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March 13, 20175 Key Financial Mistakes Made by Physicians
If you’re a physician, you were lucky enough to go to one of the best medical schools in the world because you live in the US and we boast some fantastic institutes. However, you may be wondering why you haven’t received much help when it comes to finances but this is why we are here today.
Although some will be wondering why we have targeted physicians especially, it is actually very simple as they have very different needs to everybody else. Not only do physicians have a higher student debt, they also have higher liability risks, but also an above-average income… a complex situation all around. Because of physicians’ unique situation, we want to give some financial tips on how to become more effective.
Why Physicians?
Firstly, physicians have to go through years and years of medical school which means that they finally leave education at the age of 27. Potentially, they could even have residency right up until 30 years of age. For this reason, physicians start much later than any other career choice and this can hinder investment options early on.
Secondly, over 60% of all physicians owe more than $150,000 at the point of coming out of education; only 17% didn’t have any debt whatsoever. Shockingly, three-quarters of physicians that specialize in low-risk areas receive some sort of malpractice claim against them before the age of 65 which clearly shows a higher liability risk than many other industries. Finally, there are a number of other financial issues such as a constantly changing and expanding tax code that dramatically affects finances.
With all of this in mind, a poor strategy is magnified for physicians and poor decisions can not only cost money now but it can cost a comfortable retirement. Additionally, a lack of free time may lead to certain decisions being rushed which leads to the same mistakes over and over again. If you’re a physician and this sounds like your stressful life, we have five of the most common mistakes that your colleagues around the country make. With this in your back pocket, you should be in a great position to avoid them moving into the future and you should be able to build yourself a more secure financial status.
#1 – Poor Financial Advice
No matter how smart or well-educated you are, there is no way you are prone to overconfidence and all it takes is one bit of poor advice and you could lose thousands of dollars very quickly. Regardless of your job, you are a wealthy investor and that is what some people look for and so you will be targeted by all sorts of programs that claim to beat the market or ‘beat the system’.
With a certain amount of savings and an income of over $200,000 per year, you will be classed as an accredited investor which means that the door opens to a number of fantastic investment opportunities. However, it also means that people will be able to see your label and you will be ‘advised’ to take part in investment schemes that are nothing more than questionable. As an accredited investor, you may not be protected as well as the normal investor so you will have to look out for keywords so you don’t fall foul of these schemes. For example, if a financial program claims to ‘beat the system’ or provide ‘secret’ or ‘proven’ formulas, it might be worth discussing this with your financial professional because no investment is ever guaranteed and after years of financial advice, they will know all the ‘secrets’ available.
In truth, many physicians choose to do too much too early. By this, we mean that they try and make big money from every single investment but this isn’t necessary. In life, you are going to be working harder than you’ve ever worked before so why throw that away with a silly investment decision? Have you ever heard the story about the tortoise and the hare? When it comes down to your money and your future, slow and steady just might win the race. If you are prudent and make sensible decisions, you will be able to build a sustainable long-term portfolio that uses tried and tested techniques as opposed to magical new formulas.
#2 – Forgetting Asset Protection and Liability Risks
In terms of liability risk, you are up there with the most dangerous and this is a fact that cannot be denied or conveniently forgotten about. Although it may seem like it will never happen to you, thousands of physicians get caught up in a liability suit every single year. Not only will the effects of a settlement be crippling for your career and financial future, but the costs of the case going through court will also be extortionate. Ultimately, many families have been destroyed by liability cases so this is something you have to factor into your finances.
Of course, the most simple solution is medical liability insurance and this is something that you probably have already but have you read the small print on your documents? If a court case ever came to be, the insurance will only cover a minuscule amount (if any at all). Therefore, as soon as the coverage limit is reached, your income and assets will be liable for collection. Many physicians think they have this solved by putting assets into a child’s name or the name of a partner but sadly, this doesn’t provide as much protection as you might think. Nowadays, private investigators are often hired to seek out any sensitive information that can be used in a trial and this will put you on the back foot before the trial even starts. Furthermore, not even a secret account will be left untouched and the investigator will soon know where every single penny of yours is hidden.
When it comes down to it, you need proper protection that allows you to look after your family and your assets should anything ever go wrong. Although there are pros and cons to all types of protection, some of the more popular options include trusts and other ownership strategies, umbrella insurance policies that aim to expand your coverage of liability, investment diversification, and advanced strategies that look into managing risk.
As sad as it seems and as impossible as it may feel, liability suits can hit absolutely anybody so make sure you have the necessary protection in place so your financial future isn’t ruined and your assets aren’t ceased. The more protection you have for your assets from malpractice claims, creditors, litigators, and more, the better position you are putting you and your family in for the future.
