The three phases of a physician’s financial life

Developing and sticking to a good financial plan through thick and thin is a great roadmap to follow.

A theme we often discuss in the financial planning process is that most professional people have three different phases in their lifetime. Let’s call them “before career,” “with career” and “after career is successful.” The impetus to attain financial security is mostly focused on the last phase. Note also that in many families, having children corresponds to the “with career” phase, and that during the final phase children often are grown and independent.

The “before career” time of life is the early adult years—usually spent in school and medical training. We have varying amounts of freedom, not much money, and little competition for our time and attention. The most important financial consideration during these years is to avoid as much debt as possible.

That means, for example, carefully considering if a private undergraduate or medical school is worth the extra cost--and debt--if less expensive choices are available. It’s also a time to think about whether defraying or reducing debt through a commitment to military service (active or reserves) or a public health position is a possibility.

The “with career” years usually are our initial working years. We are working hard to launch a successful career, just starting to have some disposable income, and have many factors competing for our time. Time spent building our career often detracts from family activities, as well as personal growth in non-career ventures.

This period is crucial to financial success. The focus should be on achieving a modicum if not total financial independence by the end of this period. During this time, the risk of illness and/or accidents could interfere with the accumulation of wealth. It is therefore important to use the risk-sharing characteristics of life and disability insurance to substitute for the inability to earn and save capital.

At the same time, it’s important to avoid large lifestyle expenditures, like a fancy car or a house bigger than what you need, that prevent the accumulation of adequate savings. Also to be shunned is the purchase of large, whole life insurance policies, which are usually investment disasters. Instead, protect your assets with careful titling, avoidance of dangerous behaviors, and proper liability insurance.

What are adequate savings at this point?For someone coming out of residency, we generally suggest no less than 25-30% of their annual income go into retirement plans, after-tax savings, and especially towards the elimination of debt. Even your home mortgage should be paid off by the end of this period in many cases.

Investments aimed toward retirement and financial security are long term and should therefore be heavily tilted towards global stocks in a disciplined and diversified manner.

The “after career success” years are the best! If planned and executed well during earlier years, the payoff is in the form of plenty of disposable income, much more free time, and little to compete with our own desires on how to spend it. We can devote time to both our individual interests and being together with family without nearly as much outside interference.

In short, we can finally enjoy the benefit of those years of delayed gratification. If that includes continuing to practice medicine, all the better. We are no longer working because we have to, but because we want to. The extra money is just gravy for enhancing our lifestyle or providing more help for those we want to provide for.

For most people, successful financial planning is the process of achieving financial independence as they enter the “career success” phase of life. It means saving enough and investing in a diversified and disciplined manner for two decades or more. It means avoiding large financial mistakes and protecting assets. Developing and sticking to a good financial plan through thick and thin is a great roadmap to follow!

Steven Podnos, MD, CFP, is founder and principal of WealthCare LLC, a financial planning and investment management firm in Merritt Island, Florida.