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As I write this introduction, I’m wearing a tee shirt that says “Goal Digger,” a gift from a fellow digger and achiever of goals named Michael.
Today’s guest post from Tomas Gutauskas of Dollar Break is all about achievable goals. Some (establishing an emergency fund) may seem more manageable than others (vanquishing your student loans), but with enough time and discipline, a high-income professional can achieve each of these and more.
It’s my goal to help others reach their money goals and ultimately life goals, and checking these boxes off will certainly help you in both respects.
Take it away, Tomas.
Five Important Financial Goals for Physicians
Being a physician offers lots of rewarding opportunities, including the possibility of financial independence. Unfortunately, this is not an automatic thing; according to a CNN Business report, there are increasing numbers of doctors being driven to bankruptcy. So, if you want to achieve financial independence, you need to take proactive action and work towards financial goals.
Financial goals can seem like a nebulous topic, as they can vary for each individual, but there are some common goals that should apply to all physicians. Here we’ll explore five types of financial goals that are worth serious consideration to help you work towards financial independence.
Set and Stick to a Budget
This may seem like a very simple task, but it should be the number one goal of every professional. A budget is a way to not only track your spending but plan for your financial future. However, according to Medscape research, only 49 percent of physicians keep a mental budget, and a mere 18 percent have a formal written budget.
Setting and sticking to a budget allows you to not only manage your professional costs but also keep your personal spending under control. While most physicians tend to live at their means, it is only by keeping track of spending that you will be able to find disposable income to plan for your financial future.
There are many tips and tools for setting a budget, but the key is to have a budget that you can readily access, so you can keep track of your expenses. For this reason, many people choose to use budgeting apps, but if you’re disciplined, you can still accomplish managing a budget with a basic pen and paper set up.
[PoF: I’ll admit I’ve never kept a budget, but I started tracking our spending closely for several years after starting this blog. I wanted to be very sure we were beyond FI before leaving my doctor job.
Dr. James Turner, a.k.a. The Physician Philosopher isn’t exactly a budgeter, either, but he has created an excellent course that can help you keep your spending in check while you reach your financial goals more quickly. Learn more about Medical Degree to Financially Free, which is coming soon to a screen near you!]
Start receiving paid survey opportunities in your area of expertise to your email inbox by joining the All Global Circle community of Physicians and Healthcare Professionals.
Establish an Emergency Fund
While this is not the most fun financial goal, it should be considered one of the most important. The ideal scenario would be that you would have 6 to 12 months of your living expenses set aside in an account that you don’t touch. This will provide you with a cash reserve that can save you from falling into debt if there is an unexpected situation such as illness.
Establishing your emergency fund can be straightforward. You can use direct deposits to send some of your paycheck into a savings account each month to cover a financial emergency. You can even explore higher interest rate options from online banks or credit unions.
[PoF: This bear market and presumed recession has emphasized the importance of an emergency fund. Mine waxes and wanes a bit, but I’ve always got at least a few months of expenses in a savings account, with additional funds that I could tap into if necessary.]
Settle Those Student Loans
According to Credible, in 2019, the average medical school debt reached over $230,000. Even if you’ve secured a modest interest rate, you could still be paying thousands of dollars in interest over a ten year loan. Paying down this debt is one of the best ways to achieve financial freedom.
There are a number of options for paying off student loans, and you may even be eligible for a student loan forgiveness program. You will need to meet specific criteria to qualify, but it is worth investigating.
Even if you don’t qualify, there are refinancing deals that can reduce the amount of interest you will need to pay, so you can bring the balance down more quickly.
[PoF: you can always see the latest rates (and exclusive cash back refinancing bonuses) on our Student Loan Resource Page.]
Student Loan Refinancing Disclosures
Start Planning for Retirement
Whether you’re already established or just starting your career, the chances are that you’ve not given much thought to your retirement. Like many professionals, physicians have a tendency to leave saving for retirement until too late. While you may love medicine, at some point, you’ll want to relax and enjoy other interests.
Planning for retirement can be daunting, but if you start early and simply, you can develop a strategy to provide sufficient income to allow you to enjoy your current quality of life after you retire. There are several routes to retirement planning:
- Employer Plans: It is likely that your employer offers a retirement plan, and this may include matching contributions up to a specified level. Once you’re hired, you’ll start putting something in your retirement account, even if it is only a small amount. This will allow you to benefit from compounding interest and employer contributions.
- DIY: If your employer doesn’t offer a plan or you prefer to handle your own investing, there is a DIY route to retirement planning. At a bare minimum, you’ll need to open an IRA, but if you want to significantly grow your fund, you’ll need to rely on your own investment savvy to ensure that you don’t end up losing your capital. Of course, since retirement is a long term plan, you should be able to ride out any ups and downs in the stock market.
- Financial Advisors: Finally, you can utilize the expertise of a financial advisor to manage your retirement fund and associated investments. There will be costs attached to this professional advice, but it will mitigate some of the risks, just be sure to choose a reputable and ethical advisor.
