As a physician, you’ve sacrificed years of your life, significant monetary resources, and countless hours of sleep to achieve the success you have today. Through your education and extensive training, you’ve accumulated the knowledge and skills needed to make critical, life-saving decisions on a day-to-day basis; however, when it comes to finances, evaluating important money-related choices might not come as easily.
For high-income earning individuals like physicians, proper financial management is imperative for maintaining a high quality of life throughout (and beyond) the trajectory of a lucrative career. With this in mind, we’ve compiled a list of the top 3 financial mistakes physicians tend to make so you can avoid making these same missteps in your own financial life.
1. Not Accounting for a Reduced “Work Life Span”
If a physician graduates from medical school four years after college and completes the shortest of the internship and residency programs, which is three years long, then that physician won’t enter the workforce until nearly thirty years of age! In the meantime, professionals of the same age have already purchased homes, started families, and begun funding their 401(k) plans.
Once the rigorous training is over, many physicians are eager to do the same—purchase a home and start a family. Certainly, with a large paycheck suddenly coming in, these dreams can’t be so unreasonable. The majority of physicians will also have significant student loans to tackle, which can translate into a postponement of retirement contributions until roughly age 40. After all, who wants to divert their paycheck to retirement when they’ve just finally broken into the workforce? The competing priorities of family life and student loan payments tend to take precedence over retirement savings in the early working years of a physician’s life.
But herein lies the problem: if an individual doesn’t start saving for retirement until they are nearly forty years of age, and they’d like to retire around the average retirement age of 60-65, they’re going to be grossly behind in savings. This is especially true of high-income earners who will likely want to live a comparable (if not improved) lifestyle in retirement. Essentially, physicians have fewer years to accumulate more resources.
What is the result of postponing retirement savings? More and more physicians are struggling to retire. Many are still working fifty to sixty hours a week well into their seventies or deciding to retire earlier with less than they expected, lamenting not having started thinking about retirement sooner.
Do not delay retirement savings despite your other financial obligations.
As soon as you begin receiving a paycheck, “pay yourself first” so you don’t fall behind on retirement savings or have to live a diminished lifestyle later in life. Investments are only as effective as the time you allow them to work for you, so starting early will give you the highest probability of success.
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Consult with a financial advisor who specializes in working with physicians. The right advisor will help you sift through debt repayment, home purchases, saving for your children’s college educations, planning for retirement, and much more. It’s all feasible, but the key is to start as soon as possible.
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