Ten steps to financial freedom for young attending physicians
Financial well-being is an integral yet often overlooked aspect of overall well-being among physicians. Financial freedom provides doctors with the opportunity to practice on their own terms, a distinct advantage in the current landscape where doctors are historically prone to burnout and moral injury.
Your financial future and ability to achieve financial freedom on your terms is hugely dependent on a critical period, the first five-to-10 years after graduating training when you are a young attending. You can even make up for prior errors by doing the right things in this period. Unfortunately, you can also really derail prior financial gains during this period.
If you tell me what you did with your first paycheck or what you will do with your next paycheck, I bet I could predict with really good accuracy whether you are a "Prolific Achiever of Wealth" or an "Underachiever of Wealth" (to borrow from The Millionaire Next Door).
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I am very grateful that I discovered financial education right as I was ending training. I made a ton of financial mistakes prior to this, which are detailed on my website, prudentplasticsurgeon.com. I am still working to correct these mistakes, but because I developed successful habits at the beginning of this critical time period, I have been able to make up for them and set myself up for financial freedom.
Again, I am not an accounting expert but I do know a few things. I have personally taken each of the following steps in creating my path to financial well-being, and these might be helpful to you as well.
1. Build your "why."
This is the reason why you want to achieve financial freedom and financial well-being. If there is no reason, then it will feel pointless when and if you get there. Any roadblock in the way will feel insurmountable. Your why is there to pull you through the hard times when you need it. My why, for example, is that I want to gain financial well-being to enhance my overall well-being, to spend more time with my family and friends, and to pursue my passion on my own terms.
2. Pay off debt.
This really is the first step to financial freedom. You need to stop taking on new debt and get rid of any and all debt you have. When you are in a hole, the first step is to stop digging. You can't run until you get out of the hole. So, this is step one. Each $1 you use to pay off debt is $1 that your net worth increases. That's what I am doing now. Every month, I throw huge sums of money at my debt.
3. Get educated.
I'm not saying you need to become obsessed with personal finances. In fact, you will find that after you start your education, you will actually think about finances less (unless you're like me and really love it). Pick a book on financial management and start reading 10 pages a day. Then try to read just one financial book each year. It's minimal effort and will pay enormous dividends. If you are not a book fan or want to get up to financial speed faster, I recommend checking out courses by The White Coat Investor and The Physician Philosopher, both of which I have taken and are very well worth the money.
4. Protect yourself.
If you depend on your income to live (i.e., you are not financially independent), you need disability insurance. Does someone depend on your income to live (i.e., spouse, kids)? You need life insurance. If you are practicing, you need malpractice insurance. Get them. End of story. To not is to set you and your loved ones up for potential financial catastrophe.
5. Optimize your contract (current or new).
Fair or not, contract negotiation will set the foundation for what you will make and how you will make it. There is usually some wiggle room within the contract to make more or less over time. However, you largely set the scale of your physician income (and the lifestyle you will need to adapt to achieve this income) as soon as you sign on the dotted line. If you are negotiating your first contract, take the time to make it as favorable as possible. If you already have a contract, go through it and see what you would change if you could. See how close you are to renewal time. Set a strategy in place to make the next contract that best that it can be.
I get so much resistance from physicians in general about budgeting. But I get even more resistance from young, new attendings about budgeting (e.g., "I sacrificed so much to get here and now I don't want to," "I just can't do it, it's too tedious" and "I make so much money, why should I budget?") It's because you have so much money that you need to budget. When I lived in New York City as a trainee and 66 percent of my income was swallowed by rent and daycare, I didn't really need to formally budget. I would just run out of money. Now that my salary increased significantly, it's super easy to blow money on stupid stuff and compromise my future financial freedom. Budgeting is necessary – you can set aside just 20 minutes per month to do it – and relatively easy.
7. Max out your work retirement account(s) with index funds.
Please notice that this step is not called "max out your retirement account(s)." This is because the last three words are important. Whether you are an employee or run your own practice, you should have retirement accounts – 401k, 457, self-401k, etc. Use them. Most employers will match a certain amount of money that you put in these accounts. To not take advantage of this is to literally leave money on the table. If you feel like you don't have enough money to max out these accounts, you have a spending problem. Go back to step 6 and figure out your budget so that you can max out these accounts. In the beginning of your career, how much you save has much more impact than the return you get on your savings. Take that and maximize these work retirement accounts using the right investments. Use low cost, broadly diversified index funds. Don't give away your money to unnecessary fees and taxes; pick index funds and relax.
8. Contribute to a backdoor Roth IRA every year.
An Individual Retirement Account is basically a retirement account set up by you, for you. There are two varieties, a traditional and a Roth IRA. To take advantage of the tax benefits (tax deferred and tax free growth, respectively), you have to have an income less than $124,000 as a single tax filer. Just about all physicians will be higher than this. However, there is a legal loophole. You can contribute $6,000 annually to a traditional IRA and immediately transfer it to a Roth IRA. Yes, you will be taxed on the front end, but you won't be taxed on the back end. So, you get tax-free growth. You can also open a spousal backdoor Roth IRA and contribute another $6,000/year for your spouse if married. Do this every year. If you start early this will become a huge amount due to tax-free compounding growth. If you can't save $6,000 a year to contribute, you have a spending problem.
9. Invest in real estate (it's really not that hard).
You probably will think that it is not for you and/or that it's too complicated or requires too much time. I believed the same thing four months ago. Now my wife and I own our first rental property which is leased out, puts money in our pocket every month and appreciated by more than $100,000 via forced appreciation. Read a real estate book from the recommended list on my website, check out a course on automating real estate investments and join a group in person or on Facebook. Just get started and the rest will take care of itself.
10. Create a written personal financial plan.
I love contributing on different online forums and Facebook groups, hoping to help others in situations similar to mine. Sometimes, though, I feel like a broken record. Someone will ask how they should adjust their asset allocation, or should they invest more in real estate or stocks, or some other similar question. The reality is that I never have these questions, because I have a written plan. So that is how I answer these question online, by asking what their plan says to do. I hear people at work asking how they should use their bonuses. Should they save towards a down payment or invest or buy something else? I know exactly where my bonus is going. It goes to our real estate investing fund because that's what the plan says. It takes all emotion and stress out of it. The process of actually writing a plan can seem daunting, but start simple and add to it as your financial acumen grows.
The early part of your career as a physician is an incredible time. You can finally practice independently and help patients even more directly. Maybe you're moving to a new, exciting city or back home. Your salary increases. Your hard work is paying off. There is so much to be grateful for and to enjoy, and by all means, you should enjoy it.
However, also remember that this is your critical window to set yourself up for financial success and well-being. Luckily, these two goals are not mutually exclusive.