Why do patients and our families believe that once we become doctors, we are rich? It befuddles me every time I hear someone begin to discuss how much money we make and how we have “made it” financially. I find it off-putting and often wonder if the general public does this to lawyers, judges, architects, or other high-paying professions. Unfortunately, it is apparent that most laypeople believe that once you have MD or DO after your name, you have reached the pinnacle of financial freedom. Many believe we play golf on our days off, drive our Rolls-Royces, and fly around the world in private jets, living the life of luxury. While this may be true for some physicians, it is not the case for most.
Yes, we are still one of the highest-paid professions in America, but it’s been many a year since the salary of a physician has equated to upper class and great financial security without good investment advice or input. With good planning and prudence, however, we can expect a good financial outcome for us and our families.
I did not come from a financially literate background. Luckily, I still figured out that financial freedom takes responsibility, hard work, and education, but you can make your money work for you. Like most young doctors, I came out of medical school and residency hundreds of thousands of dollars in debt from student loans, which was a large barrier between me and financial freedom, and is for many young doctors and their families. I was truly frightened about how long it would take for me to not worry about my bank account and how much financial freedom (or lack thereof) I would have in the decades following residency.
The funny thing about fear is it can be a motivator or a deterrent. In this case, I used the fear of debt as a motivator and worked hard in my first years out of residency by maximizing my regular salaried job, as well as working extra in ERs and nursing homes on the weekends and days off to make extra money to put toward my ballooning debt. My wife and I prioritized paying our mortgage, utilities, car payments, insurance, and taking care of our children. We budgeted to always put any extra income first toward my student loans, as they were the largest debt we had outside of our mortgage. With this method, I was able to pay off my student loans within 10 years but still found it difficult to save enough for retirement.
Around this time, and due to other issues, I was tired of employed work and decided that my best way forward was to open my own practice. This was one of the best financial decisions for me and my family, and I feel strongly even today that it is one of the keys to financial freedom. Like most of the doctors of old, I still strongly believe that doctors should work for themselves, whether as 1099s, via a small business/clinic format, or even virtually, and that this is one of the best paths to financial freedom. Many young doctors do not understand the tax incentives and the ways they can structure their business to benefit their practice and finances, whereas employed physicians only have a tax structure and benefit structure as set by their company, the government, or corporation.
Many physicians do not understand that they are generating millions for their hospital or corporate employer and that if they plan a business correctly, learn to bill correctly, hire correctly, and manage correctly, that million-plus dollars (minus expenses and taxes) can alter their lifestyle much more than an employed position. However, many young students still tell me they don’t want the headache, and being employed is just better. And in some scenarios, they are not wrong, as employed work is much less of a headache. But it is also very limited for financial and practice freedom. However, owning your own practice challenges a doctor to increase their business knowledge and acumen and allows them to see something that they create (their practice) become a growing, thriving entity that aids them in their profession, pride, and finances. And, just like medicine, using the knowledge you gain from starting your own practice or clinic and growing it to be successful, you can then apply your increased income and savings to either expand your business or invest in other local businesses, real estate, or franchises, which will only increase your net worth and your financial freedom.
It’s not just a business and your career that can lead you to financial freedom but also what you do with the money you make. There is an old financial budgeting rule called the 50/30/20 rule. In this rule, you should spend 50% of your income on essentials (mortgage, utilities, etc.), 30% on experiences you and your family enjoy, and 20% on savings, investments, and retirement. I personally think the savings, investments, and retirement section is the most important, as it will ensure your livelihood and quality of life during retirement. It is where, if you are steadfast in following this rule, you will see your financial freedom grow the most with time and compounding interest. I would like you to know that I do not claim to be a financial expert or guru and am simply offering financial suggestions for young physicians, as I wish someone would have offered them to me.
Therefore, I suggest that young physicians start by paying down their debt with the 50/30/20 rule, but they take from the 30% pool for this paydown. Adapt your budget to your early income as required until you get to the point where you can fully implement the rule for the rest of your financial life until retirement. Yet, be steadfast in depositing 20% of every dollar into retirement and savings, with a possible breakdown (say, 10%) going to a well-balanced index fund such as a Vanguard target date fund, 5% to a broad stock market fund or toward an investment fund to purchase a future business or real estate, and 5% to a high-yield savings account or money market fund to have access to cash for future investments or real estate acquisitions. For me, this rule and type of investing have aided me the most with my financial endeavors and have led to a “sort of financial freedom,” and I have taught this simple investing strategy to my children and any others that have asked me about it. The key with this strategy is simply time and circumstance, with time being the most important. A physician spends many years in training prior to truly earning their first “paycheck” but if they follow the simple rules of finance, they will almost assuredly “make it.”
What tried-and-true finance rules do you follow? Share in the comments.
