Understanding Personal Finance for Physicians

Contrary to popular belief, not all physicians experience financial security. From costly professional expenses and a high amount of debt to managing large sums of money, those in health care face financial challenges just like anyone else despite their high income bracket. On top of the daily stressors that come with the profession, this can take a toll on their mental health.

That is why it’s important to understand the common financial challenges physicians encounter throughout their careers, insurance needs such as life insurance and disability insurance and the best ways to manage student loans and other debt. With the right tools and resources, physicians can develop ways to overcome these challenges.

Physicians face several financial challenges, from incurring debt in college and residency to facing a massive leap in income after getting a proper job. And these challenges aren’t just faced by those new to the field. Even after being in the business for a few years, some physicians still struggle to manage their spending, investment choices and retirement planning. Throughout a physician’s career, the long hours and rigorous training can make it difficult to focus on their financial well-being, which can compound and cause stress and mental health issues.

Many studies have proven that poor financial health can affect one’s mental well-being — and physicians are no exception. This can be due to a number of reasons: lack of financial literacy, educational debt, lifestyle creep, or practice ownership. Regardless of the reason, this can take a toll on a physician’s mental health.

Unlike the average worker, physicians experience a giant leap in income between medical school and the first job after residency. This can be difficult to manage since making expensive lifestyle changes to match a high salary can be tempting. As you learn to manage your finances throughout your residency and as a new attending physician, there are a few common challenges you may face.

During post-graduate training, physicians often make a moderate income. Deciding how to properly allocate your funds and tackle your debt while still affording a social life is always a delicate balancing act. A demanding job — and the stress that comes with it — make it even more challenging. But while it’s easier to binge on what brings you comfort to “balance” those stressors, know that this can only cause you more problems in the long run.

New attending physicians often experience a massive leap in income — and while this can come with benefits, it also comes with its own unique set of challenges.

A physician’s student loan debt is often six times higher than that of the average student. Beyond learning how to manage debt responsibly, physicians can also look for ways to minimize their debt through medical school financial aid or Public Service Loan Forgiveness (PSLF).

After graduating from medical school, it can be tough to prioritize debt over getting a new car or buying a house, but tackling it sooner rather than later can help free up a lot of income that can be used towards savings, investments or retirement. Below is a step-by-step list to help physicians get started with their student loan debt.

Physicians fall under the “HENRY” category, which means “High Earners, Not Rich Yet.” There’s a common misconception that just because physicians earn a lot, it means they’re rich — which is not the case. Wealth is measured by net worth, which is the calculation of everything owned minus everything owed. So a new attending physician who suddenly experiences an income leap is not suddenly wealthy, especially if they still have student loans to pay.

Unfortunately, the mindset that physicians are “rich” because they have a high income is infectious — and some physicians themselves believe it. But this mindset can lead to bad financial decisions that may affect their quality and way of living in the long run, which is why financial literacy, planning and good habits are important to cultivate as early as possible. Physician mortgage loans, for instance, can carry with them unique particularities.

Improving financial literacy is the key to ensuring that physicians make wise financial choices and maintain good habits. Fortunately, from listening to personal finance podcasts to reading helpful books, there are many ways to become and remain financially literate.

Accumulating wealth and achieving financial freedom requires discipline and good financial habits. By being intentional with spending rather than acting out of impulse, physicians can keep themselves on track to achieve short- and long-term goals and avoid living from paycheck to paycheck despite having a high income.

Below are a few ways physicians can start working their way towards building good financial habits.

To accumulate wealth and establish security, physicians need to look for and choose the right investment opportunities. There are plenty of investments for different risk profiles, along with a plethora of mentors and resources available to help physicians build the ideal investment portfolio for their needs. Besides investing, securing your assets is equally important. After all, a physician’s job comes with a significant amount of risk and is considered a litigation-prone career.

Owning a private practice is not an uncommon dream amongst physicians. Not only does it guarantee control, but owning your job means you get to make more money throughout your career. However, processes like business planning, budgeting and creating balance sheets are just a few of the many things physicians need to take care of before setting up a private practice. Doing so requires proper financial knowledge and can be a challenge — especially considering how business subjects are rarely taught in a physician’s curriculum.

The budget is one of the most important factors to consider when putting up a private practice. It’s the very foundation of the business and dictates whether or not you’re ready to open your own private practice, as it includes things like your office setup, equipment, insurance, professional fees and more.

Below is a quick step-by-step that can help you create a budget for your private practice.

Starting a private practice is no easy feat financially. Establishing a private practice requires enough capital to fund things like rent, utilities, equipment, technology and software and more. Fortunately, there are several financing options available for physicians.

There are a number of further resources available to help physicians get on the path to financial freedom. Reading more can help physicians build good spending habits, reduce expenses and reach financial goals.

• American Medical Association: The AMA lists out a few physician-specific loans and financial services from Laurel Road, which can help physicians in the country find better deals and options to help them improve their finances. AMA also provides several financial articles to help physicians navigate insurance, planning for retirement and ways to save during residency.
• American Society of Anesthesiologists: For physicians who want to hire a financial advisor, this resource from the ASA Community talks about what to look out for.
• InCharge: InCharge offers financial literacy resources for anyone interested in learning about budgeting and saving. They also offer a host of personal finance workshops and workbooks.
• PubMed: This article provided by a private wealth advisor outlines the three pillars of financial planning for physicians: protecting themselves, their families and their assets, reducing their taxes and growing their wealth.
• The American College of Obstetricians and Gynecologists: This resource from the ACOG explores financial support options for physicians and practices during the pandemic.