Financial planning is an approach to understanding and planning your finances, taking into account your income, expenses, assets, debts, goals, risk tolerance, insurance needs, tax strategy, investment strategy, and other financial details. Put simply, financial planning is setting financial goals and then mapping out an action plan to achieve them.
Unfortunately, financial planning is not taught in schools. This is too bad since the state of your finances affects the quality of your life, relationships, and ultimately your well-being. Understanding money and how to use it to build a life of prosperity and financial freedom is one of the most important skills to master. Physicians need to acquire this skill more than most people because they tend to earn higher salaries.
The ironic thing about doctors earning high salaries is that financial literacy among physicians is notoriously low. For that reason, financial advisors that specialize in working with medical professionals are easy to find. Some advisors will specialize in working with residents, since they don't earn much and tend to spend more than they can afford. Other financial advisors will specialize in estate planning for physicians, or investing strategies or tax loopholes available to medical professionals. From investing to taxes, to insurance and estate planning, putting together a quality team of experts is important for your overall financial health.
Building a financial plan takes time, but putting in the work now means that as you continue to increase your income, your money will be spent and invested in the most efficient way possible, allowing you to enjoy what you’ve earned while preserving wealth for your future. As a resident, you may want to look at buying the perfect house and a nice car, but before you look at spending your future earnings, it’s important to get a full financial picture. As a practicing physician, you can build a financial plan that supports all of the things you want to buy, but also the future you want to enjoy, including a well-funded retirement and philanthropic efforts. When building a financial plan, here are a few important steps to take (by yourself, or with a financial planner):
Take inventory of your finances. One of the first things you need to do is to take a complete inventory of your finances, including your income, expenses, debt, assets, insurance policies, and total net worth. This will help you see where you stand financially, and start to set some realistic financial goals.
Create a list of financial goals. Earning, savings, and investing money should help you achieve your financial goals. While these may be vague at first (i.e. save for retirement, buy a home, etc.), it is important to get specific about how much money you need to save and invest to achieve your goals. This will help you build an investment and savings plan for every dollar you earn.
Understand your debt. It’s no secret that physicians carry more student loan debt than most professionals. There are also mortgage options and personal loans specifically designed for physicians, which can result in an even higher debt load than most Americans. Learning about how to handle your debt in the most efficient way possible is an extremely important part of your financial plan.
Create an investment plan. Investing is important, and this is where a good financial planner can help guide you toward a plan to build and preserve your wealth over time. Learning about the basics of investing and how to automate the process is one of the core aspects of a good financial plan, and is what helps you unlock the wealth-building potential of your high income.
Understand insurance. While most employees need basic insurance (homeowners, auto, life), physicians and medical professionals such as yourself have more insurance needs. Understanding the details of your business insurance needs (malpractice, worker’s comp, ERISA, etc.) as well as personal needs, and how they all fit in your financial plan is a must.
Understand tax planning. Taxes are complicated, even more so for a business owner and high income earner. Learning about how to create a tax-efficient financial plan can save you thousands per year, and keep the IRS away from your assets.
Putting together a detailed financial plan may feel like a lot of work up front, but it can help set yourself up for a prosperous future, keeping your spending in check while building wealth toward your long-term goals. But even more importantly, a solid financial plan allows you to stop worrying about money, knowing that you have a plan for every dollar you make.
Doctors get a bad rep when it comes to money. We’ve all heard the story of the doctor that couldn’t retire even after earning millions over their career, and society seems to have a fixed glare at doctors with million-dollar homes and new cars. And while there is some truth to the poor money management habits of doctors, there are a few reason you are at a disadvantage when it comes to handling money:
- Late start. Doctors spend far more time in school than most professions, and completing residency at age 35 while others graduate college at age 24 gives them an 11-year head start in earning, investing, and saving.
- Student loans. It’s no secret that the cost of medical school is outrageous, and most medical professionals are graduating with upwards of $240,000 in student loan debt. This places a huge burden on doctors, with monthly payments in the thousands over the first decade as a practicing physician.
- Lack of investing plan. When you get a 400% raise after residency, it can be hard to think about investing for your future. 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.” Delaying investments can have a huge impact on your net worth later on.
These disadvantages make it all the more important to put together a solid financial plan sooner than later, helping you understand exactly how to reach your financial goals, instead of hoping it’ll all just fall into place.
