A career in medicine almost always guarantees a lifetime of high earnings. With few exceptions, most early career professionals leave school with a mountain of student loan bills looming in the near future. This is especially true for professionals of color, many of whom are first-generation students, and those who come from low-income families. While most medical professionals are intelligent and knowledgeable in their fields, an understanding of finances is not necessarily inherent among doctors. Hammering down debt and gaining financial balance is usually a challenge.
After spending years pinching pennies to get through school and residency, learning how to properly budget can prove difficult. Once working, earnings spike, and many newly minted doctors are champing at the bit to invest, though most lack the knowledge of how to do so effectively. Others spend their money on large purchases, such as a home, without considering the effects on their debt or long-term savings. As a financial advisor, my goal is to set them up to tackle their debt and, at the same time, become great savers. Ultimately, we want these new physicians to become unconscious savers and conscious consumers.
Given their healthy incomes, embracing an unconscious savings mindset might seem unnecessary for doctors. After all, most doctors expect that they will work into old age without any financial roadblocks. But even doctors can face hiccups to their plans. Consequently, the first step to establishing a solid financial plan is to explain some of the common threats to wealth accumulation that anyone, even high earners, may face at some point in their life.
- Sickness and Injury: Being a doctor is a physically and mentally demanding job and a debilitating illness or injury can bring their earnings to a halt.
- Unexpected/Accidental Death: Accidents happen and preventing them is often out of our control.
- Taxes: High earners pay a significant portion of their earnings in local, state and federal taxes. High-earning W-2 employees are not often afforded the many provisions that small businesses get with tax planning.
- Lawsuits and Liability: Property and casualty insurance (auto, renters, homeowners and umbrella) is often looked at as a necessary evil and done using online carriers or 1-800 call centers with just enough coverage to comply with the law. The focus is on the cost of the insurance instead of what it will do for you when you need it.
Once individuals realize that they are not immune to these threats, we can begin the work of planning out their financial lives.
There are two other important fundamental concepts to focus on when planning a financial future: wealth accumulation and risk management. Wealth isn’t accumulated overnight. It is the result of diligent effort to regularly save and invest over many decades. But wealth is often undermined by unexpected risks. Insurance and other risk management steps are critical to mitigate these risks.
Consider this example. A former OB-GYN believed he had a decades-long career ahead of him until a life-changing injury obtained while on the job altered his plans. A grueling night spent running from room to room delivering babies resulted in a severe back injury that prevented him from practicing medicine. The realization that his chosen career path was no longer viable was dismaying, and concern for his financial future was acute. But because he had followed our advice to purchase disability insurance, he was able to redirect his passion for helping mothers and babies into a rewarding non-profit venture. His story is one of many that demonstrate the importance of not only building savings but also protecting assets in case the unexpected happens. Â
Many high earners think they can wait to organize their financial lives. But in my experience, the sooner professionals begin planning, the better; it’s incumbent to meet them where they are. Building assets is a decades-long commitment, and the medical professionals who learn how to save and protect their earnings at the beginning of their career are more likely to be prepared for unexpected circumstances. As financial advisors, we aim to make the financial security our clients dream of a reality. We want to bring the future into the present.
Vidal Peoples is a veteran financial advisor for Strategies for Wealth who works closely with individuals to guide them towards improving their financial lives and building financial confidence. He specializes in working with medical, legal and other professionals to build their wealth and protect their assets.
