Some of the common financial errors typically made by doctors are as follows:
- Not saving enough: You have to live beyond your means to be successful in any savings and investment plan. If you do not have a roadmap to get there, it is difficult to accomplish your objectives. The first step is saving for these objectives. It is generally recommended that at least 10 percent of their income is saved by the average individual. The savings rate should be considerably higher for doctors for two key reasons:
- Doctors are high earners and, therefore, typically have higher living standards. That implies further expenses. They have to aim higher to sustain certain levels of living.
- Due to several years spent in medical school and residencies, doctors do not begin their earning years until their mid-thirties, so they have less time to garner and accumulate assets. They need to lift their savings rate to make up for the times they didn’t save.
- Not properly handling debt. Physicians have to learn from an early age how to handle debt. It begins with loans for college and medical school, which can be in the hundreds of thousands of dollars. Then, if they plan to move on to private practice, leasing, equipment acquisitions, practice management, and company operations are synonymous with loans. In their primary homes, doctors most often bear high-balance mortgages.
Doctors have to pay a lot of interest when you add all of this leverage. The secret to success is the careful management of this debt, the purchase of the right loans, the payment of low-interest rates, and, most significantly, the management of cash flow. To help them navigate this debt labyrinth, doctors must have ethical, competent, and resourceful bankers, brokers, or advisors.
- Not being tax savvy: The higher the profits, the greater the tax bill. In this scenario, the adage that a dollar saved is a dollar gained holds a lot of validity. Luckily, there are several tax shelters and breaks that can be taken advantage of by doctors. Often, physicians, do not optimize their deductions and just pay a lot in taxes. The savings can vary from easy contributions to IRAs, SEPs, or 401-Ks to more complicated benefit or other plans. Physicians need to work with consultants and CPAs who are fully aware of their particular situation, are versed in the various available resources and are comprehensive in designing the right strategy.
- Not being insured securely: As most individuals do not have sufficient benefits, this concern is not limited to physicians. Particularly for physicians, getting the right insurance is a must. This includes, but is not limited to, protection against misconduct, negligence, injury, life, and general insurance. Depending on income, properties, area of expertise, and personal condition, the limitations for each of these policies can vary. Again, the secret to securing the right strategy is to work with an advisor or an agent who understands your needs.
- Not choosing the required investments: Since physicians typically have adequate means, all sorts of exotic investments are often pitched. It is important to stick to viable vehicles, such as stocks, bonds, and marketable securities. It is essential to have a proper investment plan with adequate sustainability and dedication to risk management.
This law is often valid and should be observed almost always. Investing in surgery centers or medical projects is not unusual for physicians. These investments can never represent more than a few percentage points (5-10%) of the net worth of the doctor unless they are specifically connected to the day-to-day activities of the doctor. A surgeon should be the owner of the surgery community or center in which he is associated, but he should possibly refrain from spending his hard-earned money where he does not track the operational processes.