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Karen Coyne, CFP(R), is a strategic wealth advisor with Raymond James in Hagerstown, Maryland. With over 15 years of experience, she helps physicians make smart financial decisions so they can focus on what they do best. Email email@example.com
Nobody likes acknowledging mistakes-especially when it comes to finances. It can be painful to admitwhen we’ve made bad choices or have fallen short.
Nobody likes acknowledging mistakes-especially when it comes to finances. It can be painful to admit when we’ve made bad choices or have fallen short.
But financial well-being is like a central nervous system-it affects other critical processes in our lives. When we get things wrong with our money, we’re likely to have trouble elsewhere-in our relationships, and even with our health. As I’ve worked with my physician clients, I’ve observed five common-and stress-inducing-mistakes that we work together to eliminate:
This is a problem for society as a whole-but especially for physicians. Coming out of residency, after many years of fiscal sacrifices, you relish the gushing levels of income finally flowing into your bank account. It feels heavenly. But you, your spouse and your kids need to know that having a high salary doesn’t mean you have a magic ATM machine that never runs out of cash. Overspending could shortchange your retirement savings and other financial goals, including debt reduction.
In my experience, the physicians who achieve the greatest long-term financial success continue to live like residents for several years following residency-gradually growing into their incomes as they save for the future. Let your family know that just because you can afford it, doesn’t mean that you need it. Set guidelines for spending and stick to them.
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Consider using a free app like Mint.com to establish budget goals. Set your 401(k) savings on auto-pilot at least at the level of the company match, if applicable, to make sure your retirement savings comes out first in every paycheck. You may also need to prioritize paying down student loan debt.
Your efforts to control spending won’t always be perfect-nothing is-but tempering excesses will help you and your family build good habits.
In addition to all the other wonderful intangibles, marriage is the ultimate business partnership. That’s why it’s critical to share financial information so that both partners operate on the same page, and work toward the same goals. Not having a shared vision can lead directly to Mistake #1, in fact.
Sharing information helps you make better choices for your future. A spouse often can provide a helpful moderating influence should you get too aggressive in your investment mindset and can hold you accountable if you’re prone to procrastination.
A physician I work with kept putting off purchasing important insurance coverage. He didn’t see the need for it. But his wife persisted, and finally he acted. Not long afterward, he wound up in an accident that badly injured another motorist. And while the collision was not his fault, the complex case proved costly and would have been infinitely more expensive had his spouse not prodded him to obtain the coverage and the protection he needed.
These and other stories are why I insist that both spouses attend financial review meetings. Healthy communication about finances, regardless of household roles, is essential for success.
Mistake #3: Not Maximizing Tax Strategies
Taxes should not drive all your investment or financial decisions. But as a high earner, likely in the highest marginal tax bracket, you can’t afford to ignore the impact of taxes. Many practice owners, for instance, don’t make use of hybrid retirement vehicles like the cash balance plan that allow them, in some cases, to defer far greater amounts than traditional 401(k) and profit-sharing plans. While not a solution for everyone, they may work well for high-earning physicians who need to aggressively ramp up their retirement savings.
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A solid tax strategy diversifies when and how you pay taxes on various assets. It can create at least three “tax buckets” for your assets-tax deferred (ex: 401(k)), tax free (ex: Roth), and taxable-giving you more control and flexibility down the road. When you retire and draw on those assets, you will have some funds coming out of deferred accounts taxed as ordinary income, while assets in your taxable accounts are taxed at the typically lower capital gains rate. Placing the right assets in the right type of accounts can also minimize your tax burden.
With a Trump presidency and a Republican majority in the House and Senate, comprehensive tax reform looks more likely. If you are a practice owner, you likely will benefit from potential reductions in the personal and corporate tax rates. And although we don’t know exactly when this reform will happen, it’s a good time to discuss tax-planning strategies with your tax adviser to make sure you are well- positioned for any potential changes.
Risk management can involve numerous strategies, such as the use of legal structures such as trusts and LLCs, making sure assets are titled correctly, and transferring risk through the use of insurance.
As a physician with a high income and significant or increasing assets, you need to pay attention to risk management and the seemingly mundane details of insurance coverage more than most people. You need to ensure your family will be adequately protected should you die or become disabled. You need malpractice insurance in the event of a medical mistake. You may need long-term care insurance, you likely need commercial lines of insurance and an umbrella policy to protect you if you are ever involved in a lawsuit or accident.
Just as your patients might have the right medication but not the right dosage, I often find that physicians have the right type of insurance coverage, but it’s not structured optimally. For example, they might be spending too much in one area but are dramatically underinsured in other areas. One doctor had $2 million worth of personal umbrella coverage but had $10 million in real estate exposure.
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Sometimes physicians purchase too little auto liability coverage, relying simply on the state-mandated minimums.
Trying to find the cheapest policy doesn’t usually work out best in the long run. And the policy your best friend has is not necessarily the right policy for you. There is too much at stake to take short cuts. You must find and work with advisers that you trust, get adequate coverage and eliminate any gaps in your protection.
While it may be tempting to take advantage of online deals, consultation with competent professionals is paramount. You don’t want to be pennywise and pound foolish when it comes to protection of your assets (I addressed this in a previous article).
If you’re like some of the clients who come to me, you’ve been winging it for many years. You may want to scale back your workload in 5-10 years, but you have no idea what that will require and don’t know if you are on track to actually “take your foot off of the accelerator” as one surgeon put it. You’ve accumulated a random portfolio of stocks or mutual funds without much thought as to the overall risk level of your portfolio, how taxes will impact your withdrawals and how exactly you are going to replace your current income.
When I sit down with clients, I do a lot of intake-not just the financial elements, but understanding who and what is really important to them. We look at where they are now, where they are looking to go, and where the gaps are. Working together, we develop a cohesive plan that provides a target, and a clear framework for decision-making. You work long hours, and this process will require some time -a new client may have six or more meetings the first year-but there are no substitutes or shortcuts to a job well done.
After all you’ve sacrificed to get to this level of income, there’s no excuse for winging it financially.
Along with not having a clear plan, an additional mistake is waiting too long to act. So often clients say “we wish we would have done this sooner.” You probably hear this from patients all the time who finally quit smoking, changed their diets or lost significant amounts of weight.
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The best time to act is right now. “Someday I’ll do it” should be today. And while acknowledging any of these five mistakes can feel painful, not recognizing them will be even worse.
It’s going to be a potentially exciting year for positive economic change. Those working with savvy financial advisers may be in an excellent position to make the most of these changes.
Don’t let stressful mistakes hold you back.
Karen Coyne, CFP®, is a strategic wealth advisor with Raymond James in Hagerstown, Maryland. She helps physicians make smart financial decisions and retire with confidence. Email firstname.lastname@example.org
Any opinions are those of Karen Coyne and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Working with a financial advisor does not guarantee financial success. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® in the U.S. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.