April 01, 2013 | By Robert Tucker, MD, MBA | The transition from a training program into the active practice of medicine represents one of the great opportunities and challenges in the life of a physician. Finally, you are doing what you trained so hard to do — making decisions independently based on the knowledge and skills you have developed through study and the guidance of your mentors. No doubt you made your choice of a practice after carefully studying the options, getting advice from your friends and family, and developing a strategy for starting and building a successful career. In the midst of the excitement, did you devote as much time to the details of your financial plan? Do you even have a plan? All too often, some of the important steps may have been put on the back burner and forgotten.
The first step is the realization that a plan is necessary. For many of us, the beginning of medical practice represents the first opportunity to have “discretionary income” — money available for investing, travel, a larger home, or the country club membership. But with this euphoria of early success, don’t forget that things such as premature death, disability, or family discord can happen. Be certain to establish priorities, and review them regularly. Don’t delay your savings plan, the purchase of life insurance or the drafting of a will once you have determined your needs. Very few physicians enter practice thinking about retirement needs; however, by delaying or ignoring these important issues, you might begin your career at a disadvantage.
The financial plan begins with a statement of your personal goals and objectives. Some may be short term, such as the purchase of a new home or private schools for the children. Others are ongoing, including protection from losses related to illness, disability, or natural disaster, and creating an effective investment strategy. Still, others are more abstract, such as achieving financial independence and transferring future wealth to families or charities. Some questions to begin thinking about are:
• How much do I need to save?
• How much can I spend?
• Do I need a trust or a will?
• How do I protect my assets from litigation and judgments?
• How much life and disability insurance do I need?
• What benefits does my employer offer, and how do I take advantage of them?
• How do I fund my retirement plan?
• What are appropriate investments to meet my needs consistent with my risk tolerance?
• When can I retire?
Set up a process, and get the expert help you need early on to answer these questions. Develop action plans, and track how you will address each one. For example, understand what you are spending by periodically reviewing your credit card statement and checkbook. Carefully read and understand all the benefits available to you through your employer, and take full advantage of those that are helpful to your family. Also, set a target savings amount from each paycheck, and develop a strategy for paying down student loans and other debts.
Next comes a means for making projections about the future. Factor in college education for the children, weddings, new cars, or a second home. Understand how your savings might reasonably grow over time. And don’t forget about the effects of inflation. A number of simple calculators are available that can provide crude estimates, but as your situation becomes more complex, you will likely need help in creating a detailed model. The ideal model can accommodate multiple scenarios with little additional work.
Another important consideration is risk management — how best to prepare for unexpected income losses through illness or death, or against property losses through natural disasters, or litigation. The first line of defense will likely be insurance, but an overall estate plan must also be in place, particularly when there are children, debt, or high-value assets.
Sound overwhelming? It certainly can be if you don’t have the time or inclination to do it yourself. If that’s the case, don’t be afraid to get help in setting up and implementing your plan.
While there are benefits to implementing a financial plan early in your career, it’s never too late to begin. Whatever the stage of your practice, it makes sense to regularly review your goals, and decide if you are on a path to meet them, and if you have assembled the best team to help you succeed. Regularly working with such a team not only provides the expertise you may not personally have, but also the discipline you need to maintain the long view and stick with your plan, even during those short-term periods when emotions try to steer you away.
Sound familiar? It should, because the only difference between sound financial management and good medical practice is the tools that are used.