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Common Financial Mistakes New Physicians Make

Why do so many physicians stumble financially right after residency?

In this special 200th episode, we’re joined by Hugh Baker to break down the most common financial mistakes doctors make as they step into full-time practice.

Listen in as they talk through rushed home purchases, misunderstood contracts, and the pressure to “catch up” on life after years of training.

You’ll learn what to avoid when buying your first home, why investing early matters more than timing the market, and how to keep your financial future flexible, even with a six-figure paycheck.

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Full Episode Transcript:

Daniel Wrenne: Ideally, you are gaining the psychological experience of watching your investments go up and down, and you’re developing the habit of seeing your money go out every single month, saving first before you spend. That’s huge. And the sooner you do that, the better. There’s no argument there. I don’t think.

Hugh Baker: You might not be impressed when you look up one year later, but you look up five years later and you’re like, “Wow, that’s a big difference.” But you can’t get there if you don’t start in the first place.

Welcome to Finance for Physicians, the show where we help physicians like you use money as a tool to live a great life. I’m your host, Daniel Wrenne, and I’ve spent the last decade advising physicians on their personal finances with the mission to help them understand that taking control of their finances now means creating a future where they can practice medicine where, when, and how long they want to.

Daniel Wrenne: Hugh, how’s it going?

Hugh Baker: Great, Daniel. How are you?

Daniel Wrenne: I’m good. You’ve been coaching a lot of baseball. I see your background picture, which I’ve already seen that picture, but that’s a solid baseball coach and son picture right there.

Hugh Baker: Yeah, it’s a bittersweet time of the year. Last game will be Monday. We just had a parents versus kids game last night, so that was a lot of fun.

Daniel Wrenne: You woke up on him?

Hugh Baker: We thought about it. We’re like, “Oh, we’re gonna let them get on and score. And then we were like, maybe the last inning, we’ll we’ll show ’em. We still got it, but.

Daniel Wrenne: Well, eventually yeah. That goes away where they start really legitimately beating you.

Hugh Baker: Hopefully. Yeah. But it’s six years old.

Daniel Wrenne: Yeah. Right. And you got a few more years before that happen. Apparently, this is our 200th episode, so kind of a big one. I didn’t realize who helps us produce the shows informed me that it was the big 200th. So we’re gonna be talking today on our 200th episode about some of the most common mistakes that we see, particularly with residents transitioning or fellows transitioning into practice.

And really, I think this could apply to anyone seeing like a large income increase, ’cause I think that’s the biggest factor at play, but also, throw in the potential move, new job, probably new everything, new friends, new location, new schools, new everything. It makes it a particularly challenging transition point, and I think it’s like probably one of the most mistake-prone times of your life.

Would you agree with that, Hugh?

Hugh Baker: For sure. Anytime you’re about to have big changes, lots of emotions, making big decisions, always a good time to try to be proactive and think big picture. Take your time with your decisions.

Daniel Wrenne: Yeah. I think too, there’s some—I haven’t lived it. Hugh’s actually lived this transition, so I’m curious what you think, Hugh, but seems like there’s a lot of times this, pent up—I don’t know what to call it—pent up spending, living like a president for so long and working so hard, not getting paid market wages. So there’s like this pent-up “I need to be compensated well and also enjoy my money.” And so that seems to sometimes amplify it all where it’s time to live—spend or live—or sometimes people take that it’s time to save everything too, but it’s like this pent-up up I gotta catch up on life.

Hugh Baker: Yeah. It was about, I should say, 2018 I think, is when my wife graduated from residency. And yeah, I think our main thoughts at that time were wanting to enjoy the fruits of her labor, but also not blow it either.

Daniel Wrenne: Right. Strike a good balance. Yeah. I know y’all have done a good job with that. I’m sure not perfect, but from the outside it seems like y’all done a really good job with that. So yeah, let’s jump into some of those big mistakes. You want to throw out the first one, Hugh, that we commonly see?

