So, you’re a new doctor? Congratulations!
Yes, you’re officially in the twilight zone.
You’re simultaneously ecstatic about starting to practice your medical specialty and probably have a jaw-dropping employment offer in front of you. Yet, at the same time, you are overwhelmed by a sudden realization that you have to repay a crushing amount of student loan debt, you probably need to relocate, and your young family is wondering if a new home is finally an option.
Don’t worry. Take a deep breath, and we’ll walk you through a tried and tested personal finance roadmap for new doctors.
1. Start with Goals and Then Put a Plan Under Them
As of 2020, according to the annual Medscape Physician’s Compensation Report, physicians make between $243,000-$346,000 per year. At this moment, as you transition from starving medical student and resident to wealthy doctor, you might be a bit punch-drunk – like taking an uppercut from Mike Tyson.
Grab the ropes and steady yourself before you buy that first yacht. We have a few things to take care of first to position yourself for vacation homes, private jets, and deep-sea fishing expeditions.
You should have at least three primary goals (feel free to add to this list – more planning at this stage of your career is better).
- Tie up loose ends and payoff the past
- Think hard about what you need in the present
- Prepare and plan for the future to ensure it is better than you can imagine
That last bullet point is essential.
Once you have your list of goals, you need to break them down into small incremental financial habits. You can perfect your ability to control your money and make it work for you by building these purpose-driven habits.
2. Live Like a Resident, Just a Little Longer
Medical school and residency have been a long hard pauper’s journey. Finally, you are getting your financial rewards, and your salary is likely to continue to grow significantly from year-to-year as you begin practicing your medical specialty. But, you would be wise to resist immediately inflating your lifestyle to your new compensation.
There will be plenty of time for puttin’ on the ritz. Now is the time to quickly pay down and free yourself from student loan debt, save for the unexpected, and begin investing in your future.
The Physician Philosopher recommends adhering to The 10 Percent Rule.
The rule is simple, smart, and practical. Take 10% of any rise in compensation, including your first position as a practicing physician, and spend it on anything you desire. Then, take the other 90% of that raise and build wealth. At first, that will mean paying down debt, then saving and investing, and before you know it – living the life of the rich and famous.
3. You Can Still Own a Home
Part of that building wealth and investing equation is owning a home.
According to the US Census Bureau, homeowners’ net worth is 80 times larger than those of renters’ median worth.
As a new doctor, with a mountain of student loan debt and minimal cash reserves, owning a home might feel unattainable. Luckily, select lenders like Homefinity understand young doctors’ unique financial circumstances.
We have solved new doctors’ challenges with conventional mortgage loans with our exclusive physician loan.
4. Do a Backward Budget
The Backward Budget is another smart idea from The Physician Philosopher.
A traditional budgeting process starts with your monthly income, subtracts all of your expenses, and then you see what’s leftover for savings and investing.
In contrast, a backward budget starts with the idea of paying your future self first. You determine (and ideally set up automatic payments for) what you will pay down on student loans (and other debt), add to savings, and fund your retirement accounts.
Then you see what you have left to spend on your lifestyle.
5. Pay our Future Self First and Get Rid of Financial Risk
I touched on this in the backward budget, but this concept of paying and securing your future self can be incredibly compelling. To build and ensure your future wealth and comfortable living, you want first to tackle these four common obstacles to financial freedom.
- Aggressively pay down your student loan and other personal loan debt(s)
- Build an emergency savings fund
- Begin investing
- Start building your wealth with homeownership. Take advantage of exclusive physician loans that allow you to buy a home sooner than later.
6. Consult Financial Professionals Early
You spent a decade or so becoming an expert at practicing medicine.
No one expects you to have the same level of knowledge and expertise in financial planning, insurance, and estate and tax planning. However, your net worth and profession require you to have an experienced team of professionals to maximize your financial success and protect you from the many pitfalls and risks of being wealthy.
Here are some of the professionals that you should find and retain:
- Tax Advisor and a Certified Public Accountant (CPA)
- Certified Financial Planner (CFP) or Registered Investment Advisor (RIA)
- Licensed Insurance Professional
- Mortgage Professional
These professionals will essentially become your financial advisory board to manage every aspect of your wealth management plan.
7. Keep Budgeting
Even after you have paid down all of your student loans and other debt, keep budgeting.
Once you begin experiencing financial freedom, continue to leverage and hone your disciplined financial planning skills. Continue building wealth for yourself, your family, and the community you serve.
8. Don’t Just Save, Start Investing Early
Often people think that they have to pay off debt sequentially, then save, and then invest. Most people, especially high-compensated doctors, can tackle all three of these financial goals at once with a little discipline.
Achieve a minimal emergency cushion in savings and quickly begin to grow your pie with some investment allocation.
9. Get Adequately Insured
The unexpected can happen to anyone, even doctors.
Ensure that you and your family are protected against a variety of risks that could quickly reduce or eliminate your earning potential.
Here are a few areas that you should consider:
- Disability Insurance – to protect your ability to earn
- Term Life Insurance – to protect your assets and family
- Medical Malpractice Insurance – to protect yourself from legal liability
- Homeowners Insurance – to protect your home and personal belongings
10. Learn About Taxes
As the saying goes, “there two things you can never avoid – death and taxes.”
Unfortunately, too many doctors don’t pay enough attention to their practice group or network’s tax structure when hired or begin their independent practice.
Consult your tax advisor or CPA, but I will get you started with a couple of essential questions:
- Are you a W-2 or 1099 employee or self-employed?
- If you are 1099 or self-employed, do you know about quarterly estimated taxes?
No one wants to be surprised with a massive back taxes bill from the IRS.
Bonus Tip: Estate Planning
I’m confident that you will be a successful and wealthy doctor.
Based on that assumption, begin planning now for your legacy. Develop a plan that provides a smooth and hassle-free transition of your assets to your future generations, consistent with your wishes.
As a doctor, you have put in the hard work to become an expert. That expertise will enrich thousands of people’s lives as your practice your medical specialty.
So, take a little time to reward yourself with the fruits of that hard work – create a successful financial roadmap for the future of yourself and your family.