#3 – Not Enough Life and Disability Insurance
Insurance is a tricky area to get right and unfortunately, a large percentage of physicians are currently getting it wrong and you could be too. Life insurance is used to prevent costs if something unexpected was to go wrong, however, many physicians forget about long-term disability insurance and this is a vital cog in the machine that’s missing. When this is the case, you are leaving both yourself and your family open to the risk of a disabling injury or illness. Currently, research has told us that many physicians are underinsured right from the start of their career before then going on to pay too much money when reaching the retirement age. Not only does this not provide you with the correct protection, it means that you are eating into your retirement funds just before you get to the right age.
Many will state that Social Security disability income will provide money so this isn’t a problem but there can actually be a vast difference between what you need and what you will receive. If you have an illness or a disabling injury, your savings and everything else you have just won’t cut it so make sure you look into disability insurance and make sure you have the right cover too because a lack of either has the potential to ruin lives.
#4 – No Financial Strategy
When you decided that you wanted to become a physician, you would have chosen a strategy to get there. When you decide anything in life, you have to create a strategy regardless of how long or short the plan is. When it comes to your finances, why should this be any different? Ultimately, your end goal is to have a comfortable retirement for you and your family so you need to set a financial strategy to work out exactly how you’re going to get there.
As your income increases as you age, it can be easy to forget all strategies but this is perhaps the biggest mistake of all. Not only do you need to assess your income, but you also need to control your spending and find ways to invest or protect your money for the future. Granted, you may want to make some extravagant purchases as a reward for your hard work but this doesn’t mean that you can’t be sensible at the same time.
With a written plan by your side, you will have all the tools necessary to succeed. As well as including your long-term goals like retirement, you can also include things like sending your children to college or buying them a car when they reach the right age. ‘When you fail to plan, you plan to fail’ and this works perfectly here because you need to have goals for you and your family and ways in which you will get there.
#5 – Not Asking For Help
Earlier, we mentioned that physicians go through a long education system and this is a positive but it can also turn into a negative when they feel as though they shouldn’t need help. When investing for your future, you have to realize that you aren’t just gambling for you, you are gambling for your family too. There is nothing wrong with not knowing what to do with your money; we all have different talents and whilst you look after patients, it might be worth asking a professional to look after your money.
To avoid mistakes and overconfidence, you should consult a finance professional who will help you to build a portfolio that is diversified and allows for long-term results. Back in the day, it was easy for investors to place money and see their shares grow in value three times overnight but this is no longer the case. Nowadays, the market is more volatile and inconsistent than ever before so you need a well-designed strategy put in place to ensure that you can reach your long-term goals.
If the market was to decline right now, what would you do? Although the majority of people would back out and wait until it improves, you should actually embrace the change and take a short-term loss in order to achieve a huge long-term gain. Back in 2008, millions of people lost money all around the world because they couldn’t see past the next few weeks and months. However, a lot of money was made by those who looked into the future and saw an opportunity for growth. Little decisions like this will keep your portfolio in the best possible position and because they don’t have an emotional attachment to your money, you will be safe in the knowledge that all decisions will be made with you in mind.
Dealing with the turbulent market on offer these days not only takes training, it takes experience too and a certain commitment to a long-term strategy. For physicians who may not have the time or knowledge, this is crucial and a good financial professional will be able to provide guidance and peace of mind. In the medical industry, it is actually very common for finance professionals to look after the money side of things and even many accountants, tax planners, attorneys, and insurance agents look after finances for physicians. As long as you let the expert know your goals and you keep communicating with them, they will soon build a diversified portfolio that allows you to reach these goals. If you build a team of these professionals, you can have a well-oiled machine all pushing towards a common goal – your future.
Ultimately, not asking for help can be detrimental for you and those around you. When it comes to your finances, it isn’t just a matter of pride because you and your family will all get hurt. Why not get planning and call a professional today?
Why a Finance Professional?
Considering everything you do and the risks that are involved, finance professionals are the perfect solution because they allow you to continue what you’re doing whilst everything else is looked after. Regulations are constantly changing and markets are always shifting, do you really have the time to secure your future whilst keeping up to date with these?
When it comes to your profession, there is no magical approach that works for all physicians and will work for you. With that in mind, you need someone who will stand by your side, assess all of your options as well as your goals, and work with you to create a more prosperous future.
There it is, we hope that you find this guide useful and we hope that it pushes you into a bit of action. These key mistakes aren’t just things that theoretically could happen in your industry, they are mistakes that physicians make every single year so be sure to take action to avoid your name becoming the most recent. When choosing a finance professional, make sure you run all the relevant checks and choose someone that represents your goals and aims!