Let’s be honest, one of the perks of being a doctor is the salary. According to the physician staffing firm Merritt Hawkins, average doctor salaries ranged in 2018 from $519,000 (invasive cardiologists) to $230,000 (pediatricians). No matter how you look at it, when you compare that to the average American salary in 2019 ($46,800), being a doctor doesn’t look so bad. Granted, there are some offsetting factors. Physician burnout and crushing student loan debt come to mind first. But salaries of the medical career give physicians an opportunity to account for both, paving the way to minimize financial stress and live a better life. With both of those factors in mind, here’s what you can do to make the most of your physician salary. Build an emergency fund It’s not glamorous, but it has to be done. What if you or your spouse lost a job, or faced some unforeseen medical expenses? What if your car broke down, or your furnace died in the middle of winter? The only certainty in life is uncertainty. Problems will arise, and it’s often best to address those problems in cash, rather than saddling yourself with more debt. The best thing to do here is to be proactive. You can do that by building an emergency fund. Your goal should be to accumulate three month’s worth of pay, put it in a high-interest savings account or CD, and forget about it. Hopefully you’ll never need it, but it’s good to know it’s there in case you do. Aggressively service your student loan debt Again, probably not what you want to hear. Definitely not as cool as buying your dream house or your dream car, but far more necessary. Think about it like this: If you don’t get serious about paying down your student loan debt, you could be paying the price of that car or that house in interest alone. The regulations surrounding student loan repayment would make a Byzantine bureaucrat scratch his head, so it really pays to work with an expert in this arena. Depending on your employer and earnings, you could qualify for personal student loan forgiveness. Obtain disability insurance If you can’t work, you have no income. Your most valuable asset as a physician is your ability to work. The most sensible thing you can do is protect this asset. Disability insurance does just that. Disability insurance costs tend to be higher for doctors with more manually intensive specialties, such as surgeons. The expense, however, is worth it. It’s hard to operate without a functioning set of hands. Start saving for retirement Time, and the power of compounding interest, are on your side. Once your baseline financial needs (those mentioned above) are covered, you can start thinking about saving for retirement. Most employers will offer some sort of retirement account as part of the benefits package. Some will even offer a matching contribution. In other words, they’ll match whatever percentage of your salary you contribute, up to a certain percentage. Another bonus, contributions to certain retirement accounts will lower your taxable income. But don’t get too excited: The government will get its due once you start drawing money from the retirement account. Start saving for a home You need a place to live, but do you need the nicest house on the block? Many doctors make three big mistakes when buying their first house: They buy 1) Too much house 2) Too soon 3) With the wrong form of financing. You need a home that fits your needs right now, not one that you will grow into. And given the state of interest rates and the high price of rent in most desirable markets, buying a home might make the most sense for you. Factor in that home ownership comes with its own set of unforeseen expenses and annoyances, such as repairs and yard work. Depending on your income level, however, you might be able to outsource some of these things. Saving for college Historically, the cost of college has outpaced inflation by about 6-7 percent. If you’re looking for a ballpark estimate of what it will cost you to put your kids through school, take the current cost of an elite four-year school and quadruple it. Scary, huh? Once again, compounding interest is on your side. The power move here is to open a 529 College Savings Plan right when your child is born, and of course, fund it. These plans are a lot like retirement accounts, putting your money into publicly traded equities. Of course, the risks are the same as they would be with any retirement account, however, you have the power of compounding interest and the trend of market growth on your side. Adventures and Experiences It can’t all be financial nerdery. You have to live a little, too. The operative word there is live. It’s a scientifically proven fact that if you want to buy happiness, you should buy experiences, not stuff. Once-in-a-lifetime experiences — especially when shared with people you love — produce lifetime memories. The dream car will eventually rust. The dream home will eventually be empty when your children begin lives of their own. But you’ll always have the photos and the memories of time well spent together. TL;DR If you want to make the most of your physician salary, you should: Build an emergency fund. Pay down student loans. Obtain disability insurance. Save for retirement. Save for a home. Save for college. Splurge on experiences. Source
