Doctors, as just about anyone in the medical field will tell you, aren’t always great with money. They can be brilliant with the human body and empathetic in their bedside manner. They can be relentlessly clever when it comes to stitching us up and making us well. But as with many high-earning professions, the broke doctor is also an unfortunately common cliché. Fortunately, whether you’re in medical school or have already entered practice, a good financial advisor can help you manage your finances so that you feel as successful as you are.
Financial Whiplash
This is the most common source of financial problems for doctors. Once they enter practice, many young doctors begin spending money as fast as they can make it.
In some senses, starting practice can feel like winning the lottery. Almost overnight you transform from a broke student to an attending physician earning hundreds of thousands of dollars. This sense of financial whiplash is an experience common to many high-earning professions such as medicine, law and banking, and the reaction is common too. Young professionals go out and they spend that money.
This is how someone with student loans, credit card debt and an entry level bank account buys a Tesla, a new house or a motorcycle. In doing so, though, you can start adding fresh debt as fast as you pay off the old. These new bills pile up, and all of a sudden you’re living paycheck to paycheck while earning $250,000.
This is so common that some payday loan operations exist only to cater to six figure incomes. Yet a good financial advisor will know how to talk to you about this. In particular, they will know how to help you strike a good balance between enjoying your success without cannibalizing your future.
Medical School Debt
The average medical school debt for a new doctor is $203,062. Most graduates pile on five figures of additional debt getting through their residency and internship, which is to say nothing of the median $27,000 of undergraduate debt those new doctors carry.
Since the federal government only gives favorable, subsidized interest rates to undergraduates, this is all relatively high-interest debt. Generally, medical school graduates have interest rates between 5% and 7%. That would be bad enough for any loan, but when you apply a 7% compound interest on $203,062 in debt it can define your entire financial life.
So it is absolutely critical to get a handle on medical debt fast. Doctors, and especially young doctors, need a financial advisor who can help them make a plan to get out of debt as quickly as possible. It will save you hundreds of thousands of dollars in the long run.
Business Expenses and Taxes
As a doctor, your business expenses will depend on your status. Most doctors fall into one of three categories:
Employee
Some doctors, particularly if they work for a large hospital or practice group, will work as W-2 employees of the organization. Their relationship to their employer and their business expenses is much the same as any other professional, which means that you can expect your employer to pay for costs such as medical malpractice insurance, licensing fees and any related taxes.
For doctors this is a relatively uncommon arrangement. While it limits your freedom to practice with different organizations, it does make your financial life easier.
Independent Contractor
Many, if not most, doctors who work with hospitals and large practice groups are technically employed as independent contractors. This makes life somewhat more complicated when it comes to both your income and your expenses. On the income side, depending on the organization your pay may depend on your patient intake. This is entirely institution-by-institution, meaning that any given hospital and practice group will have different pay structures for their doctors. However any pay structure built around intake or billing means that your income can fluctuate month-to-month.
On the expense side, working as an independent contractor means that you’re responsible for your own expenses. This generally won’t apply to supplies, support staff and equipment. However you will have to pay for costs like medical malpractice insurance, licensing fees and necessary travel. These costs can be considerable, with one insurance company placing medical malpractice premiums alone between $6,000 and $35,000 per year.
A good financial advisor will help you manage all of this. They will build a financial plan around the erratic income that intake-based pay can generate, and will help you set aside money for your costs of practice. Ideally they will help you plan out your medical malpractice needs as well, finding plans that balance protection against potentially high premiums. They should even help you find any possible tax breaks that come with paying for your own costs, which can mean considerable savings depending on your circumstances.
Practice Owner
Fewer and fewer doctors enter private practice these days. This is generally considered a byproduct of the specialty movement. Most young physicians become specialists, which have the highest earning potential, rather than general or family practitioners, and specialists tend to work with hospitals and practice groups.
Whether you’re a general practitioner or a specialist, many doctors do still become partners in their own practice. If you do this it is absolutely critical to find a good financial advisor.
Opening your own practice or buying into an existing one means that you now own, or more likely co-own, a small business. The purpose of the business is to give you a space in which to practice medicine, but in many respects this is no different from opening a store or a restaurant. Your income will be defined by how the practice’s business does, which can mean significant fluctuations from month to month. Your income will also be defined by the practice’s costs. The business will pay its expenses before it pays you and your partners, so you don’t see a dime until rent, staff salaries, malpractice insurance and every other bill has been paid.
From a financial planning standpoint, the good news is that you have fewer costs to personally manage than as an independent contractor.
How Can Doctors Find a Good Advisor?
The best financial advisors have experience with your specific needs. If you work in a hospital, ask your human resources or legal contact for references. Your local medical societies will also frequently have resources or points of contact that you can ask for advice. Beyond personal and professional resources, there are several industry-oriented publications that can help you find god financial advice. The AMA publishes regular resources on financial management and planning for doctors.
Meanwhile, the publications Medical Economics and its affiliate Physicians Money Digest publish a wealth of resources on managing your money, and often have references to finding good financial advice.
Bottom Line
Doctors face unique challenges when it comes to managing their money, from spending challenges in their early years to buying their own practice. The right financial advisor can help you navigate those issues.
Tips on Financial Advising
- Surgeons are the highest-earning, highest-spending group of all doctors. But exactly how much can they earn?
- A financial advisor can help you handle finances with your busines in the most efficient way. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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