for you, where you should be spending or saving it, and what you need to do to ensure you achieve the future you desire. This may seem like a lot, and you may feel lost as you try to navigate your finances, but there are hundreds of resources out there from DIY apps to websites to professional financial advisors for physicians.
2. Develop an airtight budget
Once you’re aware of how your finances should be working and which programs you need to commit to investing in, it’s time to develop and use a budget. Budgets allow you to precisely track where all of your money is going so that you don’t overspend and exceed your means each month.
You can use budgeting apps like Mint, PocketGuard, and You Need a Budget (YNAB) to help figure out how much you spend on gas, food, mortgages or rent, and debt per month. This allows you to see how much extra you have so that you can begin saving for retirement and emergency funds early on.
Learn More: 6 Best Budget Methods for Doctors
3. Prioritize paying down debt
Debt is a huge stress on anyone. For doctors who take on hundreds of thousands in debt to complete their medical education, it can become crippling.
The easiest way to foster your own financial wellness while dealing with debt is to develop a solid debt repayment plan in place and prioritize it over most of your excess expenses per month. After all, the faster you pay down your debt, the more freedom you will have with your future finances.
One way to jumpstart repaying student loan debt is refinancing. By lowering your interest rate, you reduce your monthly payment and give yourself the opportunity to save thousands of dollars over the life of your loan.
4. Safeguard yourself from lifestyle inflation
One of the most common financial problems doctors face is lifestyle creep. Also known as lifestyle inflation, this often happens when doctors experience a substantial salary increase after they finish residency and enter professional practice. And can you blame them? After years of a grueling academic schedule, it's far more appealing to splurge on bigger and better things for themselves than it is to start saving and investing.
The best way you can avoid lifestyle inflation is by setting a cap on your spending. When your paycheck increases, make sure you don’t exceed spending 20% more than you would have before your pay raise. This can help you establish strong boundaries for yourself early on, developing habits that will keep your finances healthy for the long term.
Learn More: How to Live Within Your Means As a Doctor
5. Invest in your future
Taking time to invest in the future is the best way to set yourself and your family up for lifelong financial wellness. There are several steps you can take to future-proof your finances, from saving to investing and beyond.
Set aside an emergency fund
Perhaps one of the biggest financial stressors in your life is the worry over what you’ll do in the case of expensive emergency bills.
- Unexpected job loss
- Serious injury or illness to yourself, a loved one, or a pet
- Sudden damage to your home, car, or another large asset
Each of these things can end up costing you thousands of dollars that you may not have on hand right now.
Fortunately, you can reduce your stress in this area and future-proof your finances against emergencies like these by building up an emergency fund. Your emergency fund is simply a pool of money you save just in case something unexpected happens that you don't budget for. They can help cover the cost of damages and provide you with money to live off of in case you lose your job or are unable to work for any amount of time. Most emergency funds consist of three to six month’s salary.
Oh, and a retirement fund, too
Another way you can future-proof your finances is by saving for retirement right now. Contributing to an IRA or 401k now can help ensure that you will have a substantial nest egg ready to go once you reach retirement age. Even if you don’t have the money to contribute a lot to your fund now, any little bit that you can spare will go a long way toward securing your long-term financial wellness.
Learn More: The Ultimate Physician Retirement Planning Guide
Make smart investments
Investments allow you to take the money you aren’t currently in need of and grow it to a much larger sum. If you make the right investments, there’s no telling how much money you can make on the market. There are many apps and resources available to help you understand which companies and industries are safe to invest in. Just be careful not to invest money that you actually need right now.
Learn More: 8 Practical Investment Opportunities for Doctors
There are many ways you can improve your financial health and wellness, and each of them comes with a host of long-term benefits. By making the right financial decisions now, you’re setting yourself up for success down the road — when telltale signs of financial wellness are impossible to miss.