FINANCIAL WELLNESS: A 5-PART SERIES ON MANAGING MONEY WISELY
Top Ten Financial Mistakes For New Attendings James M. Dahle, MD FACEP FAAEM
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he first year out of training is the most important financial year of your life. Get it right and you are likely to build massive sums of wealth that will provide you financial security, the ability to help others, and career opportunities you can now only dream of. Get it wrong and it will feel as though you are spinning your wheels as you slowly burn out on your career. Today we will consider the top ten ways that doctors get it wrong.
# 1 No Plan If you fail to plan, you plan to fail. The default option for most physicians is not pretty. Without any sort of check on it, most people will spend all of their income and then some, leaving nothing to use for building wealth. Ideally, every graduating resident would already have a written financial plan for their first 12 paychecks. They will have already decided how much to save for retirement, how much to put toward their student loans, and how much to put toward a house or other short-term goal.
# 2 Inadequate Savings Rate The typical attending physician should be saving 20% of gross income for retirement, with any amounts for other goals such as paying off a mortgage, saving for college, or that new shiny Tesla in addition to that. However, the new attending is in a unique position that he or she will never be in again. This doctor is used to living on an income of $5060,000 per year and making $200,000, $300,000, or even $400,000 per year. The difference between those two figures can be used to jumpstart any wealth building plan. Consider how quickly new doctors could pay off debts and build wealth if they were willing to live the same lifestyle they had as a resident for just a few years. Even after paying the additional tax burden, a doctor making $300,000 and only spending $50,000 a year would have something in the neighborhood of $175,000 per year to use to build wealth. Even $400,000 in student loans won’t last long against that onslaught. Live like a resident for two to four years after residency and you will solve almost every future financial problem you could ever have.
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monthly payments required to qualify for tax-free forgiveness of the remainder of those loans. If you are not working for a non-profit, refinance your student loans. It is not unusual for a doctor with 7% federal student loans to refinance to 3%. On a $300,000 loan, that is an extra $12,000 per year that can go toward principal instead of interest.
“IF YOU FAIL TO PLAN, YOU PLAN TO FAIL.”
# 4 Inadequate Insurance There are some risks that you cannot self-insure against no matter how well you save, at least for a few more years. Buy insurance for these risks including disability, death, loss of valuable property, health, and both personal (umbrella) and professional (malpractice) liability. If your malpractice policy is claims-made instead of occurrence, know what the plan is for paying the tail when you break up with your employer. Insure well against financial catastrophes. That usually means a five figure benefit for disability insurance and seven figures worth of term life and liability insurance.
# 3 Wrong Student Loan Plan
# 5 Failed to Invest
While this is arguably more important for residents to get right than attendings, it can still result in the waste of tens of thousands of dollars of income. If you are employed full-time by a 501(c)3 (non-profit), enroll your federal student loans in the Public Service Loan Forgiveness plan by making payments under an Income Driven Repayment program. The earlier in your training that you do this, the sooner you will reach the 120
Some people save just fine, but fail to actually put the money into any sort of investment. They may find they have half a million dollars or more just sitting in their checking account. Meanwhile, they have missed out on thousands of dollars in tax savings and compound interest that could have been theirs if not for their paralysis due to fear of loss or unwillingness to put time into developing an investing plan.
COMMON SENSE MAY/JUNE 2022
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