Doctors study medicine for years, and then train for several years after that. Making the time to also study personal finance and investment strategies is unlikely. LeverageRx connects you with financial advisors who specialize in working with physicians.
Finding a financial advisor you can trust is so important. The right one can help you build wealth without the headaches, while the wrong one can lead you to financial ruin.
Because most physicians have unique financial situations, it’s essential that you find a financial planner who specializes in working with people in your field.
By the time you’re done reading this article, you will be able to confidently speak with a financial planner, articulate precisely what you need from them, and select the right financial advisor for your specific goals.
Here is our complete guide to financial planning for physicians.
What is Financial Planning for Physicians?
Financial planning is an approach to understanding your finances, taking into account your:
Financial planning is not taught in medical school, so many physicians begin their careers with a sense of uncertainty as to how to handle their new income. This is the key reason why physicians rely on professional advisors to put them on a path to financial wellness.
The state of your finances affects the quality of your life, relationships, and overall well-being. When you understand money and how to spend and save it, you can build a life of prosperity and fiscal freedom. And since physicians earn higher salaries than most other professionals, having an expert advisor on your side is crucial.
What’s ironic is that for doctors earning high salaries, financial literacy among physicians is notoriously low. Fortunately, advisors specializing in working with medical professionals are easy to find.
From investing to tax and retirement planning, putting together a quality team of experts is critical to your overall financial health.
Why Are Some High-Income Earning Physicians So Bad With Money?
Physicians get a bad rap when it comes to handling money. (We’ve all heard the horror story of the doctor who couldn’t retire even after earning millions over their career).
And while there is some truth to the poor money management habits of some physicians, there are a few reasons for it. Despite all of your education and training, you are at a disadvantage when it comes to handling money.
Physicians spend far more time in school than most other professionals.
Completing residency when you’re well into your 30s means that the peers you went to college with have more than a 10-year head start in earning, investing, and saving.
It’s critical that you make smart decisions with your money as soon as you finally start getting it.
It’s no secret that the cost of medical school is outrageous, and most medical professionals are graduating with massive amounts of student loan debt.
This places an enormous burden on physicians, with monthly payments in the thousands over the first decade they’re in practice.
No Investing Plan
The late start and student loan debt combine to create unique financial challenges for physicians. These disadvantages make it all the more important to develop a solid financial plan sooner rather than later.
Once you define your goals, you can put an investing plan into place to help you reach them in less time.
The Steps to Take to Create a Financial Plan
As a resident or young physician, your immediate goal might be to pay down your student loan debt or start saving to buy a house. As a practicing physician, you may be more concerned about establishing a well-funded retirement plan.
No matter what stage of your career you’re in, there are three important steps to take to reach your monetary goals:
This will help you see where you stand currently so you can start creating some realistic objectives.
2. Define Your Financial Goals
Earning, saving, and investing money will help you achieve your financial goals, but you must be specific.
Vague ideas, such as saving for retirement or to buy a home, won’t get you where you need to be.
You’ll need to know how much money you need to save and invest throughout your career. Once you know what you want to achieve, you can build an investment and savings plan for every dollar you earn.
3. Execute Your Goals
Once your goals are clearly defined, it’s time to implement an action plan to help you reach them.
Even if you analyze your current situation and create a goal list for yourself, it’s at this stage in the process that you’ll want to seek the advice of a pro.
The Seven Key Elements of a Sound Financial Plan
Building a financial plan takes time.
The sooner you understand the various aspects of your finances, the easier it will be to put a smart plan in place that you can stick to throughout your career.
There are seven key elements to consider when thinking about your financial future:
It’s no secret that physicians carry more student loan debt than most other people. Add to that physician mortgage options and personal loans specifically designed for medical professionals, and it’s easy to see why they have a higher debt load than most Americans.
From credit cards to mortgages, learning about how to handle your debt in the most efficient way possible is an extremely important part of your financial plan.
Cash Flow and Budgeting
At the core of any solid financial plan is a budget.