Hugh Baker: I think the first thing, whenever you’re making this big change, taking a new job, is just always making sure that you understand your contract, right? Always good to hire a contract attorney to review that with you, just to make sure that you understand everything that’s in there. That’s number one, but also, they’ll know the market for your specialty, what people are paid when your position, especially for things like comparing RVU targets.

Which I would say I would pay more attention to the RVU target than necessarily whatever schedule they say you can work. So I think those are important things. Not getting used to that guaranteed salary, maybe? Is a good thing. Let’s understand where you’re going to be at production-wise, and if that guaranteed salary is ultimately realistic.

And then another thing that we were intentional with and with the people that we work with, we try to be intentional with as well, is anytime someone’s getting a signing bonus in this contract, where it’s not necessarily yours yet until you fulfill that contract—we were talking earlier about this pent-up spending demand.

You might wanna buy your first home. You might want to replace your beater car, which you won’t get any sympathy from Daniel for. You might get a little sympathy from me on that one, but don’t go out and spend that signing bonus until it’s actually yours. So maybe set that aside in a separate account.

Just in case something happens, you don’t fulfill that contract, you need to pay it back. That’s a good thing to understand just how that vests over time, which vesting just means how you earn that over time. The amount of time that you stay and continue working with them.

But really, before we even talk about how to spend the money, let’s just understand the contract and what you have to do to get the money.

Daniel Wrenne: Yeah. And you mentioned, I think probably the most important point is like hiring and paying, like paying a third-party expert is extremely valuable, especially for this decision.

Even if you have a physician friend, an old mentor type reviews your contract and knows what they’re talking about and gives you advice, even if you have a lot of knowledge or a business degree or whatever, I think it’s super valuable to hire an unrelated third party that you’re paying money to give you advice on around the contract.

Because what they do, essentially, at the end of the day, he was saying they help you to more have a more thorough understanding. It’s almost impossible to understand it from all the different views ’cause it’s complicated. So you gotta look at it from the view of the hospital or whoever, the private practice or competitive market, legal view from the physician’s view, or there’s all these different views, and there’s legal language, and it’s very complicated.

And so I think a lot of people think they understand their contract, and they maybe do understand components, but ideally, you want to get the maximum possible understanding. And I think really without spending a ton of time, the only way to do that is to hire some sort of expert that like that’s their job and they do it all the time.

And I think that’s a super valuable use of money, and I think a lot of people don’t do that. Sometimes it costs you big time, especially in some of the things particularly I would look out for is, especially for like long duration, long-term, locked in, big sign-on bonus, big-time-strings-attached contracts, you have to be super careful with those because you can end up getting in a dicey situation where you can’t get out, or it’s like you wait five years or pay back a big bonus, or there’s lots of different pinches you can get into with these contracts.

Hugh Baker: Right. Lots of different things. Just think if there’s somebody that has reviewed hundreds of these in their lifetime, odds are they are going to have some sort of insight there that you don’t have, even though it’s very tough to get into med school, right?

You’re obviously very smart people. You just don’t have the experience looking at some of these things, and they’ll know where people are—employers are willing to maybe bend a little bit. They’ve seen it before. I think if you’re putting an offer in on a house, you’re probably not gonna come in with your best offer right off the bat.

So maybe it’s not a huge salary increase that you get, but maybe it’s something like in the contract where they can move you to a different office, but maybe you get into your contract I’m working at this specific location because maybe you’re thinking about buying a house around that.

It’s actually something a contract attorney was able to get worked into my wife’s contracts; so her office is two miles from where we live. So that was huge. So even things like that can be huge peace of mind.

Daniel Wrenne: Yep. Awesome. But that’s a good segue. You mentioned your house, which is also a common mistake, the home decision.

Hugh Baker: Right. And a lot of people, this is when you’re graduating or you’re moving, getting a new contract, you’re going to buy a house. Maybe it’s buying your first house, and I certainly understand wanting to, finally become a homeowner. That’s like the American dream, right? I think where a lot of people go wrong is that becomes all of a sudden the most important thing for you to spend all of your hard earned money on when maybe two years ago, you cared more about experiences or you have other hobbies that you’re like, “Man, when I’m not working 80 hours a week, I want to take up surfing or some other hobby,”

And maybe now you have the opportunity to do that, but if you get yourself locked into too high of expenses, or I think a significant amount of people that we work with in the first three to five years, they’re talking about reducing their FTE. Significant amount.

