Financial uncertainty can strike anyone, anytime, anywhere.

Although physicians enjoy strong job stability and high salaries, they are not immune to tragedy. Not matter how financially secure you may be, you still need to plan for the unexpected.

According to the 2017 Annual Report on the Economic Wellbeing of U.S. Households, 47% of Americans may have a difficult time raising cash for a $400 emergency without:

  • Selling property.
  • Borrowing from friends.
  • Or using their credit cards.

While very few established doctors – if any at all – will fall into this category, residents in training and those who are new to practice are more likely to relate.

With this in mind, here’s how you can build the perfect emergency fund for your financial situation.

What is an emergency fund?

An emergency fund is the pool of money you set aside to alleviate unforeseen circumstances, such as:

  • Sudden job loss.
  • Severe injuries and illnesses.
  • Significant home repairs.

This fund should provide a temporary cushion against the stress and uncertainty that comes with these types of occurrences. To be clear, your emergency fund is not a replacement for insurance. Rather, it fills in the gaps insurance may not cover. (More on this later.)

What is the ideal size of an emergency fund?

When it comes to emergency funds, there is a simple rule of the thumb:

You should have enough money to cover up to 6 months of your typical living expenses.

Apart from ordinary monthly expenses such as rent, utility bills, grocery expenses, and insurance premiums, you should include leisure activities and bills that you do not always pay monthly. For example, this should include your car service expenses.

For an average medical practitioner, this means stashing away at least $30,000 — a significant amount by all standards. Nonetheless, you can still reach this target by developing a gradual savings culture.

Save part of your earnings from each paycheck. If possible, coordinate with your bank so that a designated amount is automatically funneled into your emergency fund. If your employer has a workplace savings plan, consider using it to do so.

Where should you keep your emergency fund?

Emergencies often occur when you least expect. But that doesn’t mean you have to withdraw money from this fund to cater to these emergencies.

Remember, this fund is intended to keep you afloat in case you take a significant financial hit, like if you become unable to practice.

In this scenario, your emergency fund could provide immediate relief during your individual disability insurance policy's elimination period.

To avoid the temptation of raiding your emergency fund for everyday needs, separate it from your other savings accounts. This will prevent you from dipping into the fund every time you experience the need for minor financial relief.

With thousands of dollars at stake, you must ensure that:

  • Your cash reserve is secure.
  • You get a healthy return from it.

This cash must also be readily accessible in the event of an emergency. Therefore, you should choose where to keep your money wisely. Here are some of your best options:

High-yield bank accounts

These savings accounts may be the best place for you to stash your cash reserve. With a high-yield bank account, your money will be easily accessible whenever you need it. Similarly, the fund will earn an interest.

To find the best high-yield bank account for your fund, you should be on the lookout for options that:

  • Feature competitive interest rates.
  • Do not have balance requirements or monthly fees.

Money market accounts

These accounts are akin to savings accounts in the sense that they also offer high yields. With such an account, it will be easy to access your emergency fund at an ATM or through online banking apps.

Nonetheless, it takes a lot of discipline to keep your emergency find in a money market account. This is because you can withdraw your money whenever you want, thus clipping away at your savings. Even so, money market accounts can be a good option if an emergency occurs and you need cash within a short time.

Avoid relying on credit cards

As a medical practitioner, you enjoy a stable source of income. Even so, credit cards can come in handy especially when you don’t have ready access to cash. But this doesn’t mean that you should always reach for a credit card when you find yourself in a jam.

The more you depend on your credit card in these situations, the more debt you will incur. Plus, credit card companies charge exorbitant interest rates (especially if you fall behind on your payments). Use your other savings to cater to common emergencies rather than your credit card.

Key takeaways

Similar to the extra insurance coverage your career requires, a doctor's emergency fund is going to look quite a bit different than the average working professional's. In order to prepare for life's unforeseen circumstances, you must determine:

  • The ideal size of your emergency fund.
  • Where you should keep your emergency fund.
  • How your emergency fund fits into your personal finance plan.

As you can see, devising your own emergency fund plan can be done in no time. The real challenge, however, will be fighting the urge to dip into this fund for other wants and needs.

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