Congratulations to those of you transitioning into practice! I know it’s been a long road and I’m sure you’re feeling great about finally finishing. But you also probably feel overwhelmed as you consider all of the big changes and decisions coming down the pipe. For many of you, these upcoming major life decisions will be very impactful on your future. This is the prime time opportunity to get your finances in order and make a solid plan.
Education is the foundation! When you’re transitioning into practice, there is a ton to learn and a lot to consider. My goal in putting this resource together is to provide you with an educational foundation of the biggest considerations. I’m also going to be linking to all sorts of other resources and education along the way.
Hopefully you dig into this and take naturally to rocking out your own personalized plan of attack. This is fantastic! However, in reality, I know many of you will struggle and spin your wheels. Or maybe you’re having trouble even knowing where to start or how to find the time. Please don’t let this cause you to give up on having a solid plan. It’s ok to ask for help. We provide one on one planning assistance to physician families and can help you through this critical time. Please schedule a no-cost triage meeting with someone from our team to discuss how this might look like for you.
Either way, the key is that you avoid the temptation to go into this without any plan at all. The stakes are high and now is the time to get your ducks in a row.
Choosing the Right Practice: Don’t Let Lifestyle Dictate Your Career
With how fast the transition into practice occurs, it’s easy to get caught up in the allure of more income and an extravagant lifestyle. Snappy decisions feel necessary and it’s all in territory that’s completely new to most of you. This situation makes you extremely prone to large increases in lifestyle. Pair this lifestyle jump with the relatively likely burnout most of you will unfortunately experience and you’ve created your own little version of hell. Nobody wants this. That’s why it’s extremely important to prioritize taking the time to find the right practice before allowing lifestyle to increase. This will help you to reduce the chances of finding yourselves in the dreaded “golden handcuffs” situation, where physicians feel trapped in a toxic practice due to financial obligations.
When considering job offers from large hospital systems, exercise caution, especially when faced with long commitments, strict non-competes, and productivity-driven incentives like RVU bonuses. While these organizations may appear appealing at first glance, it’s essential to consider how these provisions may negatively affect your practice while at the same time locking you down. Additionally, inquire about tail insurance coverage, which protects you from malpractice claims after you leave a practice. If this coverage isn’t provided, proceed with even more caution, as it may leave you vulnerable to feeling locked in.
It’s crucial not to choose a job solely based on the annual salary. While a hefty salary may seem enticing, it often comes with hidden drawbacks. In some cases, a high salary may be a red flag, indicating that the organization struggles to retain physicians. Instead, view your potential position more from a dollars and value provided per hour standpoint. For example, Job A pays $500k/yr and Job B pays $300k/yr. Job A requires 80 hrs/wk or 4,000 hrs/yr. This equates to $125/hr. But it also requires that you practice medicine on the hospital’s terms which completely conflict with your values, and it’s a toxic environment. So maybe that $125/hr looks even worse or maybe it’s not worth all the money in the world. On the other hand, Job B requires 40 hrs/wk or 2,000 hrs/yr. This equates to $150/hr. Plus Job B allows you to practice medicine how you always envisioned working with a team of people that are a positive inspiration while paying you a higher hourly rate. Despite paying $200k/yr less, Job B sounds like a far better opportunity. And even if Job A was paying a much higher hourly rate, it’s still worthwhile to take the time to investigate the reasons behind the attractive compensation package. Speak with current and former employees to gain insight into the work environment, workload expectations, and overall job satisfaction.
Beyond financial considerations, give due attention to the culture and values of the organization and the people you’ll be working with. The atmosphere and camaraderie within a workplace significantly impact your overall job satisfaction and well-being. Research the organization’s mission, vision, and core values. Look for alignment between your personal values and those of the organization. Consider reaching out to potential colleagues to gauge their experiences and get a sense of the workplace culture. Are these the type of people you want rubbing off on you? Choosing a practice that aligns with your values fosters a sense of fulfillment and increases the likelihood of long-term career satisfaction.
