One of the most read posts of mine is a guide to Ten Finance Moves You Need to Make as a Resident. I think this post particularly resonated because so many trainees think that nothing they do as a resident will change their financial situation for the better or help lead them to financial freedom. That is the way that I thought, but it is simply not true. Which is why I created that guide to help others where I failed.
However, while making these financial moves as a resident will really move the needle in your financial journey, the truth is that there is a much more critical period. Your financial future and ability to achieve financial freedom on your terms is so hugely dependent on this critical period. You can even make up for prior errors by doing the right things in this period. Unfortunately, on the flip side, you can also really mess up prior financial gains during this period.
This critical period is the first 1 to 5 to even 10 years after graduating training when you are a young attending.
If you tell me what you did with your first paycheck or what you will do with your next paycheck, I bet I could predict with really good accuracy whether you are a Prolific Achiever of Wealth or an Under Achiever of Wealth (to borrow from The Millionaire Next Door).
This also happens to be the exact window of my current life/career
I am very grateful that I came to my financial education right as I was ending training. As you know, I made (approximately) one tonne of financial mistakes prior to this as detailed here. I am still working very hard to right these mistakes.
This will be a quick hitting guide with a bunch of links to resources to successfully take each step and find yourself on the way to financial freedom!
Again, I am not an expert but I do know my stuff. And I personally haven taken each of the steps that I will present to you in creating my path to financial well-being!
So let’s start!
The 10 Steps to Financial Freedom for Young Attending Physicians
1. Build your “why”
I put this first because it really is the most important step.
It’s the reason why you want to achieve financial freedom and financial well-being.
If there is no reason, then it will feel pointless when and if you get there. Any roadblock in the way will feel insurmountable. Your why is there to pull you through the hard times when you need it.
My why is that I want to gain financial well-being to enhance my overall well-being, to spend more time with my family and friends, and to pursue my passion on my own terms.
What is yours?
I believe this is the first point I make in the resident’s guide to finances. And it’s the second point here. So, I obviously think this is really important.
That’s because this really is the first step to financial freedom. You need to stop taking on new debt and get rid of any and all debt you have. Look, when you are in a hole the first step is to stop digging. Then start climbing out. You can’t run until you get out of the hole. So this is step numero uno. Each $1 you use to pay off debt is $1 that your net worth increases.
That’s what I am doing now. Every month, I throw huge sums of money at my debt.
3. Get Edumacated
I’m not saying you need to become obsessed with personal finances. In fact, you will find that after you start your education, you will actually think about finances less (unless you’re like me and really love it!).
So, pick one of my recommended books and start reading 10 pages a day. And then try to read just one financial book each year. It’s minimal effort and will pay HUGE dividends.
If you are not a book fan or want to get up to financial speed faster, I recommend these courses by The White Coat Investor and The Physician Philosopher. I have personally taken these courses and they are very well worth the money. If you are interested, email me at [email protected] and I am happy to share my experiences in more detail.
4. Protect ya neck (first one to name the rap group in the comments below gets some props)
If you depend on your income to live (i.e. you are not financially independent), you need disability insurance.
Does someone depends on your income to live (i.e. spouse, kids)? Guess what, you need life insurance.
If you are practicing, you need malpractice insurance.
Get them. End of story. To not is to set you and your loved ones up for potential financial catastrophe.
Need help? Check out my recommended page. I have personally worked with and/or extensively vetted the independent agents on this list.
5. Optimize your contract (current or new)
Fair or not, contract negotiation is the time when you set the foundation for what you will make and how you will make it.
There is usually some wiggle room within the contract to make more or less over time. However, you largely set the scale of your physician income (and the lifestyle you will need to adapt to achieve this income) as soon as you sign on the dotted line.
So, if you are negotiating your first contract, take the time to make it as favorable as possible.
If you already have a contract, do through it and see what you would change if you could. See how close you are to renewal time. Set a strategy in place to make the next contract that best that it can be!
6. Budget (Nike style – Just Do It)
I get so much resistance from physicians in general about budgeting. But I get even more resistance from young, new attendings about budgeting.
“I sacrificed so much to get here and now I don’t want to”
“I just can’t do it, it’s too tedious”
“But I make so much money, why should I budget?”
Let’s get real. It’s because you have so much money that you need to budget. When I lived in NYC as a trainee and 66% of my income was going to rent and daycare, I didn’t really need to formally budget. I would just run out of money. There’s your budget.