Daniel Wrenne: Very large.

Hugh Baker: A home is such a fixed expense. You can’t just decide to not go to Europe this year. It’s locked in. Now you could move, but it’s extremely hard to downgrade your home. Very easy to upgrade.

Daniel Wrenne: Yes, and the home thing. A lot of people talk about rules of thumb. They’re like, “Oh, as long as I’m spending under two times or three times in my income,” or I don’t know, there’s a few rules of thumb.

And then the lenders and the real estate agents will give you rules of thumb, and they’ll make you feel good about it that you’re making—you go to the lender, they’re like, “Yeah, you know what? You can afford 3 million, but let’s go for 1.5 million,” and that’s super reasonable, but really the true answer is it’s very personalized to your situation.

You can’t look at the house just like independently. A lot of times, like we put blinders on with these kinds of emotional decisions, and then we just zero in and focus on the house only, and it becomes the only thing. So what you really have to do, like you were saying, is think about all the other things that are important in life, like work less versus work more, hobbies, spending experiences on spending on vacations, education, saving for retirement, like anything else you could do with your time and your money is up for consideration and potentially in conflict with what you spend on your house. So you gotta think about it more from a—I think it’s healthier to think about it from a trade-offs viewpoint, because no doubt the more you spend on your house, the less you have for other things, and/or, the less time you have available because you have to work more to pay for the thing,

Hugh Baker: Right. I don’t think I’ve ever had a lender ask me “How many kids do you have?”

That’s not magically, that’s not factored into how much you can afford monthly in a house, right? Kids can be expensive, especially if you’re low income family. Who’s watching the kids, right? They care.

Daniel Wrenne: Or how much are you saving for retirement? Or do you all travel much? Are you hitting your travel goal?

Or do you love your job? Do you hate your job? Is the reason you hate your job because you’re working too much? Are you burning out? Are you not burning out? Are you a part-time? Are you full-time? If you’re part-time, that’s a totally different situation than if you’re working out 80 hours a week. You gotta remember, if you’re working 80 hours a week, you’re basically 120% of capacity.

Like you can’t earn anymore than that. And you’re probably gonna burn out at some point working that many hours.

Hugh Baker: Right. So maybe the actionable advice there is think long and hard about the other stuff that’s more important than the house before you start to work on your house budget, and then also maybe think about the things that you can’t change over time with the house, right?

So maybe you can’t change the location or the school district. So maybe focus on that and yeah, maybe you don’t have a kitchen that looks like it’s on Pinterest. Okay. But those are things that can be changed over time. And then the odds are you might get used to it and not care after a while. Or you’re like the kids are gonna destroy it anyway, so I’ll wait till they’re older.

Daniel Wrenne: Right. Yeah. Or you just still know too, you could end up another thing, like we have a lot of clients that don’t like their first job. Go figure. It’s like brand new everything. Yeah. And so a lot of times it doesn’t work out or they hate it sometimes, so that’s not exact—None of them—What’s funny is everybody’s “Yeah, I really like this job. I feel like we’re gonna be set here for a long time.”

Nobody ever is “It’s probably gonna suck and it’s not gonna work out.” No one ever says that. But it’s better, I think for those huge decisions like that, to think about that potential scenario of how does it work with this big, huge purchase I’m about to make in the situation where the job doesn’t work out, and I’m trying to get outta here, just three months in.

Hugh Baker: Yeah, there’s psychological factor there, too. Like you buy the house. You don’t wanna admit that “Oh, I kind of wanna move now.” You might just act like everything’s okay. Keep going to work, keep trying to make it work, which you’re miserable. That’s an impact too. But.

Daniel Wrenne: Yes, it compounds on the whole denial of maybe underlying issues, so.

