Physicians living paycheck to paycheck: How to break the cycle

January 2, 2020

The truth is many physicians begin their careers at a financial disadvantage.

While it may sound surprising for an established physician to be living paycheck to paycheck, it’s hardly rare. Overall, nearly 10 percent of U.S. workers making $100,000 or more live in this fashion, according to a 2017 Harris Poll. Circumstances particular to physicians-namely student debt, a late start to saving, and an eventual a big jump in pay-may boost the risk of long-term financial distress.                                               

With an average of $200,000 debt from the get-go, many physicians begin their careers at a financial disadvantage. Then, living off of a relatively low salary during residency not only makes it harder to repay loans, but it also can set doctors up for feeling wealthier than they are once their incomes increase.

“There’s a tendency for people to want to buy the big house right away or get a Tesla. They feel rich all of a sudden, so they start taking away from their cash flow,” says Andrew Musbach, co-founder and financial advisor with MD Wealth Management. “Then as it gets closer to wanting to retire, they realize how far away they are. And at that point they’ve already developed habits and a lifestyle that are hard to cut back,” he says.

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While many physicians understandably feel that they deserve to live a lifestyle commensurate with how hard they’ve worked, successful budgets are determined not by the size of one’s salary but by income in the context of his or her goals, such as buying a house or paying for children’s education.

“They might think they’re saving enough by maxing out retirement accounts, but what they don’t realize is that to fund their lifestyle they’re going to have to save a lot more,” Musbach says. “What they also miss is that their timeline is crunched because it’s a late start by 10 years.”

Another common misconception held by physicians is that once they are done with training, the money they will be earning will ensure they can pay back any debt. However, that reasoning doesn’t account for compound interest, notes Nisha Mehta, MD, a radiologist and physician advocate.

“Unfortunately, the lack of financial knowledge also means that they are more vulnerable to bad financial advice, which can lead to a lack of focus on paying down debt,” Mehta says. “This, combined with the lifestyle inflation that many experience when they transition out of training, can be dangerous.”

It’s never too late

Ideally, physicians should begin their financial planning (or at least learn about pitfalls) as early as possible, there are ways to ease financial strain at any career stage. “There’s this pervasive belief that unless you start early, you’ll never catch up,” says Bonnie Koo, MD, a dermatologist and author of Wealthy Mom MD. “There is nothing you can do to change the compound interest equation. It takes a lot of time for investments to grow. But then you have to be open to other methods of building wealth,” she says.

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Education is a must, the experts who spoke with Physicians Practice agree. Resources to learn about financial planning are now readily available-an advantage older physicians lacked. “There’s no shortage of ways to get that information, but you have to be open to seeking it out,” Koo says.

In the Internet age, free blogs, podcasts, and message boards are easy to find, and professional financial advisors are plentiful. Many of these services are aimed specifically at a physician audience.

Beware bad advice

However, it’s important for physicians to be careful about whom they trust, Mehta says, adding that physicians should watch out for “bad financial advice from those who may have a vested interest in having them invest their money instead of paying down debt.”

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Learning about insurance products falls under this umbrella as well, notes Musbach. “Physicians lacking financial education have grown to be targets by insurance people who may try to sell them whole life insurance, for example, which is much more expensive than term life insurance that still covers their needs,” he says.

Separate personal from business

Physicians who are also practice owners have another layer of financial responsibilities, but experts warn against commingling practice and personal money management. “Both from a liability perspective and a sound budget perspective, it’s essential for physicians to keep separate financial tracking of each aspect of their lives,” says Mehta.

The decision processes between the two are also totally different. For example, a physician owner may need to take on some debt to build a new office building or hire a new physician. And with the right due diligence, he or she can be assured that choice will pay off in higher practice revenue. “Therefore, that may seem less risky than taking on debt to do a kitchen renovation that you may not need,” she says.

And unless a physician is in solo practice, business finances affect the whole group. “In most cases, practice related finances are intertwined with other people’s finances, and you don’t want those factors to influence your personal finances,” Mehta adds, “particularly if there is a bad decision made on the business end by any of your partners.”

Replace old mindsets about money

Financial difficulties can also relate to outmoded beliefs about money, notes Koo. “Money is very emotionally charged. Depending on how you were taught growing up, a lot of people think it’s bad or shameful to think about money or that it’s something they shouldn’t want,” Koo says.

A better approach is to regard personal finance as an area of self-care, Koo says. “The biggest mistake is not paying attention it and thinking it’s going to take care of itself. Just like with your body, that’s not true,” she says.

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Regardless of the cause, struggling to make ends meet-which often leads to seeing more and more patients-compounds physicians’ risk of burnout and related consequences, notes Mehta.Financial strain can also affect the way doctors practice. “If you have a choice between 15- and 20-minute time slots, and you have a certain amount of money that you need to make to pay the bills, you’re going to be more inclined to pick shorter visits,” she says. “If finances are less of an issue, you have the freedom to pick the 20-minute visits, which both you and your patient would enjoy more.”

Even the idea that the only way physicians can earn more is to see more patients can be a harmful limiting belief, says Koo. Relying on time and effort alone is also a very linear way of thinking about money, she adds. “We all have the same amount of time in a day. Oprah has the same amount of time in the day as the rest of us.” The main difference between those who are successful at building wealth and those who aren’t isn’t necessarily that they were born into money or got lucky, she says, but that they think about money very differently.

“The bottom line is that it’s up to you to learn and educate yourself about money because no one is responsible for your money except for you,” Koo says.