Consider the 50-30-20 rule, where 50% of your income goes to paying for things you need (such as rent, insurances, food, and utilities), 30% goes towards cash flow and allows for more flexible spending, and 20% goes directly into savings.
While saving a minimum of 20% of your salary is ideal, it can be beneficial for younger physicians to put more money into paying down interest-bearing loans, such as credit cards and student loans. A financial advisor can guide you on when saving a little less is okay.
When you get a 400% raise after residency, thinking about investing for your future can be hard. Having put life on hold for a decade for school and residency, the temptation to go “all-out” is high when you start making “doctor money.”
But creating a smart investment plan early on in your career can considerably impact your net worth later on.
Investing is essential, and this is where a professional financial planner can help you build and preserve your wealth over time. From real estate investments to stocks, a solid investing plan can help you unlock the wealth-building potential of your high income.
While most employees need basic insurance products, such as homeowners, auto, and life insurance, physicians have even greater needs in this department.
In addition to your personal insurance policies, it’s important to understand the details of your business insurance needs, including malpractice, worker’s compensation, and business overhead expense insurance.
Physicians also must protect their future income with disability insurance. Disability insurance is income insurance, one of the most important asset protection tools physicians have. It can be the difference between having zero income and maintaining financial independence throughout your life.
When purchasing disability insurance, be sure to select the own-occupation definition of disability. This makes it far more likely that you’ll qualify to receive benefits.
You’ll also want to add future purchase option riders, which allow you to increase coverage as your salary goes up throughout your career.
Taxes are complicated, even more so for business owners and high-income earners. Creating a tax-efficient financial plan can save you thousands of dollars annually and keep the IRS away from your assets.
No matter how young you are, it’s never too early (or late) to start planning for retirement.
A comprehensive financial plan involves a retirement plan, which includes contributing some of your earnings to a 401k, IRA, or similar retirement account.
Financial Advisors for Physicians
As a physician, there are unique challenges and opportunities to consider when building a financial plan.
Physicians have a higher debt load and later career start, but they also enjoy a higher income potential and more investment opportunities.
To help you find the right advisor, we’ve put together a list of questions to ask them:
How much experience do you have?
What licenses and professional designations have you earned?
Have you ever been disciplined for misconduct?
Do you have complaints against you from past clients?
What is your approach as a financial professional?
What sets you apart from other professionals?
Are you independent, or can you only offer one company’s products?
Have you worked with other physicians?
Do you serve as a fiduciary?
The last question is an important one to know before you sign on with an advisor. An advisor bound by a fiduciary standard is regulated by the U.S. Securities and Exchange Commission and/or state securities regulators.
Fiduciaries are required to put their clients’ interests above their own; they cannot, for example, make decisions for clients based solely on earning a higher commission.
Advisors not bound by fiduciary standards are only held to what is called the suitability standard. This means the advisor’s decisions only have to be “suitable” for the client — but not necessarily the absolute best option.
When you meet with an RIA (Registered Investment Advisor), ask to see their latest compliance examiner’s report. Typically, the state’s department of banking and financing will audit an RIA every three years. That report will let you know if they are compliant with the law or if they have any infractions against them.
Top-Rated Financial Planners for Physicians
Finding a physician-friendly financial advisor can be challenging, so we’ve done some of the legwork for you. Here are a few top-rated financial planners that specialize in working with physicians:
Physician Family Financial Advisors
A fee-only financial planning firm, Physician Family Financial Advisors specializes in servicing the financial needs of physicians.
They are a team of Certified Financial Planners™ (CFPs) who help guide you through everything from budgeting and debt management to investment and tax planning.
The fee structure is a monthly membership that offers access to an online portal, investment guidance, and meetings with an advisor to build a complete financial plan.
Financial Rounds is a fee-only firm that works specifically with physicians needing full financial planning services.
With a quarterly flat fee structure, the CFPs on staff work with young physicians and residents just starting their careers, as well as late-career physicians dealing with complex financial situations, nearing retirement, or looking to sell their medical practice.