When it comes to evaluating and negotiating job offers, don’t hesitate to seek professional assistance. Hiring an expert to review your contract and provide guidance on negotiations is an investment worth considering. These professionals have the knowledge and experience to identify potential pitfalls and ensure that your interests are protected. While it may require an upfront fee, the benefits of avoiding future disasters or unfair contractual terms far outweigh the cost.
Resources:
Contracts and Disability: Understanding Your Rights and Protections as a Physician w/ Jon Appino
Moving Away From Toxic Work Environments And Into Physician Friendly Practices w/ Dr. Lara Hochman
Physician Employment Contracts and Compensation with Jon Appino
How To Avoid Lifestyle Creep
Safeguard Your Future: Insuring Your Income as a Physician Transitioning Into Practice
As a physician, your ability to earn an income is your most valuable asset. It is the foundation upon which your financial security and future plans are built. That’s why it’s necessary to prioritize insuring your income by obtaining long-term disability and life insurance coverage. When it comes to protecting your income, it’s vital not to underestimate the potential risks and the impact they can have on your financial well-being. While you may believe that the chances of a catastrophic event occurring are low, the reality is that life is unpredictable. By insuring your income through long-term disability and life insurance policies, you can safeguard yourself and your loved ones against worst-case scenarios.
Let’s begin by discussing long-term disability insurance. This coverage ensures that in the event of a disabling illness or injury, you will receive a portion of your income to help cover your living expenses. While larger physician groups often provide disability insurance as part of their benefits package, it’s important to understand that individual circumstances can differ. As an individual physician, you should not rely solely on the group coverage offered, as it may not provide adequate protection. By securing a separate disability insurance policy, tailored to your specific needs, you can ensure comprehensive coverage and peace of mind.
When considering how much disability insurance to purchase, you must plan for the worst-case scenario. Assume that you may never be able to work again due to a disability. By taking this approach, you can ensure that your policy provides sufficient coverage to support you and your family in such circumstances. Be diligent in reviewing the terms and conditions of the policy, paying attention to the definition of disability, elimination periods, and benefit amounts. Seek the assistance of an insurance agent experienced in working with physicians to navigate the complexities of disability insurance and find the most suitable policy for your needs.
In addition to disability insurance, life insurance is another key component of insuring your income. Life insurance provides a financial safety net for your loved ones in the event of your untimely passing. While contemplating one’s mortality may be uncomfortable, it’s essential to plan for the unexpected. When determining the appropriate amount of life insurance coverage, consider the financial needs of your dependents, outstanding debts, future educational expenses, and any other obligations you may have. By assuming the worst-case scenario and purchasing sufficient life insurance coverage, you can ensure that your loved ones are protected and financially secure, even in your absence.
When it comes to selecting insurance products and finding the right insurance agent, it’s important to be cautious and well-informed. Insurance agents, while often portraying themselves as trusted advisors, are ultimately salespeople. They have a vested interest in selling you insurance policies. Therefore, it’s crucial to approach their advice with a critical mindset and seek objective guidance. Look for insurance agents who specialize in physician-specific disability insurance and have a proven track record of working with medical professionals. These agents possess the expertise and knowledge to guide you through the intricacies of the insurance landscape and provide tailored solutions that suit your unique needs.
Resources:
What Every Physician Should Know about Long Term Disability Insurance With Lawrence Keller
How Young Physicians Should Determine The Appropriate Amount of Life Insurance Coverage
Comparing Term Life Insurance Strategies For Physicians
Disability Insurance Basics for Residents
The Physicians and Dentists Complete Guide to Long Term Disability Insurance
What Type of Life Insurance Should You Own?
Why is Permanent Life Insurance Such a Terrible Short Term Investment
How Conflicts of Interest Muddy The Financial Advice Waters
5 Sings Your Working With An Insurance Agent Posing As An Advisor
Navigating Student Loans: A Physician’s Guide to Debt Freedom
Transitioning into medical practice is an exciting milestone in a physician’s career. However, amidst the anticipation and preparation, it’s important not to overlook one significant aspect of financial planning—student loans. Before making any significant changes to your student loans, especially federal loans, research and understand the various forgiveness programs available. Take the time to explore programs such as the Public Service Loan Forgiveness (PSLF), 20/25-year forgiveness, and other niche forgiveness programs that may align with your future job prospects. These programs offer the potential for loan forgiveness after meeting specific requirements, such as working in eligible public service or non profit organizations for a specified period of time. By familiarizing yourself with these options, you can make informed decisions about your loan repayment strategy.
