A Physician-Financial Advisor's Sage Advice
Updated: May 7, 2019
I’m David Bright, M.D., a financial advisor for Gold Medal Waters and a practicing physician. For 25 years as a primary care physician in a small city, I have been involved with the life stories of many long-term patients as well as those of my physician colleagues. Most have led happy successful, prosperous lives, although some have been less fortunate.
I have learned a great deal from my fellow physicians (and from my patients, too) but sadly, I have seen too many doctors make unwise decisions that deeply affect their health, personal relationships or their financial well-being.
One of the main reasons I got into financial planning was to help physicians avoid the bad financial decisions, and some of the personal ones, I had seen so many of my colleagues make. This motivated me to create this list of things that I believe are important to achieving and maintaining good financial and personal health. I hope this saves you from some painful experiences and motivates you to develop a more holistic approach to your personal and financial well being.
Part 1: It's Not Just About the Money
Your personal wellbeing is not just about your net worth. Not all financial planners emphasize this to their clients. I hope the following tips help you achieve personal and financial freedom, whether you are a physician or are following another path.
Part 1 offers advice for your personal health and happiness; Part 2 focuses more directly on making good financial decisions.
1. Take great care of yourself.
I know from personal experience that being a physician can be stressful. Whatever you do for a living, don’t let yourself get burned out. Enjoy life. Learn how to play and how to relax. I also urge you to learn how to meditate.
Get some form of exercise, recreation, and stress reduction, every day. Even if it’s just for a few minutes. You’ll be more efficient and effective by making this a daily habit.
Recharge your batteries. Do something with your off-duty days and take vacations periodically throughout the year. “We all need to take breaks to avoid breakdowns.”
Stay physically and emotionally healthy. Eat well, get enough sleep, and as noted above, take time for both exercise and relaxation (I feel grouchy whenever I forget these maxims). I know it can be challenging and that you’re pressed for time, but remember Nike’s slogan, “Just Do It!” Be a role model and practice what you preach.
2. Invest in and nurture your working and personal relationships.
Human beings are wired for social connection and interaction. Developing your social skills is an integral part of wellbeing and profoundly influences our personal and professional lives. Learn about and work on developing your Emotional Intelligence – it’s a major predictor of happiness and success in life.
Love, marriage and family relationships matter. Physicians are busy professionals and we are too often guilty of neglecting our families. Big mistake! Work is important, but personal relationships should be a top priority. Investing time and effort in your marriage/partnership and your family is smart, not just emotionally but also financially. Neglect this aspect of your life and you'll increase the probability of separation and divorce, and emotionally damaging your children.
Seek professional counseling if you think you might need it. Don’t wait until your relationship is falling apart; be proactive! Doctors seek help for physical ailments that don’t get better on their own; emotional difficulties can also be addressed with help from a professional.
3. Become a master of habits.
To a large extent, you are the sum of your habits. Learn important lifestyle habits and skills. Develop excellent personal habits and work to shed the ones that don’t serve you well. Try to pick up at least one positive habit and remove one negative habit every year. If saving regularly is not already one of your good habits, put it at the top of your list.
Here's a gem of a resource for learning about habits: "The Power of Habit," by Charles Duhigg (think trigger, behavior, reward).
4. Be a lifetime learner.
Be a super-learner throughout your life.
Take a class or attend a lecture. Read a non-fiction book every month.
Learn about your personality type and what that reveals about you. Enneagram is a fascinating place to start. It’s more fun than the Myers-Briggs (trust me on this one)!
Are you a procrastinator? Check out this entertaining and amazing TED Talk, “Inside the Mind of a Master Procrastinator” by Tim Urban, and learn about the three colorful characters (IGM, RM, and PM) that dominate your neocortex. Being a procrastinator when it comes to saving and investing can have devastating consequences (more on this below).
Part 2: Nurture Your Financial Health
Living in idealistic (and idyllic) Boulder, Colorado, I often meet doctors who put a great deal of effort into their personal well-being and to social causes but neglect their financial well-being. Failure to accumulate a comfortable retirement nest egg while you are working can lead to many problems, including a great deal of stress, which is harmful to your physical health, later in life.
Start saving for retirement starting early in your working life, even if you can only save a small amount every month. Otherwise, you may have to work many years longer than you expected to be able to cover even basic expenses (to learn more, check out this AARP retirement calculator).
