Successful financial goals don’t just fall into your lap. They’re the result of planning and acting on strategic steps that lead you to where you want to be. As with any goal, these will take time to achieve, but exactly how long that is depends on the planning strategy you use.
As a physician, you’re already starting out ahead of the average person. Even if you took out student loans to get through med school, you still have the opportunity to obtain high-income jobs and work independently to earn side money as you need it. (Not sure how to do this? Check out this article on moonlighting during your residency and beyond by Physician Thrive.)
How you spend the money you’ll bring in can determine the course of your future. By learning and implementing these four crucial financial planning strategies, your physician income can lead you to a very comfortable lifestyle and retirement.
1. Debt Repayment
When you owe money to a company that charges interest, like your student loans and credit cards, you are essentially throwing away money. Interest is accrued on the balance, so you’re not just paying off the debt, you’re adding thousands of dollars a year (or more) to their pockets instead of yours.
Before you start adding money to your savings account or planning for retirement, take those extra funds and put them towards any interest-bearing debt. The quicker you pay down your principal, the lower the interest becomes, and the easier it is to pay off the balance.
Start with either your lowest balances or the bills with the highest interest. As you pay off one, take that amount and apply it to the next on your list. When those debts are paid, you can start working on your emergency fund and retirement plans.
2. Pay Yourself
Yes, you want to get rid of debt as soon as possible. However, you also have a life outside of your career, and you’ll need to cover those expenses with a regular paycheck — within reason.
If you go from barely scraping by in school to earning a decent paycheck, it’s tempting to immediately start changing your lifestyle to match your new earnings. However, that higher standard of living should come down the road after you’ve prioritized your goals.
Right now, you’re used to living on minimum funds. Out of your paycheck, set aside a portion of that amount to live on, including your rent/mortgage, other monthly essentials, and funds to allocate toward your short-term goals. Experian’s 50-30-20 rule may be helpful to get you started.
There’s a fine line to walk between living like a broke med school student and living outside of your means. As a doctor, you’ll be eligible for many mortgages, credit cards, and loans that the typical career person can’t obtain. Stick to living within a budget and avoid taking on more debt. This is done with a paycheck-to-paycheck lifestyle until your debt is gone.
3. Choose the Right Investments
Once you’re on stable financial ground monthly, it’s time to start investing in your future. How can you grow your career and assets in ways that will allow you to earn even more money, either actively or passively?
There are two main categories of investments to consider here: investing in your education and skills and investing in a portfolio.
As a physician, you already have highly marketable knowledge and experience. Yet, if you continue to add to those traits by earning more certifications, you can charge more for your services, add more modalities that you can bill for, and expand your practice. In those circumstances, it’s wise to invest in your education because it will bring in exponentially more income.
You can also invest in a portfolio of stocks, bonds, and other market assets. Talk to a financial planner about your preferred risk level and the ideal type of investment for that risk.
4. Plan Your Life Insurance Now
Doctors pay hefty premiums for malpractice insurance. Between that vital coverage and your other must-haves, like health and liability, it’s easy to convince yourself to skip investing in other premiums that don’t sound as important.
But life insurance coverage is essential, as well. The earlier you begin protecting your assets with this kind of policy, whether term or whole, the less expensive it tends to be.
For instance, whole life insurance often gives you a lifetime rate based on your age and health at the time you take out the policy. It’s also an asset, not an expense, because, over time, you can draw from the monthly premiums you pay. So, if you need emergency funds in ten years for an unexpected life event, you can pull from the whole life insurance policy.
On the other hand, term life is cheaper but remains an expense and never becomes an asset. If you plan now, though, you may qualify for a term life policy with partially refundable premiums (you get refunded at the end of the policy because you didn’t use the coverage).
Life insurance is one of “those things” that most of us only appreciate the value of as we get older. Yet, it’s more expensive to take out a policy later in life. Smart financial planning strategies include setting aside a smaller amount now to invest in life insurance for a better future down the road.
Conclusion
Financial success starts with a plan. Use these four strategies to make your future comfortable and enjoyable, no matter what your physician’s income is today.
