1 Plan Now
Do you recall your interview for admission to medical school? Was one of your goals to convince the physician interviewing you that you were a humanitarian and that money was not important to you?
Explore This IssueACEP Now: Vol 34 – No 01– January 2015
That was then, and now you have new priorities. Thankfully, you no longer have to hide the fact that one of your career goals is financial security.
If your goals are to provide for your family, pay your monthly bills, afford your children’s education, and create a nest egg that provides for a comfortable retirement and future travel, then you need a plan. Having the comfort of being financially secure is a key component of your effectiveness as an emergency physician, and sound financial planning is an integral factor of your mental and physical well-being. Financial worries can be distracting and impair your focus, so the aim of this article is to encourage you to commit to taking the path to financial serenity. You need a road map and a plan to achieve your financial goals, and the time to start planning is now.
Have some exposure to the U.S. stock market and the bond market, and mix in a little international exposure. The exact mix will vary depending on your age and risk tolerance. Adjust your asset allocation yearly.
2 Become Financially Savvy
Having advisors is a wonderful thing, but this is one area that you cannot totally delegate to others. You must learn the lingo and the basics. Thankfully, the number of options to learn the fundamentals of finance and investing has greatly expanded.
Websites of major financial institutions (banks and brokers) are useful sources of timely financial and investing information if you are able to overlook their ads. One of our colleagues, James M. Dahle, MD, FACEP, who writes ACEP Now’s “End of the Rainbow” column, has a blog, www.whitecoatinvestor.com, that is an outstanding resource for physicians seeking to become knowledgeable investors. The archive section has more than 500 posts that make complex topics manageable. His blogs are often entertaining, and he provides a well-thought-out and careful analysis of numerous financial topics. In addition, his columns are archived at www.acepnow.com/tag/the-end-of-the-rainbow.
3 Live Within Your Means
Most emergency physicians earn an excellent salary. If current salary trends continue and you are fortunate enough to have a long and healthy career, your lifetime earnings will amount to an impressive figure. With a little planning, some sage input from ethical advisors, and a modicum of fiscal discipline, your income should be more than enough to support a comfortable lifestyle, prepare for a secure retirement, and weather the inevitable financial setbacks that will occur in everyone’s lives.
Physicians are notorious for their ability to burn through a fat paycheck. The recent Great Recession was a reminder to many of our colleagues who overextended themselves with McMansions, credit card debt, vacation homes, his-and-her sports cars, and multiple ex-spouses. Even if the economy stays on course, it is prudent to prepare for a change of fortune. The risk of losing your contract, losing your group’s hospital contract, or dealing with an unexpected medical problem are persuasive reasons to live within your means even when the money is flowing in. When you are in the midst of “ the good times” is when you should save for a rainy day and for your retirement.
An achievable goal is to save 25 percent of your gross (pretax) income. Set aside as much of this money as you can in those retirement accounts for which you and your partner qualify. There will usually be tax benefits and asset-protection benefits for putting this away, but more important, once the money is in a formal retirement account, you are less likely to spend it.
4 Build Your Team
To be successful in the realm of financial planning, it helps to have a good team in your corner. Finding ethical advisors who charge reasonable fees can be a challenge. A good way to find these valuable advisors is to ask senior colleagues in the community for the names of experts who they have worked with for decades.
At the minimum, have a certified public accountant (CPA) on your team. There are few gifts received from the federal government, but the smorgasbord of IRA and other retirement plans available should be fully utilized. A CPA will help you do this.
A lawyer will help you write your will, assist with real estate transactions, and explain the various options in your state for estate planning and trusts.
An insurance agent who will educate you about the nuances of various policies without pressuring you to buy a particular product is a great asset to help you navigate this critically important marketplace.
There are pros and cons to having a financial planner/advisor. If you don’t have the time or temperament to manage your own investments, it may give you peace of mind to have someone else take care of this, but the costs can be substantial. If you want an advisor without conflicts of interest, consider an independent advisor who charges a straight hourly fee and does not directly benefit financially from any particular purchases.
Even if the economy stays on course, it is prudent to prepare for a change of fortune. The risk of losing your contract, losing your group’s hospital contract, or dealing with an unexpected medical problem are persuasive reasons to live within your means even when the money is flowing in.
5 Protect Thyself (Insurance)
In addition to medical malpractice insurance, most physicians will need auto and homeowner’s (or renter’s) insurance. An umbrella policy that supplements these polices provides a great deal of additional personal liability coverage at little cost and should be strongly considered.
Disability insurance is advisable for most physicians. This is a complicated product, and it is important to do some due diligence to find the right fit for your situation.
Life insurance is recommended if you have family members who are dependent on your income. Long-term care insurance is appropriate for some physicians with such family needs and requires careful evaluation of the company and a review of the fine print of the policy.
6 Investing—Simple Is Smart
If you like to watch CNBC, read The Wall Street Journal, study the markets, explore various investment options, and play with individual stocks, then by all means, do so at your own financial risk. The likelihood that you will beat the averages is remote when even the best financial gurus in the country have difficulty consistently beating a mix of 60/40 of low-cost index funds in stocks and bonds.
The vast majority of investors will be well-served by the following guidelines: 1) keep it simple, 2) stick with very-low-cost index funds or exchange-traded funds from large discount brokerage firms, and 3) block out the noise of the talking heads on the financial shows. Be skeptical of all advice. Have some exposure to the U.S. stock market and the bond market, and mix in a little international exposure. The exact mix will vary depending on your age and risk tolerance. Adjust your asset allocation yearly. Don’t try to be a market timer. You won’t hit a home run every year with this plan, but you won’t strike out either. Over the long haul, there is good evidence that this type of investment plan is the wisest course for most investors. Invest your money; don’t gamble with it.
This area is filled with sharks and con artists eager to separate you from your money. Some do it legally (with outrageous fees while providing no added value), and some belong in prison. Rick Ferri, a leading expert on exchange-traded funds, warns, “Many Wall Street firms exist to make money from you, not for you.” Certainly there are countless ethical and reliable practitioners in the field, so “doctor, beware.”
Dr. Segan is an emergency medicine physician and attorney based in Woodmere, New York.
Seven Financial Tips
1. Make a plan now for financial serenity—your family and your patients will benefit.
- Financial peace of mind will make you a better partner, parent, and physician.
- Financial serenity will be forever elusive without a realistic plan.
2. You must learn the basics of investing to avoid becoming shark bait.
- Your financial well-being is too important to delegate.
- There are plenty of “advisors” eager to separate you from your hard-earned money.
- Knowledge and skepticism are your prophylactics to becoming a victim of unscrupulous financial advice.
3. Do something radical—live below your means and feed your piggybank.
- Become a disciplined saver.
- Live less extravagantly now, and you can better weather the unexpected events in the future.
4. Build an ethical, prudent team of advisors.
- Find a CPA, lawyer, and insurance agent who will make your well-being a priority.
- If you need a financial advisor, hire one who will charge you an hourly fee.
5. Have sufficient insurance in case unexpected mayhem finds you.
- Most doctors should have disability insurance.
- Ask your insurance agent about umbrella insurance.
- Finding the right balance between obtaining appropriate coverage and being overinsured is essential.
6. Fully fund your retirement plans.
- The federal government is giving you a gift with tax-advantaged retirement plans.
- Ask your CPA which IRA and retirement plans you and your partner qualify for.
- Maximally funding these plans should be your top investing goal.
7. Keep your investment portfolio very simple and very low cost.
- Very-low-cost index funds are the foundation for a sound portfolio.
- A simple allocation of assets (60 percent stock funds and 40 percent bond funds) is appropriate for most investors.