AD BREAK

Daniel Wrenne: Hey guys, quick break here to let you know about a new project we’ve been working on that we’re really excited about. We’ve created a self-paced course just for physicians making the transition from training into practice.

It’s called Vitals Check: Your Money Game Plan for Post-Residency Life. This course is not designed to turn you into a financial professional. Instead, it’s about helping you become an expert in your personal finance, so you can make confident decisions about things like housing, student loans, investing and more.

We’ve made it super practical and interactive with short video lessons, a digital workbook and tracking tools to help you actually do something with the information and you’ll be learning from the same great financial planners who’ve joined me here on the podcast: Jackie, Heather, Jen, Jeff, and Hugh sharing their real world knowledge on the topics they care most about.

The course launches next month, but you can join the waitlist now at courses.financeforphysicians.co. We’ll also make sure to include that link in the show notes so it’s easy to find.

AD BREAK END

Daniel Wrenne: So the next one kind of can go, I think, in tangent with the house.

Hugh Baker: Yeah. I think the other thing too, that is just not leaving enough room in your budget or cash flow for surprises that come along. Maybe it’s more children than you planned on, or maybe it’s you thought you wanted to work full time, but maybe it’s getting overwhelming and you wanna drop down to 0.9 or 0.8 or something like that.

And 10% of the types of income for our audience is not nothing. That’s like a nice chunk of money. So not leaving enough room for surprises and just not having that flexibility to make changes that maybe you otherwise would have wanted to. That’s another thing that tends to come up and really, like you said, goes hand in hand with the house purchase a lot of times.

Daniel Wrenne: Yeah, that’s a huge one. I’ve made that mistake myself like 15 different times, especially earlier in my career, and I’ve seen it a ton with pretty much everyone tends to gravitate towards this view of, “Okay. I’m gonna make $10,000 whatever a month. And so let’s go ahead and plan for where all the $10,000 goes.”

And so we’ll buy the house, we’ll do the living expenses, whatever. Maybe save some for retirement. The budget, if they’re doing a good job, even that’s a great exercise. But I’ve seen the budget, I’ve done it myself a zillion times. And you typically the budget, you think, “Okay, let’s account for every dollar.”

And so then you start doing it, and you’re like, “Why are we over every month?” Because you’re always over every month because there’s unexpected thing. So it you end up, it’s like a perfection. I think it’s a perfectionist thing. Maybe it’s like you wanna do the perfect budget. Some people just don’t budget at all, so don’t do that.

But if you’re budgeting, a lot of times we do this perfectionist budget. And the perfectionist budget, I always say, is you try to account for every dollar, and a budget can’t be perfect. So you end up setting this perfect expectation, and you always are let down, and you’re always over budget, and you’re like, “I’m failing, and I don’t even wanna do it at all.” And so you never budget again.

So just this simple little point we’re making of like building in some margin. 10%. That’s great. Where it’s just let’s just have 10% that’s not accounted for, and it’s gonna be surplus that we—maybe you set aside for a rainy day. Maybe you put it in an investment account and do nothing with it and it has no purpose.

That goes a long way, like huge and it ends up being 7%. ’cause you just the things that you don’t expect and then you’re like, “Wow, I’m under budget.” This is great. It’s just a different mentality to be under as opposed to blowing your budget every month.

Hugh Baker: Yeah, I think your downside with that scenario is you’re driving a Honda Pilot when you could be driving a suburban, and your upside is like the mentality of if this administrator who has no idea what goes on in a patient room bothers me about my RVUs again, I’m gonna give him my 90-day notice on the spot…

Daniel Wrenne: I’m out.

Hugh Baker: That is a huge peace of mind to have, to know that you have that wiggle room. You have options.

Daniel Wrenne: Yes. So it’s good. I would say big mistake: not leaving enough for surprises or building in margin. And I think the takeaway, ideally, I would encourage people to build in as much margin as they can tolerate, I think.

Because it’s not like no one ever gets bent outta shape about having—You can always decide to spend it later after you’ve now seen this margin or this surplus in your budget play out. After a few months, you’re like, “Wow, we’re saving half our income.” Now you can always be like, “Let’s start intentionally spending some of it.”

