Finance for Doctors A Checklist for New Physicians
Every year it seems like doctors are spending more on their homes. For medical professionals on the outside looking in, you may be excited for the moment you can buy an expensive home yourself! But be careful. The one downside to a physician mortgage is the lenders tend to encourage the borrowers (doctors) borrow more than they actually need. As individuals who struggle with work-life balance, some doctors lack the resources needed to effectively manage their money. This can lead to:
- Hasty decision-making
- Unexpected missteps and losses
- The unneeded stress and anxiety that follows
It’s no secret that smart saving, budgeting, and investing habits can pave the way to financial independence. But unchecked debt and expenses can compromise this freedom, if not prevent it altogether. Financial planning for physicians is everything so we hope this checklist will help you prioritize how to protect and allocate your income.
1. Live Like a Resident
What can we say, it’s #1 because it’s the most difficult (and pivotal) rule to follow. When you finally finish residency and enter professional practice, it’s tempting to splurge with your newfound wealth. And rightfully so. After all, who else spends a decade training for their profession? Unfortunately, few new doctors are in a position where this is financially realistic. As we navigate our way through the following personal finance recommendations, you will find that living like you are still on your resident salary relates to most — if not all.
2. Pay your Future Self First
At any given moment, an unanticipated crisis can wreak havoc on your finances. To be on the safe side you should start putting away 20% of your salary into savings from the first paycheck. For starters, this should include setting up:
- An emergency fund. This will come in handy in case a sudden catastrophe not covered by insurance arises.
- A retirement savings plan. Even though you just picked up your white coat, it’s best to start saving like you’ll be hanging it up tomorrow.
3. It is never too early to consult the pros
When you first enter practice, hiring a financial advisor may not be top-of-mind. But it should be. After all, you spent the past decade and hundreds of thousands of dollars pursuing your passion. But just because you’ve crossed into the working world doesn’t mean you suddenly know how to manage your money overnight. As you know from firsthand experience, doctors are about as busy as it gets. The sooner you can build a financial advisory team to manage your money, the more time you’ll save now and the better off you’ll be down the road.
4. Devise a plan to conquer student debt
All medical specialties aside, the average new doctor enters practice with close to $200,000 in student debt. Needless to say, this places medical school grads at the forefront of the student loan debt crisis in America. But there are several ways to secure a lower interest rate with more favorable terms, including:
- Refinancing federal loans and/or your private loans into a new loan.
- Consolidating your multiple federal loans and/or private loans into a single loan.
- Qualifying for an income-driven repayment plan or student loan forgiveness program.
5. Then budget beyond loan repayment
Just because you now have a little (or a lot) more financial wiggle room doesn’t mean you are free from budgeting. In addition to paying down debt, you should prioritize your daily, weekly, and monthly expenses. If you already have a solid budget that works well for you, be sure to review from time to time. At the bare minimum, that means on an annual basis. However, you should truly take a look every time there is a noticeable change to your personal finances. If you do need to start from scratch, you first need to evaluate your options. There is no one-size-fits-all solution, which makes this article on the best budget systems for doctors a great introduction.
6. Start investing now
Most new doctors are new to investing, too. When it comes to investing, there are two common routes to consider:
- Consulting an advisor if you have one
- DIY with reputable mobile apps and online tools
Conventional wisdom will tell you the first option is your best bet. It’s safer, and higher returns should follow. However, the tech-savvy crowd will likely gravitate toward the second option. It’s a convenient way for time-strapped individuals to both learn and invest on the go. Whether you choose one approach, the other, or both, be sure to prioritize:
- Investing in stocks and bonds to protect your money from inflation
- Learning how to grow your money tax-free
7. Cover your assets — all of them
No one likes to talk about insurance, let alone conduct the thorough research you need to make informed buying decisions. The simple truth is that doctors need more insurance than most. With a highly specialized skillset comes more money and responsibility. The right insurance coverage can secure both. While it’s true that insurance will never be cheaper than it is today, we understand not everyone is ready to buy. That’s why we provide the resources you need to make smart choices the time does arrive:
- Term life insurance – to protect your assets and loved ones.
- Physician disability insurance — to protect your ability to earn an income.
- Medical malpractice insurance — to protect yourself from legal liability.
- Homeowners/renters insurance — to protect your home and what’s in it.
8. Define your roadmap to homeownership
For many, becoming a homeowner may be first on your to-do list upon entering practice. For others, it still may be a ways off. No matter where it sits on your radar, you should at least understand your options. New doctors rarely qualify for conventional mortgage loans offered by traditional lenders. Believe it or not, they enter the working world with all the traits of high-risk borrowers. Fortunately, there is a healthy alternative. Physician mortgage loans are an exclusive type of home financing designed to meet the unique needs of medical professionals.
- Low to no down-payments
- No private mortgage insurance is needed
- Minimal income and credit history requirements
9. Review the financial implications of your contract
While we’re on the topic of homeownership, here is an important question to consider:
If you wanted to relocate, could you actually make it happen?
In today’s gig economy, working remotely and traveling on the job has become the new norm. However, this excludes most doctors (and it doesn’t look like it will change anytime soon). Whether you are looking for a change of scenery within your provider network or a fresh start altogether, your employment contract may restrict your options. Of course, you should thoroughly review these provisions before accepting any job offer. But just like your budget, you should occasionally revisit the details of your contract to make sure it will not conflict with personal endeavors. This is especially important if you receive a pay raise or promotion.
10. Last but not least, treat yourself — you earned it
Alright, so maybe this final step strays from the “live like a resident” rule a little bit. But if you have been able to stick to this list all the way through, there’s no reason you shouldn’t treat yourself. Like anything else in life, achieving financial success requires finding balance. That includes both your day-to-day objectives and long-term aspirations. And it’s perfectly normal to factor opportunities to indulge into your budget along the way. Whether that means a luxury purchase or an upscale trip, you should be just fine as long you do so in a manner that is smart and sensible.
While our checklist certainly covers a wide range of topics in physician finance, it is by no means exhaustive. As a whole, its purpose is to help you better understand how to:
- Tie up loose ends from the past.
- Determine what you truly need in the present.
- Prepare yourself for a future that’s better than you can even imagine.
We hope this list sparks an interest in taking care of your money, and encourages you to expand your financial knowledge in other areas, too.