As a medical professional, you have a long, potentially lucrative career ahead of you. What you do with your income now can define your future, the wealth you leave behind for your heirs, and the contributions you make to the community. Comprehensive financial planning is crucial for medical professionals.
There are two key reasons why you must take into account your financial planning needs:
- Most doctors start their careers with significant debt. The American Medical Association reports that medical students graduate with an average of $200,000 worth of student loan debt.
- Fluctuating incomes throughout your career can mean significant adjustments to your net worth throughout your career.
To help you with financial planning, focus on these specific tips as a starting point. They aim to provide you medical professionals with the guidance they need to develop effective financial planning strategies no matter where you are in your career.
Tip 1. Create a Comprehensive Budget
You cannot build financial wealth without a plan. A comprehensive budget enables you to put more money into savings, investments, and debt repayment while still allowing you to enjoy life and meet your current financial needs.
A detailed budget can account for both personal expenses and professional costs associated with practicing medicine. It can help you have the cash flow you need now while working towards your goals of wealth building. You know what your short-term and long-term goals are when you have a budget in place. That enables you to constantly work toward what you want to accomplish, whether that is in your private practice or by retiring early.
Tip 2. Prioritize Debt Repayment
Many physicians feel limited when leaving college because of their debt. Debt can easily get in the way of financial goals. If you are paying interest on student loan repayment, that money is not going towards building wealth.
Make student loan repayment a priority. To do this, consider:
- Programs designed to reduce debt for doctors who work in key locations
- Refinancing solutions to lower high-interest-rate debt
- Debt forgiveness programs that you may qualify for over time
Ultimately, paying off your debt should be a priority. The sooner you do so, the less you put towards your debt repayment.
Tip 3. Maximize Retirement Contributions
As you begin to build wealth, take a closer look at personal finances as they relate to retirement planning. If you work within an organization that sponsors a retirement plan, such as a 401(k), begin maximizing contributions to it as soon as possible. Doing so enables you to reach your financial goals sooner because the money will compound in value over time. It also allows you to take advantage of any employer matching available.
Retirement plans for those with a private practice are also beneficial. They enable you to benefit from a carefully structured financial plan that will address your long-term financial goals now and offer tax advantages throughout your lifetime. By the time you reach retirement age, you will have an account that’s ready to fund your goals.
- Contribute as much as you can to max out the retirement allowances for this year (this changes based on your income and fluctuates year to year). Pre-tax investment strategies like these can provide many people with significant savings on tax obligations year-over-year.
- Contribute even a small amount if you cannot contribute fully to a retirement account at an early age. It is often tax-free investing.
- As you work out an employment agreement with your employer, find out if any opportunities exist for employer-matching contributions.
Also, note that it is wise to begin speaking to a financial advisor at this point. Your financial advisor can help you to select the right type of retirement account for your specific needs. They will also help you navigate balancing the funds you are contributing in within that account. This is what is going to build a financial plan that addresses your specific needs and goals.
You can find a financial advisor to guide you using Invested Better. Use our free matching tool to find out which advisor can offer you the specific support you need as a medical professional.
Tip 4. Consider Insurance Needs Carefully
Financial planning for medical professionals must take into consideration insurance needs. Insurance is a fail-safe that works to provide financial protection for you when the unexpected occurs. While most doctors do not think they will suffer an injury or be unable to work for a period of time, the reality is risks happen every day. A car accident, for example, could mean you are out of work for months. Without the right insurance, you may not be able to meet your ongoing financial needs.
Start with malpractice insurance. As a medical provider, you need malpractice insurance that protects your personal and business assets from claims made against you by patients or others. Asset protection like this is critical in this industry because of the high rate of being sued.
Next, consider disability insurance. Disability insurance provides financial protection to you in situations where you may suddenly be unable to work. For example, short-term disability insurance helps you maintain your financial independence if you have to be off work for a period due to an injury. Alternatively, long-term disability insurance offers protection from situations where you may be unable to work for months or years at a time. This is a core component of financial planning for doctors.
Do not overlook health insurance. If you work for an employer, ensure your employment contract includes health insurance. Young physicians may not realize the importance of this until they become ill.
Finally, do not forget life insurance. Term life insurance provides financial protection for a limited time, often 10 to 30 years. Whole life insurance, or permanent life insurance, can be a part of some employment contracts. It provides you with a guaranteed payout no matter when you die and may offer some benefits to physicians as a wealth-building tool.