But that margin is—

Hugh Baker: Yeah, right. You could do the discretionary expenses, like bigger bucket list-type trips. That’s not something that you must go on every year. That’s something you could cut out if you needed to once you got a healthy reserve built up.

Daniel Wrenne: Yep. And this kind of goes against, I think, some of the gurus —Dave Ramsey—and they say “But account for every dollar.”

And what we’re telling you is—I guess they talk about rainy day funds, but what we’re saying is set aside money for no particular purpose. And it’s more about cash flow. This is more about a cash flow part of not being so reliant on your income.

Hugh Baker: Yeah. It’s saving for the things that you know that you don’t know, things are going to inevitably happen and there’s no way that you’re going to plan for it. Or even if you sat down for two hours and tried to think of every little thing like, “Oh, eventually my car is gonna need tires.”

Or there’s just a million things that. They happen. You’re like, “Oh yeah.” These things come up, but you’re not thinking about it when you’re trying to do the math and account for every dollar with bigger home purchase, car purchase, that kind of stuff.

Daniel Wrenne: Yep. Alright. Next mistake. This is a not fun one, I guess.

Hugh Baker: Yeah, it goes along with maybe not planning for the unexpected, being underinsured, or maybe even inappropriately insured, so maybe that’s not having disability insurance. When your income goes up, you’re just riding with the policy that the employer provides, or maybe failing to lock in insurance while you’re still in training.

So not only is there usually some type of discount for getting it when you’re in training before you graduate, sometimes there’s a window afterwards, but specific policies called guaranteed standard issue policy. So those are policies where you wouldn’t guaranteed to get a policy. There are some other check boxes there, but for some people that might otherwise not be able to get an insurance, I think I’m thinking of other people where this has come up.

Maybe Type 1 diabetes is one of those areas. Something like that where you might have a little trouble getting insurance, but. If you get them through these guaranteed programs, you can get insurance, but it’s important to work with a professional in this area because there are other instances where you might apply for insurance somewhere else.

You get denied, and now because you have a denial on your record, you can’t get the guaranteed policy. So good independent insurance agent can help you out there.

Daniel Wrenne: Yeah. Yeah. The main thing is—or getting it in place early, and when you’re healthy and in training, ideally, you get disability insurance for sure.

And I think life insurance is the other biggie insurance you gotta think about getting, especially when you have kids, or even when you’re expecting, that’s like a big deal to knock that out. And a lot of times we come across people that—and I get it, like you don’t. That’s like a very low likelihood situation.

It’s like that’s not gonna happen, and it probably is not gonna happen. And the problem is for you, law, large numbers, you get a hundred thousand people, it’s gonna happen to five of ’em. So it’s got a low probability. The problem is you don’t know which one of those a hundred thousand people you are.

You could be the five, and you just don’t know what’s gonna happen in the future. The other good thing about the low probability stuff like that is, that’s the only reason it’s affordable. Like it wouldn’t be affordable if it was a high probability. The insurance wouldn’t. So it’s nice that it’s such a low probability.

That’s why term life insurance is so inexpensive for young, healthy people is ’cause it’s a very low likelihood. But yeah, you never know.

Hugh Baker: Yeah, that’s right. Same thing. Maybe even if you don’t have kids, but buying a home, taking on debt together. That’s another good reason to make sure that you are insured.

Daniel Wrenne: What’s next on the list? Investing. This is a good one.

Hugh Baker: Yeah. I’d say waiting too long to start investing. We’ll have some people that come to us, and maybe they’re a year out of graduation or whatever, and they’ve got hundreds of thousands of dollars sitting in a savings account, which that is a wonderful problem to have.

That’s actually the difficult part is saving the money each month. Maybe you can stayed in the same apartment after graduating dual physician family, you might look back and be like it’s sitting in a savings account that got 1%, or you didn’t even move it to one where it’s a high-yield savings account, or.

