I frequently give talks to other doctors on financial well-being. And nowhere in those talks do I mention saving or investing for children — for college or in general. This is intentional: Even as high income earners, doctors need to save and invest for themselves first, before their kids.
For many, this seems like a bit of a tough, or at least awkward, pill to swallow. I get it: I have three kids that are five or under and my instinct is to do everything for them, including set them up financially.
But it’s just not the right thing to do, at least at first, for them or for you. Below, I explain why.
1) You need to be at your best to be the best parent.
As someone who has dug himself out of a financial hole and found much greater well-being, I am a big believer that financial well-being is a key, and maybe the most ignored, part of overall well-being.
And any parent can attest that if you are not at your best, with optimized overall well-being, you will not be the best caregiver. I experience this all the time. If some aspect of my well-being, whether it be my physical health, mental health, or work-life balance, suffers, then I am not the best parent I can be to my kids.
This is why even though being a parent means your kids will always come first, in practice, it can sometimes look like prioritizing yourself. By taking care of yourself (and your finances) first, you optimize your financial and overall well-being and become the best parent that you can be for your kids.
2) Your kids need less than you do.
Not less time. And they certainly don’t have less expenses. But they do need less money to invest — thanks to the magic of compound interest.
For example, if you start saving $5,000 annually ($410/month) for your kid when they are born until they turn 18 and then they continue the habit afterward, they will have $1.05 million when they are 50.
By contrast, let’s say that you start saving for retirement at age 40 because you prioritized saving for your kids and want to retire at age 65. In that instance, you need to save $22,000 annually to have $1 million by the time you want to retire. That’s more than four times the annual savings needed for your kid!
And remember, due to the 4% rule, that $1 million nest egg will only safely cover $40,000 of expenses. That’s way less than most physicians will want or need in retirement! So you actually need to save a lot more.
The bottom line is this: Saving just a little for your kids makes a huge difference for them. Saving just a little for you is a potential calamity. Prioritize yourself. Then, once you are on a good path, you can start saving some money for your kids.
3) You can get loans for college, but not for retirement.
Most parents save for their kids to help pay all or some of their kids’ college education. And most parents I talk to cite this as the number one financial stressor in their mind when it comes to kids — so much so that they prioritize saving for their kids’ college education above saving and investing for their own retirement/financial freedom.
The way I see it, that is a huge mistake: You can cover college expenses with loans — but you can’t cover your expenses in retirement with loans. That should be proof for doctors to save and invest for themselves first, even as high income earners.
As further evidence for this theory, there are a ton of other ways that you and your kids can cover college expenses without sacrificing your retirement and financial well-being. Options to explore include scholarships, grants, work study, less expensive schools, and yes, loans. You could also take up a physician side gig that becomes passive and funds college expenses.
There are even investments that can help both you and your kids, like investing in active real estate. My wife and I now get more than $10k monthly from our real estate investments. We use the cash flow now to buy more investments. In the future, we will use the cash flow to help cover college expenses for our kids, as well as fund our retirement.
4) Your kids will thank you.
One of the biggest stressors — emotionally and financially — for current middle-aged adults is taking care of their parents financially.
The reason that so many adult children are finding themselves in this position is that their parents did not prioritize their own financial well-being earlier in their lives. And now that responsibility and incumbent stress has been passed on to their kids. To make matters worse, many of those adult children now find themselves supporting their own children as well as their parents.
I know that some of this is cultural. However, I can guarantee that nearly every adult child in this position would prefer that their parents had taken care of their own business by prioritizing themselves.
In many ways, the best thing you can do for your kids is make sure you do not become a financial stressor for them in the future.
5) If you do it right, you can do both.
I think many doctors and people in general think they need to save and invest for their kids because if they don’t do it now, they never will. (Either because they just won’t or because they won’t be able to.)
Well, I’m here to reassure you that if you do things right, you will 100% be able to do both successfully. Doctors are high income earners and can save and invest both in themselves and for their kids.
You’ve already seen that your kids don’t actually need that much. So, once you set yourself up, steam the leftover in your monthly savings rate to your kids — even if it starts very small.
The problem is that many doctors are just winging it and hoping their high income magically converts into financial freedom for them and their kids. But this doesn’t just happen. You have to make it happen, by creating a personal financial plan that includes financial goals and priorities. Once you start thinking seriously about your own financial present and future, your financial, and overall, well-being will improve. And so will your parenting.
What other ways does prioritizing your own financial well-being help your kids out? Share your thoughts in the comments!
Jordan Frey, MD is a plastic surgeon in Buffalo, NY at Erie County Medical Center and the University of Buffalo. His clinical focus is on breast reconstruction and complex microsurgery. He is also the founder of The Prudent Plastic Surgeon, one of the fastest growing finance blogs. There, he shares his journey to financial well-being with a goal of helping all physicians reach financial freedom, practicing on their own terms.
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