It’s important to consider the potential impact of your future career choices on forgiveness program eligibility. If your first job doesn’t work out as planned, you may need to consider alternative employment opportunities. However, before making any shifts, evaluate how this change may affect your eligibility for loan forgiveness. Some forgiveness programs require specific types of employment or repayment plans. Therefore, it’s important to assess whether transitioning to a different job or practice setting could jeopardize your eligibility for forgiveness. Planning ahead and understanding the implications of career changes can help you make informed decisions while protecting your long-term financial goals.
Once you have a clear understanding of forgiveness programs and have determined that federal or other forgiveness options may not be feasible for your circumstances, it may be worth considering refinancing your student loans. Refinancing involves obtaining a new loan with a private lender to replace your existing loans. The primary goal of refinancing is to secure a lower interest rate, potentially saving you thousands of dollars over the life of the loan. However, it’s important to note that by refinancing federal loans, you will lose certain federal loan benefits, such as income-driven repayment plans, loan forgiveness options, and loan deferment or forbearance options.
Before refinancing, carefully evaluate your financial situation and determine if it aligns with the benefits of refinancing. If you have a stable income, good credit history, and feel confident about your ability to repay the loans without relying on federal loan benefits, refinancing may be a viable option. Shop around and compare rates and terms from different lenders to ensure you secure the most favorable refinancing terms. Consider working with a reputable financial advisor who can provide guidance and help you make an informed decision based on your specific circumstances.
Additionally, as you plan for student loan repayment, it’s important to create a comprehensive budget that incorporates your loan repayment goals. Allocate a portion of your income specifically for loan repayment that is calculated based on your goal timeline. Make a plan for automating these payments so that it’s much easier to hit this goal.
Resources:
Why Federal Student Loans Are A Great Bet For Many Physicians With Travis Hornsby
Avoid Leaving Money On The Table With Federal Student Loans
When To Refinance Student Loans
The Physicians Complete Guide To Medical School Loans
Navigating Tax Planning: Strategies for Physicians Transitioning into Practice
Transitioning into medical practice brings with it numerous exciting opportunities and decisions, but amidst all the excitement, it’s important not to overlook a crucial aspect of financial planning—taxes. Before embarking on major lifestyle decisions, it’s crucial to calculate and understand your tax obligations. As a physician, your income level may be substantial, and taxes can significantly impact your financial well-being. Take the time to estimate your tax liability and assess how it aligns with your income. By being aware of your tax obligations, you can make informed decisions regarding your spending and saving habits, ensuring that you are financially prepared for tax liabilities.
Explore all available tax shelters provided through your employer and individually. Common employer-sponsored options include 401(k), 403(b), 457(b), and Health Savings Account (HSA). These tax-advantaged accounts allow you to contribute pre-tax or tax-deductible funds, reducing your taxable income and potentially lowering your tax liability. Additionally, individual tax shelters such as Individual Retirement Accounts (IRA), Backdoor Roth IRA, and 529 plans can offer further opportunities for tax savings. By maximizing contributions to these tax shelters, you not only reduce your immediate tax burden but also benefit from long-term savings and potential growth.
It’s essential to evaluate how these tax shelters will impact your taxes and align them with your long-term financial plans. Work with a financial advisor or tax professional to assess the optimal contribution amounts for each tax shelter, taking into account your income, future goals, and desired lifestyle. Maximizing the use of tax shelters can be a strategic move to minimize your tax liability and maximize your savings potential.