Maybe the market did 15% or something like that, and all of a sudden that, one or one or $200,000 could have been like a Honda Civic—amount of money that you left on the table if you had just started to put the money to work a little bit more often, I think. I’m curious to know what you think on this, Daniel, but I think part of that problem is just analysis paralysis.

You start to dive in, what should we do at the money? You don’t come to a conclusion, and then you don’t think about it again for a month, and then you just repeat the same process. What do you think?

Daniel Wrenne: Yeah, I mean, that seems like that would makes sense. I also could see it just being mixed with you’re just busy, so it’s like you gotta take—a lot of people, me included, especially like the younger I was, I wanted to figure it out, figure the thing out before I did it to some extent.

And so I knew I needed to do the research or whatever, and take the time to figure the thing out. And that’s where the analysis paralysis comes in. But in combination with not having a lot of spare time, is especially difficult ’cause it’s I know I need to analyze it and I’ve started to analyze it, but I don’t have a lot of time, so I’m like spinning my wheels on it.

And it’s a complicated thing, or it feels complicated on the front end, especially when you don’t have experience. That’s why you should hire a financial planner. Really. We’re financial planners, so we’re biased, but that is one of the benefits of working with a financial planner is like short cutting that whole decision-making process.

Hugh Baker: Yeah. People don’t hire us because they’re not necessarily smart enough. It’s just because they don’t have the time to spend learning the thing or they’re hiring us, because if they’re being honest, it’s just not going to happen. They’re just not going to do the thing. There are things, lots of different things that people hire out for that could be like lawn maintenance, right?

You just don’t have the time and that’s just not what you wanna spend your Saturday morning doing. Maybe it is.

Daniel Wrenne: Yeah. It’s like checking your blood work or whatever. Like in medical world, like nobody, I don’t know a lot of physicians that regularly check their blood work on their own.

They have to go to their own primary care person. They’re like, “Yeah, we probably ought get your labs.” And they’re like, “Yeah, I know I gotta do that. But I haven’t done ’cause life’s busy, and I don’t really wanna look at all that stuff.” But it is one of those things, you know you need to do it, but it’s very easy to procrastinate.

Hugh Baker: Yeah, I think the other thing too, there is this fear of “what if whatever I invest in goes down?” And so you have like incentives, “Well, I’m gonna worry about what my spouse thinks, he or she is gonna maybe blame me.” Or, you’re gonna feel shame. And if you’re hiring someone who’s an expert in these things, right? Then you don’t have that on your plate of responsibilities anymore.

You’re gonna have a lot less stress. Let alone saving the time. And then let he or she, the expert, explain why the investments are down. And maybe it makes sense, right? Maybe you come to the conclusion, let’s deposit more money while it’s down.

But I think that’s another key component that often gets…

Daniel Wrenne: Having the third party is when—especially when you’re married, is very valuable. And then there’s just the experience, like the experience of watching or seeing your investments go up and down. The experience of watching the money come out of your account every month, like the habit of those things, those are pretty important things that you overlook, and you don’t realize how important they are.

There’s like of course, like the rate of return and the numbers part, but like the habit part of it is what I’m talking about and the psychology part of it. Ideally, you are gaining the psychological experience of watching your investments go up and down, and you’re developing the habit of seeing your money go out every single month, saving first before you spend.

That’s huge. And the sooner you do that, the better. It’s just there’s no argument there. I don’t think.

Hugh Baker: Yeah, you’re you might not be impressed when you look up one year later, but you look up five years later and you’re like, “Wow that’s a big difference.” But you can’t get there if you don’t start in the first place.

Daniel Wrenne: Yep. Gotta start soon. Alright, we’re getting close to time. Maybe we can throw out one more here mistake. Which one do we want to do? You, we got a long list, so.

Hugh Baker: Oh yeah. Since not everybody has student loans, and I’ll defer to podcasts with Jeff on student loans, I’ll say chaotic taxes, especially around the graduation period.

Common things that come up are maybe you’re used to contributing to a Roth IRA while you’re in residency, and then you graduate. You make more money, now you’re over the income limit to contribute directly to a Roth IRA. So you go to file your taxes, you get that notice that says you made too much, you have to correct it.

