Financial Planning Basics for Doctors

Welcome to Financial Planning Basics for Doctors. As the subtitle references, many doctors do not receive a formal course in planning their finances throughout their medical education. Because of this, they will turn to outside sources to learn about constructing their financial plans. Some of these are excellent, while others may not be geared toward doctors in training or the initial years that follow. This is an important period in the lives of new doctors and their families, as planning in the years leading up to your transition and immediately afterward is instrumental in establishing good habits for long-term financial success. With this in mind, we set out to create a holistic financial planning reference that speaks to the men and women of our medical community.

This book is written with the goal of saving doctors the most precious resource we possess—time. We will examine the purpose of financial planning, the nature of a doctor’s financial situation, typical pitfalls, risks doctors face, behavioral finance, and much more. To begin, we must set a baseline understanding of three important questions: What is financial planning? Why is it important? What makes a doctor’s financial plan different?

What is financial planning?

On a basic level, financial planning is the process of using your current and future resources to maintain your desired lifestyle through your career and retirement, as well as prepare for any surprises along the way. This includes decisions that may be difficult to come to, including when you would like the ability to retire and how much you wish to provide for your family if something were to happen to you. The planning process begins with assessing the current state of your assets, debts, income, expenses, spending habits, risk exposures, dependents’ needs, economic factors, employment, concerns, and goals.

The last one mentioned—goals—can be thought of as your purpose, financially speaking. What is the purpose behind your monetary decisions? Some readers may have a hard time answering this. Many doctors are not practicing medicine for the money and, if it were up to them, would prefer to work as long as possible, professing their love for the job and helping patients. Others may find it difficult to visualize what impact their financial decisions today will make on their future and, since the future is not here today, planning for later in life is dismissed until another time. In many cases, doctors would like the option to fully retire or scale down to part-time, perhaps staying active in medicine through donating their time to underserved populations. Whatever your goals may be, they will not be accomplished on accident. Achieving them requires a well-designed outline and intentional effort.

After reviewing your current situation and future goals, you will need to understand the various strategies available to further develop your financial plan. It is easy to wander between options during this stage, potentially losing motivation to fully commit to any one course of action. If you find yourself in this rut, recognize it and take a moment to pause. Pick a strategy that shows the greatest promise to fulfill your goals in a manner consistent with your values. Taking even a small step is better than not moving forward at all. After selecting a strategy, you can now implement, monitor, and periodically revise your plan over time.

Building a comprehensive financial plan is broad in its scope. The most common topic that comes to mind with the term “financial planning” is saving for retirement. This is similar to saying a healthy lifestyle requires exercise, which is true, but would be an incomplete description. Financial planning is far more dynamic than just saving for retirement. We will cover retirement planning in depth, but will also address many other areas that affect your financial well-being. These include risk management and debt management strategies, with student loans receiving plenty of attention. This book will also examine tax challenges, home ownership and financing strategies, and college funding for your children, among other subjects.

Why is financial planning important?

In the past, older generations could rely on employer pensions for a decent amount of their retirement income. Social security was better funded, further providing a source of income for a retirement that often lasted five to fifteen years. These factors, combined with a less complicated financial landscape, resulted in a lower need to plan one’s finances ahead of retirement.

Many of these elements have changed since the middle of the last century. Only a small fraction of employers now offer a pension. Of those that do, many of these plans are not adequately funded to pay the promised benefits. Social security, which was never intended to be the primary source of retirement income, is increasingly uncertain for the generations to come. The demographics of what retirement will look like are also changing with people living much longer than in the past. It will not be uncommon for doctors today, especially those early in their careers, to have at least a twenty-year retirement. With less employer and governmental support, Americans are now increasingly responsible for providing for themselves in retirement. Many will face the very real possibility of outliving their savings if adequate planning is not started well in advance.