Head to Toe


Achievements and Pitfalls for Medical Professionals

This week we enter 2019 and a common resolution is to get your finances in order and take more control of your financial well-being.  While this is obviously a noble goal and one I wholeheartedly endorse (I’m a little biased…) I wanted to take some time to talk about avoiding negative actions.  Financial planning is certainly about maximizing what you have, but also about avoiding common pitfalls so that you can reach your financial goals. This post will focus primarily on major achievements you’ll hit throughout your career in medicine and how if you’re not careful they can easily turn into detriments to your finances.  Without further ado, let’s start with going broke.

Getting to Broke

For most people, getting to broke is usually the worst possible scenario but for most medical professionals it’s something to be celebrated.  Doctors and dentists typically leave school with over 200k in student debts, with nurses and other providers incurring less but still substantial debts.  When you’re starting out that far in the red, getting to broke is a major accomplishment and a huge cause for joy. Now that we’ve identified the big accomplishment of going broke, what’s the common pitfall?

Unfortunately, too many young medical professionals associate income with wealth and are eager to enjoy the higher salary that comes with being in that field.  This leads them to spending more than they need to so that they can take advantage of the increased income. What they don’t always realize is that income isn’t wealth.  Once you get back to broke, it’s time to shift how you perceive your financial wellness. Instead of using your salary to dictate how much you can spend, you should be using your net worth calculations that more accurately shows wealth.  Having to do an extra step and have that step include math makes it something that people either don’t want to do or overlook, but your net worth is what determines wealth and how financially secure you’ve become.  I know that you’ve suffered through residency and having to live on very little, so it seems a shame to not go a little overboard when your brand new salary comes rolling in but living by net worth could mean retiring when you want as opposed to always celebrating being broke.  

Poor Investments

When that Attending or Nurse Practitioner income starts rolling in, it can be one of the greatest boons to your lifestyle.  One of the benefits of the higher income that comes with the medical profession is that it allows for greater flexibility in investments.  You’ll be able to take some risks that those without that level of income couldn’t afford and reap the benefits of those opportunities. This is a great place to be, being able to judge opportunities without necessarily worrying that if the investment goes south you’ll be bankrupt.  This is quite the accomplishment and something to be proud of, but pride comes before the fall as they say.

The higher income that comes with the medical profession can lead you to ignore some of the sound investment advice in favor of riskier opportunities.  There can be a feeling of “this investment won’t ruin me, so I’m not too worried about losing money on it” which is nice, but not great if you’re ignoring basic investment advice.  This is especially relevant now as we’ve just come off of a 10 year bull market where investments did amazingly well. However, now that markets are declining, those risky and poor investments will certainly come back to bite you and bite you hard.  By investing in one company or focusing on one industry, you open yourself up to a great reduction in wealth. By diversifying not just by market segment but also globally you are able to weather the market slides that are occurring. Just because you’ve got a great income doesn’t mean that the basic rules of investing no longer apply or make sense.  A good rule of of thumb is that you should at least understand the investments you’re thinking about, as blindly picking an option or trading on margin can be a huge blow to your finances. As we talked about previously, income isn’t wealth, so make sure you’re aware of your net worth and invest accordingly.

A Place to Call Home

Congratulations!  You’ve made it through medical/nursing/dental/chiropractic school and you’re starting to make some real money so now it’s time to put down some roots and buy a house (unless you’re a resident, don’t buy a house as a resident).  Nothing makes you feel more like you’ve made it as an adult as buying a house, and it’s still a big part of the so called American Dream.  Plus, you’ve gotten a great job straight out of residency in a big city with a high income, it’s time to put that to use and stop living in cramped apartments.  Not only that, but houses are great investments you’ve heard and once you get them renovated and looking great you’ve just earned yourself some future income. Unfortunately, this can lead to one of the most prevalent mistakes that those with high incomes make (aside from living according to salary and not net worth) so let’s take a look at the pitfall that comes with the accomplishment of buying and renovating a house.

The big pitfall that comes with this accomplishment is that you’ve now bought a house and potentially spent a large amount of on renovations.  Hopefully you didn’t buy a house in residency as that’s tough enough overcome in life as it is, but regardless it can be a risky proposition. To be clear, I’m not advocating never buying a house or improving it but this decision requires a lot of planning and forethought.  While driving a fancier car than you need is the leading cause of incurring more debt that necessary it likely isn’t a large enough expense to bankrupt a doctor. A house certainly can be. This is especially true if you’re in a large city as the cost of living is proportionally higher and taking on that much in expenses can ruin an otherwise successful career.  I would suggest you wait especially if you’re just starting your career as buying a house and then moving shortly after for a new job can be largely detrimental to your long term financial health.

However, a big point to remember is not only are houses expensive, but so are renovations.   Many people see houses as investments that they can sell at a later date to make money, and renovations are simply ways to increase the amount of money you get when sold.  The best renovations which are typically the kitchen and bathroom return only 80% of their cost, and many renovations return no extra income such as a roof. Others, like a pool, can harm the sale price in some instances.  While owning property is still seen as an investment, the truth of the matter is that for the most part houses are consumption items, so be very careful as how to you approach home buying. This makes it seem like I’m against you ever buying a house which isn’t true, I just want you to be careful and not dig yourself into a hole that takes many years to recover from.  

Hopefully this list gives you some accomplishments to look forward to and some pitfalls to be wary of as you move through your career in the medical field.  If you’ve reached some of these milestones or even fallen into some of these pitfalls, I’d love to chat with you to see how we can maximize what you have or get you back on the right path to being successful.  Send me a message and we’ll set up a time to chat about your specific situation.  

financial planning for doctors