As a physician, there are some unique challenges and opportunities to consider when building a financial plan, including a higher debt load and later career start, but also higher income potential and investment opportunities. To help you find the right advisor, we’re put together a list of questions to ask when interviewing potential advisors, as well as a list of some of the top-rated advisory firms that specialize in helping physicians.
Question to Ask When Interviewing a Financial Planner
Whether you think of it as an interview or a casual chat, it needs to be done. Important questions to ask include:
- How much experience do you have?
- What licenses and professional designations have you earned?
- Have they ever been disciplined for misconduct?
- Do they have complaints against them by past clients?
- What is their approach as a financial professional?
- What sets them apart from other professionals?
- Are they independent or can they only offer one company’s products?
- Have they worked with other physicians?
- Does the advisor 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. These advisors are required to put their clients' interests above their own; they cannot, for example, make decisions for clients based 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. If you're meeting with an RIA, 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. What does their most recent compliance report show? Does the firm have numerous infractions against them?
Top-Rated Financial Planners for Physicians
Finding a physician-friendly financial advisor can be a challenge, so we’ve done some of the legwork for you. Here are a few top-rated financial planners that work with physicians:
Physician Family Financial Advisors Inc.
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™ that help guide you through everything from budgeting and debt management, to investing and tax planning. The fee structure is a monthly membership that offers access to an online portal, investment guidance, and meetings with a financial advisor to build a complete financial plan.
Phone Number: (541) 463-0899
Wrenne Financial Planning
A fee-only financial planning firm servicing physicians, Wrenne Financial Planning offers a comprehensive service for a monthly fee. The service includes a complete approach to financial planning, including cash flow and debt management, student loan planning, estate planning, and retirement services. The transparent fee structure shows exactly how much you will pay based on your net worth, income, and business structure. It includes access to financial advisors and ongoing check-ins to ensure you are on track.
Phone Number: 859-538-6044
XY Planning Network
The XY Planning Network is a network of financial advisors that offer fee-for-service planning with no commissions or sales of financial products. They are also all CFPs and fiduciaries that are required by law to put the client's best financial interest first. Within the network, there are dozens of advisors that service medical professionals, helping with investment planning, debt management, tax planning, estate planning, and more. You can check out the website and browse through the advisors below.
Maybe you’re still not sure about hiring a financial planner, or you want to learn more before you dive in. Great! We’ve rounded up some of our favorite free resources to learn more about financial planning for physicians, diving deeper into some of the unique aspects of managing your money as a doctor:
The White Coat Investor: A helpful blog that focuses on educating physicians at any level (student, resident, attending) how to manage their finances.
Physician on FIRE: A blog focused on helping physicians retire early.
Financial Residency with Ryan Inman: A podcast teaching medical professionals about personal finance.
- Debt Consolidation: The process of taking multiple debts (such as personal loans) and combining them into a single loan with a single payment.
- Federal Student Loans: Loans backed by the U.S. government, issued by Direct Loans. These loans are eligible for student loan forgiveness programs.
- Income-Driven Repayment: This is a repayment program for student loans that allows the borrower to pay a lower monthly amount based on their income.
- Refinancing: The process of revising the terms of a loan agreement (such as a mortgage or student loan).
- Index Fund: A type of mutual fund or exchange-traded fund (ETF) that matches the performance of a market index (such as the S&P 500 index).
- 60/40 Rule: This rule refers to the asset allocation of stocks/bonds in retirement recommended in an index fund portfolio (60% stock index funds / 40% bond index funds).
- 4% Rule: Based on Bill Bengen’s research, this rule states that retirees with a 50/50 portfolio of stock and bond index funds can withdraw 4% of their total investments for up to 30% and never run out of money.
- CFP: This stands for Certified Financial Planner and is a professional license held by financial advisors that meet certain education and exam requirements.
- Term Life Insurance: Life insurance that covers you for a certain amount of years, and typically much lower cost than other types of life insurance.
- Tax-advantaged: This refers to an investment account that allows you to save on income taxes. These include 401(k)s, IRAs, HSA accounts, and others.
As a physician, you are balancing a lot of tasks in your life, but understanding how to manage and invest your money is possibly one of the most important. And finding a quality financial advisor can help you fast-track your financial plans while offloading the heavy lifting to a team of professionals. But while hiring out financial services feels like a no-brainer, ultimately, you are responsible for your financial future.