We all know that physicians can make a good amount of money every month, but they’re not exempt from financial blunders at some point in their lives.
It is essential for both young and experienced physicians to understand what possible mistakes they can make and how to avoid them.
Here are some of the most common financial mistakes that doctors make:
1. Fulfilling delayed satisfaction all at once. When you first start getting your paychecks, this can lead to an enormous boost in standard of living. While this may seem like the ideal time to buy all the things you have been wanting for a long time, this is a common financial mistake.
2. Not maintaining a budget. Another majorly important mistake to avoid is not maintaining a budget. It is easy to keep a budget early in your career, but budgeting often goes off the rails as the scale increases. This can result in reckless spending. While accounting for every minor expense is unnecessary, knowing where the more significant amounts are going is important. This can give you an idea of what exactly is happening with your money.
3. Not saving emergency funds. It is prudent to have an emergency fund, particularly in unpredictable times. It helps in times of crisis and prevents you from sliding into a cycle of increasing debt. It is highly recommended that you have at least 3 to 6 months’ worth of living expenses saved up in cash to deal with any unforeseen events.
4. Not knowing where to put money for retirement. Taking advantage of retirement programs such as 401(k), 403(b), or 457(b) is typically the first step for physicians. Although these plans offer great value, physicians need to understand how they function. For instance, it is good to know what kinds of investments can be made, what fees are associated with each investment choice, etc. It is always beneficial to seek the advice of an expert and investigate all possibilities at your disposal.
5. Not managing debts effectively. Another big mistake physicians usually make in handling their finances is not managing their debts wisely. It is no secret that physicians typically carry the burden of debt on their shoulders. It can start with student loans and can lead to credit card debt, automobile loans, and payday loans.
Debt consolidation is a good strategy to eliminate these debts. You won’t need to struggle with multiple loans to pay off on different dates, and you can do this at a lower interest rate.
6. Not making appropriate investment choices. To maintain financial security, it is essential to acquire financial literacy and make intelligent investment decisions.
Doctors must safeguard their financial futures. This can be done by purchasing sufficient insurance to protect them against potential threats, such as personal and professional liability, health issues, injuries leading to permanent disability or death, and the loss of valuable possessions.
7. Assuming money is a renewable resource. As a physician, it is reasonable for you to believe that you will continue to bring in a steady income month after month. Physicians have a common tendency to think of money as a renewable resource.
On the other hand, this concept can sometimes make it difficult to anticipate a situation when your income could diminish or when you will not be able to make as much money as you usually do.
8. Having the wrong financial advisor. As a physician, you may need to consult a financial advisor for various reasons; for instance, handling your finances efficiently, putting your money to better use, or simply wanting to make more out of your money. However, you must make sure that your advisor has your best interests in mind and must check if your finances are being handled efficiently.
9. Unable to maintain the income-expense balance. The habit of keeping a tab on your expenses as per your income can sometimes get difficult, which can make it easy to break the income-expense balance. To avoid such a situation, you must keep a monthly budget and adhere to it.
10. Not utilizing the available resources. This is one of the most surprising choices that some doctors make. They rarely take advantage of the resources at their disposal. It is important to remember that you won’t regret treating yourself to an amazing trip or investing a significant amount of money in the car of your dreams.
As a physician, it is important to build and maintain your own financial health. The sooner you do this, the better. You can be more efficient and effective with your money if you plan ahead and make a reasonable budget, consolidate your debts, learn about taxes, and invest wisely.
Lyle Solomon, ESQ, is an attorney.
This post appeared on KevinMD.