I frequently get asked to give talks to other doctors on financial well-being. And no where in that talk does it mention saving or investing for children – for college, in general, nothing. I usually get at least 1-2 questions about this afterwards. And my easer is always the same. Every as high income earners, doctors need to save and invest for themselves first, before their kids.
And I do understand why this seems like a bit of a tough, or at least awkward, pill to swallow for most. It is for me too. I have 3 kids that are 5 or under and my instinct is to do everything for them. Including setting them up financially in the future.
But it’s just not the right thing to do. At least at first. For them or for you. Let’s explore why that is.
5 reasons doctors should save and invest for yourself before your kids
This becomes something analogous to the safety instructions at the beginning of every airline flight to place your oxygen mask before doing so for your kids…
1. You need to be your best to be the best parent
By now many of your know my story.
About how I actively ignored my financial well-being for so long until I reached the level of burnout in training. Then, by breaking the money taboo in medicine, I improved my financial well-being and found that my overall well-being improved and I actually became a better doctor.
So, I am a big believer and proof that financial well-being is a big, and many the most ignored, part of your overall well-being.
And any parent can attest that if you are not at your best, with optimized overall well-being, you will not be the best parent. I experience this all the time. If some aspect of my well-being, whether it be my physical or mental health, rest, professional well-being, or another aspect, I am not the best parent I can be to my kids.
That’s why this is something that Selenid and I talk about all of the time. Our kids will always come first. But, paradoxically, sometimes this means prioritizing ourselves.
And this extends to finances and financial freedom. By taking care of yourself first, you optimize your financial and overall well-being and become the best parent that you can be for your kids.
2. Your kids need less
Not less time. And they certainly don’t have less expenses. But they do need less money to invest.
And that is all thanks to the magic of compound interest.
I’ll prove it
Take a look at my FIRE calculator. And let’s assume a conservative after-tax and after-fee annual return of 5% investing in a low-cost, broad diversified stock index fund for these examples.
If you start saving $5,000 annually ($410/month) for your kid when they are born until they are 18 and they continue to habit after, they will have $1.05 million when they are 50.
By contrast, let’s say that you start saving for retirement at age 40 because you prioritized saving for your kids and want to retire at age 65, you need to save $22,000 annually to have $1 million by the time you want to retire. That’s greater than 4x the annual savings needed for your kid!
And remember, due to the 4% rule, than $1 million nest egg will only safely cover $40,000 of expenses. Way less than most physicians will want or need in retirement! So you actually need to save a lot more.
Saving just a little for your kids makes a huge difference for them. Saving just a little for you is a potential calamity. Prioritize yourself. Then, one you are on a good path, you can start saving some for your kids.
3. You can get loans for college, but not for retirement
Most parents save for their kids to help pay all or some of their kids’ college education. And most parents I talk to cite this as the #1 financial stressor in their mind when it comes to kids. So much so that they prioritize saving for their kids’ college education above savings and investing for their own retirement/financial freedom.
And that is a huge mistake. For a few reasons.
But the biggest reason is simple. You can cover college expenses with loans. But you can’t cover your expenses in retirement with loans. Full stop. That should be proof for doctors to save and invest for themselves first. Even as high income earners.
But as further proof of this theory, keep in mind that there are a ton of other ways that you and your kids can cover college expenses without sacrificing your retirement and financial well-being. Things like:
- Work study
- Choosing a less expensive school
- And yes, loans
5 Smart Ways to Pay for Your Kid’s College
And there are even investments that can help both you and your kids. Like investing in active real estate. Selenid and I now cash flow >$10k monthly from our real estate investments. We use the cash flow now to buy more investments. In the future we will use the cash flow to help cover college expenses for our kids as well as our retirement.
You could also take up a physician side gig that becomes passive and funds college expenses.
4. If you do it right, you can do both
I think many doctors and people in general think they need to save and invest for their kids because if they don’t do it now, they never will. Either because they just won’t or because they won’t be able to.
Well, I’m here to reassure you that if you do things right, you will 100% be able to do both successfully. Doctors are high income earners and can save and invest both in themselves and for their kids.
You’ve already seen that you’d kids don’t actually need that much. So, once you set yourself up, steam the left over in your monthly savings rate to your kids. Even if it starts very small…
The problem is that most people do not actually create a personal financial plan including their financial goals and priorities. As a result, most doctors are just winging it and hoping their high income magically converts into financial freedom for them and their kids. The problem is that this does not just happen. You need to plan for it and make it happen.
So, use this guide to create your own personal financial goals and priorities (which will likely include your kids!) and then use my personal written financial plan as a template to create your own!
5. Your kids will thank you
One of the biggest stressors – emotionally and financially – for current middle aged adults is taking care of their parents financially.
The reason that so many adult children are finding themselves in this position is that their parents did not prioritize their own financial well-being earlier in their lives. And now that responsibility and incumbent stress passes to their kids. And many of those adult children now find themselves supporting their own children as well as their parents.
I know that some of this is cultural. However, I can guarantee that nearly every adult child in this position would prefer that their parents had taken care of their own business by prioritizing themselves.
In many ways, the best thing you can do for your kids is make sure you do not become a financial stressor for them in the future.
6. And lastly, it’s probably better for your kids
I hesitate including this as one of my core reasons because it is a bit controversial.
However, in their seminal book, The Millionaire Next Door, Stanley and Darko share research that “outpatient economic care” by parents for their kids actually may result in them being less independent – financially and otherwise.
So you are actually probably doing your kids a bit of a favor…
And, while we are on the topic of kids, here are some other interesting posts regarding raising out kids to be financial healthy!
- Should I Give My Kids an Allowance?
- 3 Reasons I Will Encourage My Kids to Go Into Medicine
- Monopoly and Life: Important Lessons for Kids
- My Past & My Unhealthy Relationship with Money
What do you think? Should doctors save and invest for themselves first? Or for their kids? What do you do? Let me know in the comments below!