Achieving financial freedom gives you more personal freedom. I hope these tips help you to achieve the financial goals you have for your future.
5. Become a supersaver.
Developing healthy financial habits is a life skill that pays you back throughout your life. Getting into the habit of regular saving is a perfect starting place.
If you can consistently save about 10% of your income, earning a return on your investments based on long-term historical averages, you have a decent chance of being able to retire comfortably after working for about 30 years. If you can consistently save 20% of your income (earning the same returns), the number of years you’ll need to work before retiring decreases to about 22 years. The more you save, the more your "future self" will thank your "present self."
The sooner you start saving, the sooner you’ll be able to afford to retire and maintain the lifestyle that is important to you and your family. That might not seem important when you are in your 20s, 30s or 40s, but trust me – by the time you hit 50 (remember to take care of your physical health so you’ll be in good shape at 50!), you’ll understand.
The savings you accumulate throughout your working life are the seeds you will be planting for the harvest that will support you in retirement. Remember, based on today’s life expectancies, your retirement could last 20 year or more! The combination of wise investing and the magic of compounding will make your financial retirement garden grow.
6. Be fruitfully frugal.
Live within your means, but don’t be a martyr! “Frugality”, defined as “the quality of being economical with money or food,” comes from 16th century Latin: frugalis, meaning ‘thrifty,’ which comes from frug - ‘fruit.’ Being frugal is a habit that will bear fruit.
Being frugal, rather than buying things to keep up with the latest trends, has recently become relevant and cool. Avoid carrying a balance on your credit cards – it’s no fun having debt hanging over you.
Remember, income rises as your career progresses. If you are just starting out in your residency, know that over time, if you are reasonably frugal, you will be able to afford nicer housing, more expensive vacations, perhaps a newer car, etc. Enjoy those things as your income rises as long as you can afford them without going into debt. But don’t get carried away. As you earn more, pay off any debt you may have (especially high interest debt), and crank up the savings and investing motor. Avoid the temptation to indulge in extravagant spending.
On the other hand, don’t let ‘painful or obsessive frugality’ shortchange your life while you’re living it. Strike a reasonable balance. Develop "fruitful frugality." Of course, if you are married (or in a committed relationship), you’ll need to collaborate with your partner to develop a philosophy and practice regarding how to live frugally.
For further reading...
Google the phrase "on becoming frugal” and you’ll find there are hundreds of resources on frugal living. One of the originals is the book, Your Money or Your Life.
I’m a fan of these as well.
7. Select shelter wisely.
I advise new doctors to start out by renting, rather than buying a house, unless you plan to stay in the same area after your residency and the financial opportunity stars are aligned in your favor.
Remember, “everything you own, owns you!” Buying a house entails a significant financial obligation (mortgage, property taxes, homeowner’s insurance), regular maintenance costs and frequent unexpected expenses (plumbing problems, roof repair, etc.). This usually requires taking on significant debt at a time when you’re usually working long hours, your income is modest and you probably have student loan debt to pay off.
Once you’ve settled in an area where you plan to stay for many years, with stable income that you expect will grow over time, owning your house is generally a wise investment (and sometimes provides a good tax deduction). Read about ways to finance a home purchase here: Physician Mortgage Loans
8. Insure yourself against disability risk.
While we don’t like to think about it, any one of us might become disabled, perhaps long before we are elderly and retired. Over 51 million Americans are classified as disabled, and most disabilities (over 90%) are not work-related. If you are disabled and cannot work, your current and future income will suffer, probably dramatically. You may not be able to maintain your current lifestyle and your retirement nest egg may not be able to grow as you had planned. Given the serious implications if you become disabled, I recommend you buy disability insurance.
Make sure you choose a reputable and financially stable insurance company with an “own occupation” disability definition, where you define your “occupation” as your medical specialty. This is a complex subject, so here is a good resource from Gold Medal Waters on disability insurance for doctors.
9. Revisit your debt.
There are several avenues for refinancing any existing debt you have, such as Splash Financial that could save you a significant amount of money. If interest rates are low, refinancing could save you thousands of dollars. Here’s an excellent article on medical student loan forgiveness and repayment options.