Save For Your Family
Another important financial goal is to save for your family. Even if you’re currently single, you’re likely to have dreams of settling down, so it is a good idea to have some financial security in place for this.
The most obvious goal is to save for your home. Home ownership provides shelter and security for yourself and your loved ones. However, there are some big mistakes that are common when many doctors buy a home. These include:
- Buying too soon: You should aim to create your budget, establish an emergency fund, and pay off loans and debt before you purchase a home.
- Using the wrong type of finance: While it may be tempting to go for the cheapest option, it can cost you dearly in the long term. So, avoid 30+ year mortgage, doctor loans, and other subprime products to purchase a home.
- Aiming too high: Although you may love the idea of a massive house, there is no point in over extending yourself for a home that is unnecessarily large for your needs.
Another area where you can save for your family is to start college funds for your children. Tuition costs continue to climb, and you’re not likely to want your children to be burdened with massive student loan debt. Of course, knowing how much money you will need can be tricky, but a good ballpark figure is to take the current costs and multiply it by four.
You can make a serious dent in a college fund by setting a little money aside as soon as your child is born. Many states offer tax incentivized 529 plans to encourage parents to save for their children’s college funds. These are similar to Roth IRAs when used for education and could allow you to create an impressive fund by the time your child is ready to choose a school.
So, Are You Ready to Get Started on Your Financial Goals?
As we’ve discussed, once you’ve set a budget, you can start to plan for your financial future, and deciding on some financial goals can guide you towards achieving financial independence. Of course, your goals will depend on your own preferences and circumstances, but the five types of goals we’ve discussed should provide a good starting point.
Just remember that once you’ve decided on your financial goals, you’ll need to keep track of your progress, so you can make adjustments as needed to ensure that you stay on track.
How many of these goals have you achieved? What’s your next financial goal?
4 thoughts on “Five Important Financial Goals for Physicians”
The current pandemic has clearly shown the need to have access to funds in an emergency, but necessarily a formal emergency fund. I’ve never subscribed to the idea of sequestering 6-12 months of expenses in cash or cash equivalents. Instead, I’ve chosen to keep all of that cash invested. In a worse case scenario, I could tap into a HELOC. Failing that, I would sell off some securities. I can think of very few situations where this wouldn’t be compatible with my emergency needs.
Good article and food for thought. While MD loans have been debated other places in other articles, based on my own experience I have to disagree that they’re something to avoid.
My first MD loan 7/1 ARM zero down allowed me to have my own home during residency. A garage so I could do my own auto repair on my clunker (and I did A LOT and saved thousands of dollars), and a garden for a nice hobby away from residency (and cheap food). I have a timing bias; I bought in 2012 just as the market was starting to recover. Still, my zero down mortgage was lower than most of my classmates were paying for rent and I walked away 4yrs later with a $35,000 check at sale. The latter won’t always be the case but it’s worth considering rent vs. mortgage costs.
Now my new home I just purchased last year. I got quotes for MD vs. non MD and got rates for every level of down payment 0 to 20%. What I found was that applying under an MD loan resulted in a lower interest rate at 20% vs. a non MD loan. Further, putting more than 10% down (or was it 5%?) didn’t change the interest rate at all. So this gave me flexibility. Invest vs. pay down debt (the new mortgage), put 10% or 15% down now and add another 10% or more later. Or just put the traditional 20% down up front. Knowing the rate was the same at different DP levels and better vs. non MD loans, I had more options.
So based on my experience I would say “always apply under an MD loan” but get quotes for every down payment level and MD vs. non MD while you’re at it. And if eligible in your state include SunTrust in your quotes. For me, that was the best rate and terms I found (I have no affiliation or financial interest in Suntrust- but, they’ve come through for me, on time, with the best rate, twice.)
Tomas,
Nice list! Regarding financing for a home, I am curious how far you would take your ‘avoidance of high interest rates’ advice. You don’t state whether you like 15 year fixed, or always go for the lowest interest.
We were quite extreme at this, and always took (and refinanced) into the lowest rate, regardless of all loan terms other than making sure there was no pre-payment penalty. We had “interest only”, 5/1ARM, 7/1 ARM, etc loans but always made extra contributions to pay down principal at least at the rate of a 15 year fixed. As loan interest dropped, we would do the math, and refinance if total costs would be made up in less than 2 years. We treated our house payment as fixed, so any time we lowered our rate we kept our payment the same. Wound up paying off the house in 11 years. Got lucky with no ARM adjustment until the last 7 months, but even then we were $1000’s ahead in total costs compared with 15 yr fixed or 30 yr fixed.
Obviously using short term loans with balloons or ARM adjustments seems like a big gamble, but:
a) you are basically self insuring a risk that the rates might rise before you move (think of the “fixed rate” flavors as a combination of ARM+insurance about rates)
b) most of us sadly will not be in our first few houses for more than 7-9 years anyhow. Good chance of selling during the ARM.
It worked out for us due to timing and luck, but I think on average would work out for most, with some risk of regret for a few.
What are your thoughts?