Physicians are some of the worst accumulators of wealth despite being high compensated. This contributes to financial strain, burn out, and diminished overall well-being. Financial freedom can seem very far away for most physicians.
How do I know this? Well, until just recently, that was me.
Now, I’ve am on the path to financial freedom and have dedicated myself to helping other physicians in similar financial straits to achieve financial well-being.
How did this gigantic turn around happen? And how can you do it? It’s my passion and mission to share that and help as many physicians to do exactly this – reach financial freedom, decrease burnout, and become better doctors!
For those who are not familiar, here’s my story.
I am a plastic surgeon in Buffalo, NY and just completed my 7 year training in plastic surgery and microsurgery in New York City as of June 2020.
Before my training, I obviously had 4 years of undergraduate school and 4 years of medical school. I paid for all of that education (except for some scholarships and work study) with loans. Every dollar. Every cent. As you can imagine, I built up a pretty nice bit of debt.
And what did I do in training? I…deferred…all…of…it.
Why in the world would I do this?
The answer is quite simple. I was financially clueless. Like most physicians, I had no idea what financial well-being or financial freedom were.
My strategy could best be summed up as sticking my head as far in the sand as I could and hoping for the best.
I knew I was messing up but was scared to see just how bad things were and was intimidated to start my financial education.
But then a funny thing happened.
I picked up a financial book for physicians and read the first chapter. I had owned the book for about a year but had just let it collect dust until now. After the first chapter, I just kept reading and learning…and reading and learning. And I haven’t stopped since.
The weird thing was that once I committed myself to my financial education and set a goal of achieving financial well-being, I wasn’t scared of my mistakes anymore. By looking them in the face, I finally had power over them and could start climbing out of the hole instead of digging it further.
I also found that my overall well-being improved along with my financial well-being. I also became a better doctor.
But if I could go back, I would do things differently
I’m firmly focused on my future. I know that I can’t change the past so there’s no point in wishing that I had handled my financial life better…or at all for that matter.
What I would like to do, however, is to look back at my missed opportunities, emphasizing what I could have done. If you are in a situation similar to what mine was, learn from me! Become one of the growing number of physicians reaching financial freedom.
Start your financial education. Look any financial faux pas in the face. Make positive changes in your life. If I can do it from the huge hole that I dug for myself, so can you!
Here are 5 steps that you and all physicians can start doing TODAY to get you on the path to financial freedom, to decreasing burn out, and to becoming a better doctor and person!
Step #1 – Start tracking your net worth to increase it
Net worth is the score card of wealth. You need to know how to keep score to play the game. So, this is a very easy first step. There are innumerable online calculators that will compute your net worth, walking you through the whole process.
If you are like me, there will likely be a sense of dread upon doing this. I was embarrassed by my mistakes and intimidated by the answers that I was going to find.
Fight through this. Confronting any mistakes gives you power to finally overcome them. And usually, the answer isn’t nearly as bad as you expected. And finally, chances are that I dug myself a deeper hole than you. If I can start digging out of my hole, so can you!
Like I said earlier, once you know your net worth, you know how to keep score. Now you can start to play the game the right way.
This is a huge first step. Do this and you are financially ahead of most of your peers. I guarantee it.
Step #2 – Create a budget (or an anti-budget!) with a 20% savings rate (no anti-savings rate though)
My wife and I like budgeting (OK, maybe that is a stretch). But we definitely tolerate it and look forward to it.
I see a budget not as a limiting thing that stops you from living your life. In fact, I see it as an empowering tool that is helping me achieve my financial goals so that I can live the life I want. This comes from adopting an abundance, rather than a scarcity, mindset with money.
With this change in mindset, my wife and I sat together one night a view months ago and created a monthly budget incorporating every dollar that we would make on a monthly basis. We first budgeted out our “needs,” such as food, healthcare, and taxes (yes, make sure you include taxes).
Next, we set aside our savings. Notice that we budgeted this before budgeting out “wants,” like entertainment and such. This is called paying yourself first. If you budget our everything but your savings, you will invariably have nothing left. It’s human nature. We tend to spend up to our budget. Break this cycle! Set a savings rate of at least 20% and then budget the rest as you see fit. You need to make sure you have enough to retire!
All of this is incorporated in our written financial plan.
(You can find my simple budgeting system with a free budget template download at this link.)
Step 3 – Increase your debt paydown
For 7 long years after I graduated medical school, I didn’t pay down a single of my loans. Uninformed people told me that loans would take care of themselves after I became an attending. I’ll burst your bubble – that is not true.