But now that I my salary increased like 800%, it’s super easy to blow money on stupid stuff and compromise my future financial freedom.
7. Max out your work retirement account(s) with index funds
Please notice that this step is not called “max out your retirement account(s).” This is because the last 3 words are important.
But, let’s start at the beginning. Whether you are an employee or run your own practice, you should have retirement accounts – 401k, 457, self 401k, etc. Use them!
Most employers will match a certain amount of money that you put in these accounts. To not take advantage of this is to literally leave money on the table!
If you feel like you don’t have enough money to max out these accounts, you have a spending problem. Point blank, simple. Go back to step 6 and figure out your budget so that you can max out these accounts.
In the beginning of your career, how much you save has WAY more of an impact than the return you get on your savings. So that’s part 1.
Part 2 is to maximize these work retirement accounts using the right investments. It’s simple, use low cost, broadly diversified index funds. Refresher here on why doing anything else is a fool’s game. Don’t give away your money to unnecessary fees and taxes, pick index funds and relax.
Here’s my retirement stock portfolio as an example.
8. Contribute to a Backdoor Roth IRA every year
Ok, I guess I told a fib up above because I actually haven’t done this step yet. But there is a good reason. More on that in a second.
Here’s why this is a necessary step for you as a young attending physician.
An IRA is an Individual Retirement Account, basically a retirement account set up by you, for you. There are 2 varieties, a traditional and a Roth IRA (refresher here). The only thing is that to take advantage of the tax benefits (tax deferred and tax free growth, respectively), you have to have an income less than $124,000 as a single tax filer. Just about all physicians will be higher than this.
But, there is a legal loophole. You can contribute $6,000 annually to a traditional IRA and then immediately transfer it to a Roth IRA. Yes, you will be taxed on the front end, but you won’t be taxed on the back end. So you get tax free growth.
You can also open a spousal backdoor Roth IRA and contribute another $6000/year for your spouse if married.
Do this every year. If you start early this will become a HUGE amount due to tax free compounding growth. If you can’t save $6000 a year to contribute, you have a spending problem.
Ok, quick aside to explain why I don’t do it.
My written plan calls for 1/3 of my 41% savings rate to real estate investing. Thus, the $12,000 (and much more) that would go to the double backdoor Roth for me and Selenid is in our real estate portfolio of cash flowing rentals. More on this right below.
9. Invest in real estate (it’s really not that hard)
I write so much about real estate investing because I truly believe it is a wealth accelerant and physicians are uniquely positioned to take advantage of it.
You will think that it is not for you. That it’s too complicated or requires too much time.
I had these limiting beliefs four months ago. And now Selenid and I own our first rental property which is leased out, puts money in our pocket every month, and has appreciated >$100,000 via forced appreciation.
Read a real estate book from my recommended list. Check out this awesome course on automating real estate investments. Join a group in person or on Facebook. E-mail me at [email protected] to schedule a free introductory coaching session. Just get started and the rest will take care of itself.
And last but certainly not least…
10. Create a written personal financial plan
I love contributing on different online forums and Facebook groups, hoping to help others in situations similar to mine. I even started my own Facebook group recently, Prudent Physicians & Professionals with The Prudent Plastic Surgeon, if you would like to join!
Sometimes though I feel like a broken record. Someone will ask how they should adjust their asset allocation, or should they invest more in real estate or stocks, or some other similar question.
The reality is that I never have these questions. Why? Because I have a written plan! So that is how I answer these question online, by asking what their plan says to do!
I hear people at work asking how they should use their bonuses. Should they save towards a down payment or invest or buy something else? I know exactly where my bonus is going. It goes to our real estate investing fund because that’s what the plan says. It takes all emotion and stress out of it.
The process of actually writing a plan can seem daunting. But start simple and add to it as your financial acumen grows.
Use my actual plan as a guide! Just copy down each section and tailor it to your situation.
The early part of your career as a physician is an incredible time
You get to finally practice independently and help patients even more directly. Maybe you’re moving to a new, exciting city or back home. Your salary increases. Your hard work is paying off.
There is so much to be grateful for and to enjoy. And by all means, you should enjoy it!
However, also remember that this is your critical window to set yourself up for financial success and well-being.
Luckily, these two goals, enjoyment and financial freedom, are not mutually exclusive!
Looking for more?
What do you think? What did you do with your first paycheck? How about what will you do with your next pay check? Are you on the road to financial freedom? Let me know in the comments below!