One common pitfall is relying solely on employer auto-withholding for taxes. Unfortunately, employer withholding is often inaccurate and can lead to unexpected tax surprises. After starting your job, review your withholding to ensure it aligns with your anticipated tax liability. If you find that your withholding is not in the range of what you expect to ultimately owe, make necessary adjustments. This can prevent unpleasant surprises at tax time and help you better manage your cash flow throughout the year.
While it’s possible to navigate tax planning independently, hiring a Certified Public Accountant (CPA) can provide numerous benefits, especially if you have self-employed income or complex tax situations. A CPA specializing in physician finances can offer invaluable expertise and guidance. They can help you navigate the intricacies of tax law, identify deductions and credits specific to your profession, and ensure compliance with tax regulations. By entrusting your tax preparation to a qualified professional, you can have peace of mind knowing that your taxes are prepared accurately, maximizing your potential deductions, and minimizing the risk of errors
Resources:
The First Step To Reduce Your Taxes with David Glenn
Maxed Out My 401k, Now What
Can You Max Out Both Your 403(b) and 457(b) Plans?
Building a Strong Financial Foundation: The Importance of Saving for Physicians Transitioning into Practice
Transitioning into medical practice is an exciting and rewarding time in a physician’s life. With the increase in income that comes with this transition, it’s essential to establish a strong financial foundation by prioritizing saving before indulging in increased spending. In this blog post, we will explore the significance of saving, the importance of aligning your goals with your values, and strategies for effectively prioritizing and achieving your financial aspirations.
As your income grows, it can be tempting to immediately start spending on all the things you’ve longed for. However, it’s crucial to resist this urge and prioritize saving from the beginning. By adopting a “save first, spend later” mentality, you set the stage for long-term financial security and independence. Saving early allows you to benefit from compounding interest and ensures that you have funds available for emergencies, future goals, and retirement.
To begin your savings journey, take a step back and envision your ideal future. Consider what matters most to you and identify your goals and aspirations. What do you want to achieve in the short term and the long term? Take the time to write down your goals and prioritize them based on your unique values and aspirations. This exercise will help you gain clarity and set a clear path towards achieving your financial objectives.
Once you have established your goals and priorities, it’s time to determine how much you need to save to stay on track. Start by evaluating each goal individually and estimating the financial requirements associated with it. It’s important to be realistic and factor in variables such as inflation and changing circumstances. If you find that you cannot financially accomplish all your goals simultaneously, don’t be discouraged. This is where your values and priorities come into play. Review your goals and determine which ones align most closely with your core values and are essential to your overall well-being and happiness. By focusing on your top priorities, you can allocate your resources more effectively.
Setting up a budget is an effective tool for saving and prioritizing your goals. Create a comprehensive budget that reflects your income, expenses, and savings targets. Start by examining your current spending habits and identify areas where you can cut back or optimize. Look for opportunities to reduce unnecessary expenses without sacrificing your quality of life. By making conscious choices about your spending, you can free up more funds to allocate towards savings and achieving your goals.
Automating your savings is a powerful strategy to ensure consistent progress towards your financial goals. Set up automatic transfers from your income to separate savings accounts designated for different goals. This approach eliminates the temptation to spend the money before saving and helps you build a habit of regular saving. Treat your savings as non-negotiable, just like any other monthly bill. As your income increases, consider increasing your savings contributions proportionally to accelerate your progress.
It’s important to regularly review your savings plan and make adjustments as needed. Life circumstances and priorities may change over time, and it’s crucial to adapt your savings strategy accordingly. Revisit your goals periodically and reassess their importance and feasibility. This process allows you to refine your savings plan, modify your allocation strategies, and realign your efforts with your evolving aspirations.
Seeking guidance from a financial advisor or planner can be invaluable as you navigate the intricacies of financial planning and goal prioritization. A professional can provide personalized advice based on your unique situation, help you optimize your savings strategies, and provide guidance on investment opportunities to further grow your wealth. They can also provide accountability and keep you on track with your savings goals.