Pay off debts as soon as you can. Generally speaking, you want to prioritize paying off debts with the highest interest rates first. A useful way to think about debt is comparing the interest rate you are paying to what you can earn on a risk-free investment. For example, if you are paying 6% interest on a loan, by reducing or eliminating that debt you are “earning” a 6% return, after taxes. That’s a lot easier than trying to find an investment that gives you a 6%, risk-free, after-tax return in today’s market (hint: it doesn’t exist).
However, do be sensitive to your cash flow needs. Make sure you have enough money to pay for a reasonable standard of living, although cutting back on some expenses is not a bad idea (bring your lunch instead of buying it every day; cut back on those expensive lattes and cappuccinos).
If you are a resident or are still in the early years of your practice, here are a few ways your family may be able to help you save money by paying off high-interest debt…
An intra family loan: If you have family members who are financially well off, you might consider a low-interest family loan to pay off your high-interest debt. The interest rate on this loan can be set lower than the rate on your student loan, but higher than what your relative could earn on a bank CD, making the arrangement attractive for both of you. Create a formal loan document, perhaps with assistance from your family attorney. It can be simple, but put it in writing.
An outright gift: If your parents are financially comfortable or perhaps wealthy, with retirement savings that are more than sufficient to meet their own needs, another option might be for them to give you an outright gift while your income is low. Think of it as an advance on your expected inheritance. Just be sure that your parents are comfortable with this arrangement and can easily afford to offer this gift.
10. Reach for a Roth.
Remember the adage about how death and taxes are the only two certainties in life? It’s true, but strategizing how and when you contribute to your retirement accounts can make a big financial difference in minimizing your taxes, and enjoying life before that other certainty arrives.
Assume you’re finally earning some income, perhaps as an intern, resident or fellow. It isn’t a lot, you’re young and in a relatively low income tax bracket. Once you start practice your income will increase, and so will your income tax bracket. How can you save for retirement in a way that will minimize your taxes? You have a few choices:
Traditional IRA – Your contributions are tax deductible, reducing your taxable income when figuring your federal and state taxes in the year you make the contributions. You also pay no taxes on the investment returns earned in your IRA until you begin withdrawing money (no sooner than age 59 ½, no later than age 70 ½). However, traditional IRA withdrawals in retirement are taxed at ordinary income tax rates. If you expect to be in a high tax bracket when you retire, this may not be your best option.
Roth IRAs – Your contributions are not tax-deductible in the year they are made, but all subsequent earnings and withdrawals are generally tax-free. Roth IRAs make a lot of sense if you expect your tax rate to be higher during retirement than your current income tax rate. The lower income years of residency are perfect years to build up your Roth IRA. You will benefit from decades of tax-free, compounded growth and you might even leave assets to your heirs tax-free (I know, that’s thinking way into the future!).
When considering whether to contribute to a Roth IRA, foregoing a current tax deduction, ask yourself whether you believe federal and state taxes are likely to increase or decrease in the future. My personal view is that our country has a tremendous federal deficit that will need to be paid by present and future generations. I’m betting that tax rates are going up, not down, in future decades.
The only hitch is finding the cash to fund your Roth. The irony is that as a resident/fellow you are often strapped for money. Still, you should contribute the maximum amount allowed, if possible. Again, one option might be to work out an intra family loan or gift from your parents, or perhaps as an early contribution on your inheritance as described above. Don’t consider this unless it is a win/win proposition for all involved.
Note that when you’re earning the “bigger bucks” you may not be eligible to contribute to a Roth, or you may prefer to contribute to a traditional IRA or 401(k) retirement account, taking a tax deduction in your high income years. Much later on, when you are in retirement, it can be strategic to have the flexibility of owning both a Roth account and traditional retirement accounts.
Conclusion and Additional Resources
So there you have it – 10 practical pieces of advice from an experienced physician and financial advisor. I hope these things that I have learned will help you to lead a healthy, successful life, both personally and financially.
Remember, achieving a financially healthy life takes knowledge and planning. We wouldn’t expect patients to treat themselves without medical advice from experts, and the same applies to the world of financial planning and investing. To speak with one of our great financial planners, contact us here.
May all of you enjoy a great life. You deserve it!
Gold Medal Waters is a fee only financial planner located in Boulder, Colorado that specializes in serving the unique needs of physicians and high net worth clients. Coordinating a great financial plan isn’t easy. Learn more about what sets us apart, or talk to an advisor and get a free meeting to see if we are the right firm for you.