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7 Important Facts All Doctors Must Accept About Money Management


Understanding money is an important part of life, whether is it appealing to you personally or not.

Doctors are busy. Years of intense education followed by more years of specialty training in rigorous programs that require at least 80 hours of hands on-work per week coupled with preparation for notoriously challenging exams that take months to study for leaves physicians with little time to manage finances. And the truth is that few doctors are in it for the money, making money know-how relatively low on the list of most physicians’ priorities.

But understanding money is an important part of life, whether is it appealing to you personally or not. As with most important things in life, managing money requires building some foundational knowledge. There are 7 important facts that all doctors must accept about money management.

1. Doctors need to understand money management

Money management includes investing, saving, tax planning, preparing for big purchases and making decisions about what kind of medical practice you want to work in and for how long. Doctors need to make time to either personally manage finances or to hire a financial advisor to help with the process.

Overall, learning about money management isn't profoundly difficult, but it isn't extremely easy either. For physicians, the concepts are certainly understandable. It just takes some time to learn the basics by reading, going to seminars (and not getting sucked into whatever they are selling) and watching up-to-date and informative programs or tutorials.

2. Investing is necessary

Investing is a necessity for keeping up with inflation. Whether doctors' salaries grow with inflation, stagnate or decline in comparison to inflation, inflation is a reality. The savings that you put aside for retirement comes from money that you earn between 5 to 50 years prior to retirement. This means that, when you take inflation into account, that savings is probably not going to be enough to sustain you for years of comfortable living unless you invest it. Even if you are delighted with your current income as a physician, time will move forward and the dollar you earn today will be able to buy somewhat less when you retire than what it can buy now.

3. Saving and investing require a master plan

Saving money is important when it comes to being able to afford big-ticket items like a house or your kids' higher education. Investing also requires putting some money aside so that it can grow. While most of your spending will span over the course of years, you do not need to put all of your savings into savings accounts. You can portion some of your savings into investment accounts dedicated to big-ticket items, particularly if you will not be facing those costs in the near future. For example, there are a number of investment vehicles with built-in tax benefits for your children's education costs and for your retirement. Additionally, other savings can and should be in the form of investments so that the dollars you earn today can work better for you in the future.

4. How you spend your money is rooted in your psychology

Almost everyone has some type of hang up in life. You memorized some of the most prevalent personality disorders for the psychiatry questions on your USMLE. Doctors are no different than anyone else when it comes to imperfect psychology. And some people have a lot of hang-ups specifically when it comes to money. Whether you are a penny pincher due to fear of running out of money, whether you spend your money on things that you spent years enviously watching others flaunt or whether your purchases are designed to broadcast to the world that you earn heaps of money, it is helpful to you (and to your spouse, if you have one) if you admit these hang ups to yourself early in your life rather than later.

5. The sooner you deal with your money psychology the better

Your money psychology can consume you or you can own it. It is important for you to try to figure out how many people (or which person, in particular) you need to see you driving that expensive car before you can start to feel comfortable with who you are. It is important for you to define how much savings you need to accumulate before you will allow yourself go on a vacation. These money issues can destroy your life until you take ownership of your own money attitude quirks and deal with them in a way that makes your life, and your relationship with your life partner, peaceful and unbroken.

6. Penny smart and dollar dumb is harmful in the long run

Most financial advice is geared towards quick fix habits that are easy for all of us to understand. Saving money on groceries or on vacations is certainly a financially healthy goal. But extreme deprivation and dedication to small ticket savings may end up saving you only a tiny percentage of your overall net worth in comparison to the major benefits that you can get by putting your money in tax advantaged funds or by paying attention to your investments.

7. Decide if retiring early really means 'retiring early.'

Many doctors talk about retiring early. The practice of medicine requires dedication and focus, and some doctors do not want to continue to work long stressful hours until traditional retirement age. However, retiring early can end up meaning pinching pennies unless you plan to continue the 'work' of money management during your retirement. The work of money management does not necessarily require the same degree of dedication as medical practice, but it can.

If you expect to be able to live a luxurious lifestyle after taking an early retirement, you almost certainty need to play an active role in managing your finances and investments or you need to find some type of paid 'work' to guarantee at least a modest income. Whether you choose to invest in real estate, stocks, or work in a consulting capacity, your early retirement does require some degree of wise financial planning.

Doctors can understand enough about money to protect the hard earned income that takes time and energy to earn. It just takes some time and attention.

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Victor J. Dzau, MD, gives expert advice
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