Resources:
Are You Saving Enough For Retirement
Are You Saving Enough For Education
The Power of Giving: Charitable Contributions for Physicians Transitioning into Practice
Transitioning into medical practice brings not only financial growth but also an opportunity to make a positive impact on the world through charitable giving. As a physician, giving back to causes that resonate with you can enhance your overall happiness and sense of fulfillment. While it may seem counterintuitive to prioritize giving before indulging in increased spending, adopting a mindset of giving first can be incredibly rewarding. If charitable giving is important to you, this phase of your life presents a unique opportunity to up your giving and make a meaningful difference. Rather than waiting for surplus funds to emerge, it’s important to be intentional about allocating a portion of your income towards charitable contributions.
Developing a specific plan for your charitable giving is helpful too. Outline the causes and organizations that align with your values and that you are passionate about supporting. Determine the amount or percentage of your income you wish to donate and set a budget accordingly. Consider automating your contributions, either through recurring monthly donations or by utilizing platforms that allow you to automate your giving. Automating your giving ensures that you consistently contribute to causes that matter to you and eliminates the risk of forgetting or being swayed by other expenses.
It’s important to note that you don’t need to have all the charities figured out before you start giving. If you are uncertain about which organizations to support or want to explore different causes over time, you can set up a separate savings account specifically for charitable contributions. By allocating a portion of your income to this account, you create a reserve that is readily available when you decide which charities to support. This approach allows you the flexibility to research and select organizations that resonate with you and align with your philanthropic goals.
If you find yourself unsure about the impact of charitable giving on your happiness, delve into the research surrounding this topic. Numerous studies have shown a significant positive correlation between giving and happiness. When you contribute to causes you believe in, you experience a sense of purpose, fulfillment, and connection to something greater than yourself. Giving has the power to enhance your well-being and provide a deep sense of satisfaction.
Furthermore, charitable giving can extend beyond financial contributions. As a physician, you possess a unique skill set that can be invaluable to charitable organizations and communities in need. Consider volunteering your time and expertise to support healthcare initiatives, medical missions, or local organizations. By offering your services, you not only contribute to positive change but also experience the gratification that comes from directly impacting lives.
Remember that charitable giving is a personal journey, and it’s important to align your contributions with causes that genuinely resonate with you. Take the time to research and vet organizations, ensuring they are reputable and transparent about how they utilize donations. Engage with organizations that provide regular updates and demonstrate the impact of their work. Building trust and a genuine connection with the causes you support can enhance the satisfaction you derive from your giving.
Resources:
Money Decisions That Create More Happiness
Charitable Giving Strategies To Reduce Taxes with Justin Harvey
Maximizing Your Remaining Cash Flow: Planning for Physicians Transitioning into Practice
Once you have taken into account the various financial obligations we’ve already discussed such as taxes, insurance premiums, loan repayments, savings contributions, and charitable giving, it’s essential to evaluate the amount of cash flow remaining. This remaining cash flow represents the discretionary income available for you to allocate towards your personal goals and lifestyle choices. By having a clear understanding of this surplus, you can make intentional decisions that align with your values and aspirations.
To begin, reflect on what is truly important to you and what you want to prioritize in your life. Consider your long-term goals, personal values, and the things that bring you joy and fulfillment. By identifying these key priorities, you can ensure that your financial actions are in line with what matters most to you. This step will help you direct your excess cash flow towards areas that align with your values and contribute to your overall well-being.
One aspect to consider when allocating your excess cash flow is the opportunity to enhance your lifestyle. For instance, you may choose to invest in a home upgrade, indulge in more travel experiences, or allocate funds towards hobbies and leisure activities that bring you happiness. It’s important to strike a balance between enjoying the present and planning for the future, ensuring that your lifestyle enhancements are aligned with your overall financial goals.
Accelerating your goals is another option to consider when planning for your excess cash flow. If there are specific milestones or objectives you aim to achieve, such as paying off debt, saving for a down payment on a house, or funding your children’s education, you can allocate additional funds towards these goals. By increasing your contributions, you expedite the achievement of your objectives and create a sense of security and freedom.