Evaluating your insurance needs takes some careful planning. As a general rule, most doctors need malpractice insurance and health insurance to meet basic needs. However, disability insurance and a whole life policy could be beneficial, especially if you are a young physician just starting out. The costs tend to be much lower.
Tip 5. Plan for Tax Strategies
Tax planning is another important factor for professionals to consider. Your higher income, especially as your business grows, will influence your tax obligations over time. However, there is no benefit in overpaying, either.
For tax planning, early career attending physicians and those who are working to build their career over time should carefully consider the options that fit their needs. With a financial advisor’s help, you can confidently tackle these specific areas. Your advisor can help you to:
- Reduce taxes paid yearly in any available way. This may include pre-tax investments in a Roth IRA or a traditional IRA.
- Offer savings on taxes through other retirement planning strategies.
- Incorporate tax planning strategies to mitigate high capital gains taxes or investment-related taxes.
Taxes are financial challenges. If you do not plan for them now, they could end up costing you significantly in the future. However, when you know what your rights are and what strategies exist to reduce your overall tax obligations, you can meet your required payments without overpaying.
Tip 6. Invest Wisely
Building wealth takes time. It takes knowledge of opportunities and strategies based on current economic conditions. As a doctor, your time is often best spent helping patients. For that reason, you should rely on a financial planner to guide you in investing wisely.
It is still helpful to know what your rights and obligations are. For example, if you want to build financial independence over time, there are several factors to think about as you meet with a financial advisor:
- Risk tolerance: This is the amount of risk you can handle. Early career attending physicians have time to take on more risky investments because there is time to make up for any drops in investment portfolios. If you are later in your career, you may need more frugal methods that offer more asset protection.
- Diversification: Diversification makes sense. It enables physicians to invest in a wide range of investment strategies. This way, as income changes, tax rules change, or investment strategies adjust to changing economic conditions, your investment portfolio is not negatively impacted.
- Choosing lifestyle needs: When deciding on the right savings, investments, and risks, always consider your goals. If you want to build a private practice, using investment strategies instead of high-interest loans could help you build more confidence. If you want to retire early, you may not be thinking about high-risk investments that can wreak havoc on your portfolio if the market turns.
By working with a financial advisor, you gain more of the knowledge you need to make wise decisions for your specific needs. When you pay yourself, put money into your specific plans, and achieve your future goals, you know those long hours of work are worth it.
Tip 7. Seek Professional Guidance Regularly
Also notable is the need for a physician to seek guidance on a routine basis. You tell your patients to see their doctor often, and physicians need to see their financial advisors on a routine basis.
- Choose financial advisors who have experience in supporting physicians and others in the healthcare sector.
- Create a financial plan that tackles your current goals and money needs.
- Build a savings plan that you feel good about with the help of your investor.
- Boost cash flow and retirement plan contributions to get the best tax benefits without limiting your quality of life.
- Use an investor to consider various investment scenarios so you can see an example of what you could expect.
A licensed financial advisor’s knowledge and skill can make a significant difference in your financial future. Do not overlook the importance of finding one that you trust to help you create a financial plan, build a long-term investment strategy, and minimize losses over time.
Tip 8. Consider Estate Planning
As a medical professional, you may be thinking about your goals. Yet, having an estate plan is quite valuable, even at a young age. It allows you to create a cohesive plan that outlines all of your objectives and goals. Consider a few ways an estate plan makes a difference.
- Determine your financial goals. This includes investments you want to make, career paths you want to explore, what you want to own, where you want to live, and your current financial goals.
- Estate plans are designed to pass assets from your retirement accounts and other assets to your heirs without being overly taxed. Work with your financial advisor to develop strategies that amplify your savings while reducing the risk of estate taxes.
- You can also use insurance products and other investing methods to help you build wealth. For example, you may wish to use a life insurance policy to help fund the contributions you make to a charity that is important to you after your death.
- You outline where you want your money to go as well. You can label the beneficiary if you have a traditional IRA or a Roth IRA. Yet, for others, you do not just want to pay your heirs. You want to create trusts that make sure they achieve the goals you set for them before they tap into your assets.
- Estate plans help your family to know your goals. As elaborate as you would like, these plans allow you to outline what you expect after your death.
Determining the Right Financial Steps for Physicians
Doctors take on some of the world’s most significant challenges. Their skill and knowledge deserve more than just paid time off and a lucrative income. With the help of a financial advisor, you can minimize many of the risks you face from a financial standpoint and accomplish more of your goals.
Let Invested Better help you do that. Use our match tool to find a financial advisor that aligns with your goals.