Loans don’t take care of themselves; you have to have a loan and debt plan. That’s what tales care of the loans.
Now that you’ve completed step #2 and created a budget with at least a 20% savings rate, some or all of that savings rate should go towards paying down any outstanding debt in the following order:
- Commercial debt (credit cards, etc.)
- Loans with rates >8%
- Followed by loans with rates between 3-8%
- And finally, loans with interest rates <3%
Since you’ve also completed step #1 and calculated your net worth, you know that all of your debt is in the liability column.
This means that every $1 you use to pay off your debt increase your net worth by $1. That is a 1:1 net worth increase. Nothing else, repeat nothing else, will give you that immediate return. Factor in the interest rate causing your debt to grow by the second when it’s not paid and debt paydown is the best investment you can make.
My student loan debt of >$400,000 is by far the biggest weight on my net worth. My written financial plan calls for me to pay that down aggressively.
I highly recommend that you take the same mindset
Whatever you are currently paying towards your debt, increase it. Even if it’s by $20. That’s a $20 increase in your net worth. Ordering takeout for one night won’t do that to your net worth.
Step 4 – 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.
Step 5 – Invent wealth on the margins
What do you do with your change? Be honest. Probably nothing.
Use an app like called Acorns to invest your spare change. You link your card to the account and with each purchase, it rounds to the nearest 0 and invests the extra change. For instance, buy a sandwich for $5.50. Acorns will round up to $6.00 and place the extra $0.50 in your chosen investment account. The app offers a variety of broadly diversified, low cost investment options.
Doing this for a few months has increased my net worth by more than $1000. Not a ton I grant you. But now multiply that across my life span. Add in the effect of compound interest. Now we’re talking about hundreds of thousands of dollars.
And the best part is, I noticed that I really don’t miss any of the money.
Step #6 – Increase your earnings
This seems like obvious advice and I’m sure will induce some eye-rolling from some readers.
But don’t overlook this step! Many will be tempted to overlook it because they will say, “I don’t have enough time” or “Passive income is not for me – I can’t do that.”
Those, my friend, are limiting beliefs. They are also uninformed beliefs.
There are two ways to increase your net worth. We already have spent a lot of time on one of the ways – save more money. The other way is to make more money.
That’s how wealth is created. Increase income, decreasing spending, and investing the difference.
Increasing your earnings does not mean you need to start a side hustle, however (although I recommend it).
There are a ton of ways to increase your income:
- Start a physician side gig
- Get a pay increase
- Invest in index funds
- Invest in real estate – passively or actively
- Do medical surveys
- Form a relationship with industry partners
- So, so many others!
I’ll touch on a few of these.
Start a side gig and make passive money.
Everything that you need to know is right here.
Negotiating your contract
If you are employed, this is the most obvious but overlooked way to increase your income. This is one time when you have the ball in your court and leverage on your side. Yet many physicians end up with undervalued contracts simply because they don’t ask for more.
You bring and create value for your employer, learn what your value is in financial terms and seek that value. I guarantee that your employer has taken the time to know your real value. Why shouldn’t you? Meet with your finance department to check your billings. Ask others in your field in your area what they make. If you are negotiating your first contract, ask what your mentors make.
This is allowed. I did it and no one got mad at me. They were all happy to share, they just needed to be asked (obviously in a respectful manner).
If you own a practice, evaluate your business model regularly.
Look for ways to increase net profits.
You are a business owner and should act like it. Your patients will be best cared for in an efficient practice with partners and employees that are happy and compensated to their value.
Invest in index funds or real estate
When I first started my financial education, I was still a fellow making a much lower salary than I am now.
I knew this and so I immediately opened a Roth IRA account with Vanguard before my salary changed and I would be phased out of the tax benefits of this account. I put as much savings that I knew I would not need for 20 years as I could into it. This decision has already made me about $1000 in passive income, increasing my net worth.
I recently bought my first real estate investment property. Through cash flow, equity paydown, and forced appreciation, this will increase my net worth for years and but passive money in my pocket. That’s an asset.
Start doing these things now and your net worth will increase immediately. But the biggest increase will be in the years to come.
These 6 steps for physicians will set you on the path to financial well-being, freedom, and independence
However, one-off maneuvers to increase your net worth will not get you there.
You need to formulate your strategies into a written personal finance plan that you can follow day after day, month after month. This is how you take action, set goals, and reach financial well-being.
You can do this! Get started today!
What will be your first step?! Let me know in the comments below!
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