Personal Finance

$/Personal Finance for Physicians during the

Ravi Ghanta, MD, PSG President COVID-19 Pandemic

@RAVIGHANTA5

The COVID-19 pandemic has caused devastation not just from a health care point of view, but also economically. The global economy had come to a screeching halt as a result of the quarantine that has led to the downturn of most businesses including medical practices and endoscopy centers.

Only now, after a few months of the economy being shut down, are we starting to observe an increasing volume of patients returning to our practices. The economic impact of the pandemic is not limited to private practice doctors alone but also to employed doctors in hospital systems. No one could have anticipated this in one of the most “stable” and “secure” professions. Physicians have now been experiencing significant pay cuts and, paradoxically, even layoffs. Financial security as a doctor is not guaranteed and not as certain as once perceived. As a result of the economic decline in the economy, this has actually exposed many of the financial weaknesses prevalent amongst highly paid doctors.

As the saying goes, “when the tide pulls back, we can now see who is swimming naked.”

Consistently, gastroenterology as a specialty tends to rank in the top five to ten specialties with the highest salaries. However, this does not mean that GI specialists are immune to financial injury.

It is highly unlikely that any bailout will come to the assistance of physicians and medical practices. Most GI doctors are unlikely to qualify for stimulus payments that many other Americans will receive. The public who perceive physicians as “rich” will unlikely be sympathetic to the economic woes that many doctors are facing. Gastroenterologists along with other procedural based specialists may have had the greatest financial hit due to the temporary shutdown of elective and non-urgent procedures which tend to be a disproportionate portion of their income.

Unfortunately, doctors are in a mindset of trading time for money. In essence, most doctors can only make money when they are seeing patients. If there are no patients to be seen, they have no income. This is what is happening currently which has led to layoffs or substantially reduced salary. The doctors who are “weathering the storm” are those who have been very deliberate with saving and investing in assets that provide ancillary income. In this scenario, they are still receiving different streams of income even if they are not getting their full pay in their usual physician job.

The reality is that many doctors have a high salary, but sadly have low financial net worth. In fact, a large percentage of doctors have a negative net worth meaning their liabilities (debts) are more than their assets. To add insult to injury, doctors tend to be in the higher tax brackets giving up almost half of their income to tax. Doctors may have nice material things like fancy cars, primary residence, clothes, vacations, etc., but these things are liabilities, not assets. Oftentimes, you will hear that one’s primary home is one’s largest asset. Many experts believe that your home is actually a liability since it is more of an expense and does not produce income. Most people don’t have a net gain in value after calculating years of expenses that are incurred with a home. If your highest percentage of your assets are invested in your primary home, you may want to reconsider this. Unless, you live in one of the highest appreciating regions for real estate, the likelihood of growing wealth to a significant degree is unlikely with just your primary home.

With a decline in income and even decline in retirement and other investment accounts, this has led to panic amongst many doctors, young and old. So, what should a doctor do in this situation?

Most importantly, one should focus on the basics. Oftentimes, doctors are lured into complicated investments and insurance products without first doing the basic steps.

Many doctors are duped into investing in things that are heavily promoted as great investments with high returns. They are often taken advantage of due to their limited knowledge in financial products. I myself have been fooled on many occasions and now look at the financial industry with skepticism. In fact, I had invested in something that sounded so legitimate. However, I later realized that I had actually invested in a Ponzi scheme and lost my investment. My humble advice is to not believe everything that is being sold to you. You may receive fancy proformas and even legal documents that seem to bolster legitimacy. However, always be cautious and never over concentrate your funds too much in any one sector. Fortunately, the loss of my investment won’t impact me to a significant degree, but certainly leaves me a bit disappointed and paranoid at the same time.

This is not to say that everyone in the financial industry is untrustworthy. However, it is imperative to do your own due diligence and to not simply chase the next “hot” investment just because a colleague or friend is doing so.

During this pandemic, cash flow had been drastically reduced for many doctors. As a result, many had to sell investments in a panic just to maintain enough money to support their day to day needs.

This brings me to the concept of “liquidity” which was especially important during this period when cash flow had gone down. Standard teaching says you should have 3-6 months of cash reserves. Much of the advice one hears is from the mainstream media and targeting people with incomes far less than most doctors. The information is well intentioned but may not be pertinent to high income professionals. It is my personal opinion that doctors should have far more in cash reserves, perhaps at least a year’s worth at the minimum. This will result in less panic selling of assets in an inopportune time. It would be a “double whammy” to have to sell assets at lower values while income has also declined at the same time.

Check your recurring expenses and see if there is anything that you could cut or lower. Put any major purchase on hold unless you absolutely need it. This is not the time to splurge on discretionary items like furniture, home improvements, expensive vacations, etc. Make sure that every dollar spent has an important purpose especially during these uncertain times.

I have often found many statements by Warren Buffett to be quite inspiring and profound. As he states, “if you buy things you do not need, soon you will have to sell things that you do need.”

This could be a golden opportunity to refinance student loans or your home mortgage. Indeed, mortgage rates have been hitting all-time lows.

Reevaluate your investments and review your asset allocation. If you have lost sleep because of your investments, perhaps you need to adjust your investments based on your risk tolerance. If you are well capitalized and have some “dry powder”, this may be a good opportunity to consider increasing your funds toward certain investments which may be at bargain prices. As they say, cash is king, and this may be ever more valid now. However, make sure that your emergency fund is well funded as discussed above.

There are many people who have viewed the downturn in the economy as an opportunity. As Warren Buffett taught investors in the past, “Be fearful when others are greedy and be greedy when others are fearful.”

The COVID-19 pandemic has had a tremendous impact on the personal finance of many people, including highly paid doctors. However, this has also exposed some weaknesses in the financial health of many. If one can weather this period of time and rebound with minimal financial and emotional damage, this may end up making one stronger and more prepared for the next “black swan” event.

The content in this article is purely for informational purposes only and should not be construed as personal financial advice. Please seek assistance from your own financial professional.