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A 10-Year Financial Plan No Doctor Should Go Without

Discussion in 'General Discussion' started by Mahmoud Abudeif, Dec 5, 2019.

  1. Mahmoud Abudeif

    Mahmoud Abudeif Golden Member

    Mar 5, 2019
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    American physicians have the benefit of drawing substantial salaries. But how good are they at keeping what they make? For many, poor personal financial planning has that cash flowing outward as fast as it arrives. We want the new Roaring 20s to be the decade you turn your financial life around, or at the very least make a few small improvements. And let’s face it, even those among us who have our financial lives organized could still use a little improvement.

    While there are common financial trends among doctors, each physician has a unique financial situation, with different levels of debt, income, and living expenses, coupled with spending habits. With that in mind, we created this 3-step financial outline that you can use to better plan your finances and better position yourself for the new decade ahead. Even if you manage to execute 1 or 2 of these new habits, if sustained over the next decade, they will pay dividends.

    We kept our financial outline simple intentionally, and we’ve loaded it with small steps that you can take to improve your situation. The three outline steps are:
    • Step 1: Focus on your present self. How can you make better financial decisions right now?
    • Step 2: Focus on your past self. What can you do to address previous (perhaps poor) financial decisions?
    • Step 3: Focus on your future self. What do you want your financial future to look like?
    Now, let’s explore each step in greater depth.

    Step 1: Focus on the present.

    This is the most difficult step, which is why we’re putting it first. Take care of this step, and it will make steps 2 and 3 easier. We all have basic necessities requisite for survival. We need food, water, and shelter. Food is self-explanatory. Water we can expand to include all basic utilities (gas, electric, commuting costs). Finally, we all need a place to live, whether we rent it, own it, or are paying a mortgage. And we also need clothing to stay warm and, you know, not be naked.

    None of these necessities is going anywhere. That means you need to create a budget for your present circumstances. Budgeting is definitively un-sexy, but it’s necessary. If you don’t know what you’re spending each month and what your limits should be, then you don’t know how much money you can devote to steps 2 and 3.

    You might as well get rewarded for taking care of these financial necessities, right? If you can handle having a credit card and only using it to cover living expenses.

    Finally, you will always need food, water, and shelter. What happens if you were to find yourself permanently disabled or unemployed? Your budget should include a line item for contributions to an emergency fund, which covers at least 3 months of your living expenses.

    Step 2: Focus on the past.

    For many of us, our past selves were a bit financially foolish. Maybe we wracked up a ton of credit card debt, or more likely, we took on a staggering amount of student loans to pay our way through medical school. Here are some other common financial mistakes young doctors make. Once you’ve created a budget, you can begin to address these past financial transgressions, paving the way to future financial independence in Step 3. Here’s how.

    First, take an inventory of all outstanding debts and rank them in order of largest to smallest. Next, take that same list and duplicate it, this time ranking them from highest interest rate to lowest interest rate. Now, you have a decision to make, are you more of a snowball physician or an avalanche physician? Doctors who need quick wins to stay motivated should attack the debts in order of the first list. Doctors who are more patient and want to save more money should tackle the debts in order of the second list. Here’s a tutorial on the Snowball Method and the Avalanche Method.

    This is the highest hurdle to clear when addressing your past financial self. Here are some other steps you can take to keep things trending into the black:
    • Determine whether you qualify for Federal Student Loan Forgiveness.
    • Are you getting killed with monthly car payments? Determine how much car you can afford and consider downgrading to something more modest.
    • Can’t shake some bad financial habits, such as impulse buying?
    Step 3: Focus on the future.

    If you’ve followed these steps in order, then you now have more money available with which you can reward your future self, or your children (if they deserve it). Step 3 is all about goal-setting for the 2030s and beyond. Some noble financial goals include funding your children’s college education, paying off your mortgage, retiring early, purchasing a vacation home, or taking that once-in-a-lifetime trip.

    But what about some of the less obvious, but arguably more important financial goals for future-focused doctors? Here are two that are critical:
    • Maintaining a balanced stock portfolio is crucial for a future-focused doctor. Time until retirement will be the biggest determining factor here. Most financial advisors will shift you toward bonds and away from equities as you get closer to your retirement date, then back toward equities for late retirement income as you age. When was the last time you checked how you are invested? Perhaps make it a quarterly future-focused goal to touch base on this with your advisor, or to self-monitor if you’re going it alone.
    • Obtaining life insurance and disability insurance is a must for the future-focused young physician. If you can’t work, you have no income. You must protect your most valuable asset — your ability to work. More senior physicians can consider jettisoning these insurance options if and only if they have covered all of their financial bases for themselves and their families. Consult with your advisor first.
    Prosperous 2020s

    Following these three simple steps will position you for a more financially sound decade to come. Just remember, it isn’t what you make, it’s what you keep. And though it isn’t glamorous or exciting, it all begins with creating — and sticking to — a budget. If you do nothing else in 2020, do this.


    Here’s your 3-step physician financial outline for the new Roaring 20s:
    • Step 1: Focus on the present by creating and sticking to a budget.
    • Step 2: Focus on the past by correcting prior financial missteps.
    • Step 3: Focus on the future by setting smart financial goals, and more importantly making plans to achieve them.

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