Additional charitable giving can also be a significant consideration when determining how to allocate your remaining cash flow. If giving back to your community or supporting causes close to your heart is important to you, consider increasing your charitable contributions above and beyond your baseline level. Research organizations and initiatives that resonate with your values, and direct funds towards making a positive impact in the world. Giving not only benefits the recipients but also brings personal satisfaction and fulfillment.
Maintaining financial margin is also a prudent strategy, especially during the early stages of your medical career. While it can be tempting to allocate all available funds towards immediate desires or goals, having financial margin provides a safety net in case of unexpected circumstances or changes in your professional situation. If your current job doesn’t work out or if you face a reduction in income, having margin can provide a sense of financial security and flexibility. It allows you to navigate challenging situations without being overwhelmed by financial constraints.
Resources:
3 Exercises To Help You Clarify Your Values
The Most Common Financial Planning Mistakes Physicians Make w/ Daniel Wrenne
Monthly Cash Flow Tracker (downloadable spreadsheet template)
Making Informed Home Ownership Decisions: A Guide for Physicians Transitioning into Practice
There is a reason I’ve listed home ownership last. While home ownership is often seen as a top priority, it’s important to recognize that it carries significant financial implications and can be challenging to undo. Many physicians find themselves trapped in homes that consume a significant portion of their income, leaving little room for saving, giving, taxes, or other essential expenses. To avoid falling into the trap of feeling house-poor, approach the decision of buying a home with caution and careful consideration.
One common mistake physicians make is purchasing more home than they can comfortably afford. It is important to strike a balance between finding a home that meets your needs and financial capacity. Buying a home that stretches your budget too thin can have long-lasting consequences and hinder your ability to achieve other important financial goals. Prioritizing financial security and flexibility should take precedence over the desire for an extravagant home.
Consider renting as a viable option, especially for new physicians who are relocating to a new area or starting a practice. Renting provides numerous advantages, including the flexibility to explore a new location, familiarize yourself with the local housing market, and assess your long-term needs before committing to a significant financial obligation. Renting allows you to maintain mobility and adaptability during the early stages of your medical career, which can be particularly valuable if you anticipate changes in your practice or personal circumstances.
If you have decided to pursue home ownership, resist the temptation of looking for homes before setting a realistic budget. Setting a budget should be the first step in the homebuying process. Take into account your financial situation, including your income, expected taxes, savings, existing debts, charitable goals, and future financial goals. Consulting with a financial advisor can provide valuable guidance in determining a realistic and sustainable budget. This approach ensures that you search for homes within your financial means, avoiding the allure of unaffordable properties that may lead to financial strain.
When evaluating potential homes, consider not only the purchase price but also the associated costs of ownership. Factor in property taxes, insurance, maintenance, and potential future expenses. Be realistic about your long-term financial capacity and carefully assess whether the home aligns with your financial goals and priorities. Remember, it’s not just about the purchase price but also the ongoing financial commitment and the impact it will have on your overall financial well-being.
Additionally, it is essential to conduct thorough research and due diligence before committing to a home purchase. Understand the local housing market, analyze comparable sales, and consider factors such as school districts, proximity to amenities, and potential for property value appreciation. By approaching the homebuying process with an informed and deliberate mindset, you can make a sound decision that aligns with your financial goals and lifestyle needs.
Home ownership is a long-term commitment. Take your time, weigh the pros and cons, and ensure that you are financially prepared for the responsibilities and obligations that come with owning a home. Flexibility and financial security should be key considerations as you navigate the decision-making process.
Resources:
All-In Home Costs Calculator (downloadable spreadsheet template)
Renting Your Home Is The Key To Building Wealth
Putting It All Together
Nice job working through all of this! Hopefully you’ve identified areas where you need to dig into further. As you continue to fine tune and personalize this, it becomes your own unique financial plan for navigating the transition. Having a plan at this critical transition point will really put on a solid trajectory to begin using money as a tool to really improve your life.
Also, keep in mind we’re always here to help! If you’re feeling overwhelmed or in need of assistance, don’t hesitate to schedule a no-cost triage meeting with one of our financial planners.
Either way, congrats again! Good luck with all the crazy and exciting transitions.