Financial well-being is one of the most important yet overlooked factors in overall well-being for physicians, and really anyone else. But doctors are particularly bad at managing their personal finances and financial well-being because we:
- Hate to admit when we don’t know something
- Got into medicine to help people, not for the money
- Think of money as dirty in our profession
- Trust other “professionals” to act in our best interest and succumb to poor investments at the hands of financial advisors
(And I certainly include myself in all of the above!)
But the reality is that financial well-being and personal finance are extremely important for physicians. In fact, improving out financial well-being makes us better doctors. Trust me, I’ve lived it.
So, that was the why, here’s the how!
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. It’s why you really care about your personal finances.
Without a reason, 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.
2. Eliminate your debt
This 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.
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 An Education
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 requires minimal effort and will pay HUGE dividends.
Or read one blog post every day. I still do this in between OR cases.
My financial education has by far produced the highest return on investment for my overall personal finances.
4. Set up your defense
Larry Keller says that defense wins championships, even in personal finance. I happen to agree.
So, if you depend on your income to live, you need disability insurance.
Does someone depend on your income to live? Guess what, you need life insurance.
If you are practicing, you need malpractice insurance.
Get them. End of story. The price, especially for disability insurance is high. Pay it. To not is to set you and your loved ones up for potential financial catastrophe.
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.
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!
This is how I negotiated my contract.
6. Budget (Seriously!)
I get so much resistance from physicians in general about budgeting.
“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.
Seriously, budgeting is easy. Try using my simple budgeting system.
7. Max out your work retirement account(s) with index funds
Whether you are an employee or run your own practice, you should have retirement accounts – 401k, 457, self 401k, etc.Use them to invest passively in low cost, broadly diversified index funds.!
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!
Here’s my retirement stock portfolio as an example.
8. Contribute to a Backdoor Roth IRA every year
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.
(Quick aside to explain why I don’t do this here.)
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.
And last but certainly not least…
10. Create a written personal financial plan
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.
Your career as a physician is an incredible time
You get to 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!
What do you think? How have you jump started your personal finances? Did I miss any important steps? Comment below!
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