You’re like, “Oh, geez, I don’t have time to figure this out. What’s the process? What I gotta call somebody? I gotta sit on an 800 phone number to get this corrected.” That’s common. We see that a lot. Maybe now your income’s a 1099. Maybe you took some position like that. You have to make estimated tax payments now.

Please don’t wait and file, and then just pay it all at once. Plus the penalty, especially now with interest rates are higher, so is the penalty. You’re not paying your taxes on time. That’s another reason to hire a professional, at least a CPA in that situation. There are other things you could get into with that, but we’re not gonna get into that today.

Overcontributing to retirement plans is another common one too if you are changing jobs in midyear because your new employer has no idea what you contributed to your last employer. So you could end up doing another similar thing with the Roth IRA there where you have to call in somewhere. Get the money taken out.

Now you’ve got a new tax document for that excess contribution coming on maybe the next year. And it’s just a mess and a headache and not how you wanna spend an hour or two.

Daniel Wrenne: Yeah, the other one is I think of as bonuses. When you get paid big bonuses or any bonus, like a sign-on bonuses, especially what I’m thinking about, they’re all over the place tax wise.

Sometimes they’re taxed all at once, sometimes they’re not, sometimes they’re spread out, sometimes they’re taxed on the back end. So you gotta understand how that is gonna work, ’cause we would typically advocate pretend like it’s not yours. If there’s some sort of like catch to it. Like typically those bonuses are like, you gotta work five years to truly earn it.

So if that’s the case, it’s not really your money until you’ve earned it over the five-year period. But you also have to understand, especially if you’re gonna start spending it, what the tax implications are of the bonus. Like, when are you gonna pay the tax and not wait until April 15th of the year that we’re talking about to figure out what the tax implications are.

Ideally, as soon as you’re getting the bonus, and ideally you’re not depending on the hospital or something to tell you what the tax implications are. You want to get like somebody that works for you or looking out for you to help you figure that out.

Hugh Baker: I’ve had one case where rough numbers, let’s say you got a $20,000 signing bonus and annual salary is $360,000. Right? So you’re getting paid 30 grand a month, and they didn’t tell ’em, we’re gonna take the taxes out for that in your first paycheck. So you’re expecting a 30 grand free tax and it says 10 grand.

And you can imagine you’re having like a heart palpitations like, yeah. When your direct deposit’s significantly lower than you thought. And you’re trying to figure that out, again, you’re wasting 20 minutes trying to figure this out and all the anxiety that goes along with that.

Daniel Wrenne: Yeah, just the fact of knowing or projecting, getting an idea of what your taxes are gonna be before you start earning the money is helpful. I think a big mistake is making a lot of big financial decisions before you even know what your tax implications are gonna be. So like when you get the $400,000 salary, for example, you gotta understand how much of that you’re actually gonna take ’em, which includes figuring out what the tax component’s gonna be.

And then sometimes people don’t. Maybe they underestimate that amount, and that’s a huge problem.

Hugh Baker: That’s right.

Daniel Wrenne: Awesome. Well, Hugh on the 200th episode. We have had fun as always, and I appreciate you coming on to talk about some mistakes. Hopefully, you guys listen and avoid all of these. Hopefully, you’re rocking it out.

But in reality, we all are having—I’ve experienced many of these mistakes myself. So as we’re experiencing them, hopefully we’re learning from them to avoid them in the future.

Hugh Baker: Yep. That’s the key takeaway.

Daniel Wrenne: Key takeaway. Learn. I always say failing forward. So as long as we’re failing forward, that’s the key.

Hugh Baker: Yep. Well, thanks for having me.

No guests or clients appearing on the podcast received any form of compensation for their appearance and obtained no other benefit from us. It should not be assumed that every client has had the same experience.

The post Common Financial Mistakes New Physicians Make first appeared on Finance for Physicians.

The post Common Financial Mistakes New Physicians Make appeared first on Finance for Physicians.