How capable are the physicians you recruit at handling their financial affairs? Do they view income as a means for securing a safe future - or just for enjoying life now?
If you’re like most recruiters, you likely see a range, from tightwads to spend thrifts and many variations in between. What you don’t want to see are people so out-to-lunch when it comes to sound money management and decision-making that they can’t successfully navigate their new wealth.
In the annual Quality of Life issue of PracticeLink Magazine, we help physicians sharpen their money acuity by exploring six financial mistakes, with advice for avoiding them.
Mistake 1: Thinking gross, not net
To spend and save wisely, physicians need to work from realistic numbers: what they’ll have after Uncle Sam and the state take their share. They’ll learn, however, about ways to soften the hit so that they don’t experience sticker shock because their assumptions don’t match reality.
"All of a sudden, you’ve got a huge gap between what you think you can spend and what you can afford," says Michael Lovelace, M.D., of Louisville, Kentucky, Derby City Direct Primary Care. "Once you understand the real numbers, you have a good context or baseline from which to make your decisions going forward."
Mistake 2: Holding on to debt too long
Even with help from a new employer, physicians need to prioritize loan repayment - some even say over saving - particularly if the interest rates make those monthly outlays as high as any investment rates of return. As the article suggests, there are ways to lessen debt burden, from refinancing to public service loan forgiveness. Whatever the option, being proactive is being smart.
"It’s good to get in the habit of saving, but paying off debt is a form of saving," says Christopher Jones, cfp, founder and president of Sparrow Wealth Management. "If the interest rate is high enough, you’re financially better off paying the debt than investing the money."
Mistake 3: Living beyond your means
No matter how alluring new wealth can be, splurging - especially on big houses, fancy cars, and too much credit card action - can put a serious dent in what someone can squirrel away for the future. But cultivating good spending habits can turn that tide.
As Veterans Affairs internist Jacob Mathew Jr., D.O., notes: "Young physicians often look at their colleagues and see a certain quality of life that they think they should be living. But probably the biggest financial mistake that they make is to get this new money and then want that new lifestyle."
Mistake 4: Not saving
Since they’re already late to the game in terms of earning real money, there’s no time like the present for physicians to start saving, even if it’s a little bit each month. Obviously, success depends on strategy. The first step in any plan should be to enroll in and maximize contributions to an employer’s matching 401(k) plan. It has tax-deferred and other benefits.
From there, experts suggest employing a diversified investment approach that minimizes risks and maximizes rewards. Balancing those risks versus rewards is easier when one has time - and the right ally - to develop and adjust a portfolio. As Jones notes: "My favorite analogy is the tortoise and the hare. You’re the tortoise. Because you’re investing in a diversified long-term approach, you’re not going to lose money over time. There’s still volatility. But if you follow that plan, you’ll reach your goal and eventually can retire."
Mistake 5: Going it alone
Making financial decisions on their own can be a tricky, even dangerous, strategy for high-earning professionals. Since medical knowledge does not translate into financial knowledge, enlisting a tax and financial advisor is critical for weighing options objectively. That includes organizing a strategy that puts them in good stead for now and the future. "When most people do this on their own, they get caught up in the emotion of investing and they don’t have anybody to give them perspective," Jones says.
Mistake 6: Assuming your income will last forever
By choice or circumstance, physicians often change jobs or career directions. Whether their salary ends abruptly or just changes dramatically, they have a better chance of navigating shifting winds with student debt in check, good purchasing habits in hand and money in reserve. But the most important thing they can do is to find a position that fits in the first place so that they don’t lose money by changing jobs later.
Chris Hinz