You're probably not a crack accountant or a financial whiz. There's no shame in admitting that. How to handle money isn't something that's taught in medical school, but in many respects what you do with your money is as important as the skills it takes to make it.
In all of the day-to-day tasks that consume a busy doctor's life, it's easy to lose sight of the things that can put a serious dent in your finances. Here are 5 that are easy to miss and what you can do to avoid them.
1. Investing in a colleague's "great" idea
If you've been tempted to invest in a medical start-up company, you're not alone. Plenty of doctors over the years have known bright, motivated colleagues with good ideas for "can't-miss" products or devices. The problem is that very few physicians realize that cashing in on one of these ideas is a long shot. A real long shot.
"We've seen only a few ground-floor investments that have paid off in the long run, and sometimes not until as many as 20 years later," says Karen C. Altfest, a principal advisor with Altfest Personal Wealth Management, in New York City. She's seen her share of physician clients who have come in licking their wounds after having been warned not to sink money into a particular venture. "We had a surgeon -- a truly brilliant man -- lose $400,000 in a colleague's business after we advised strongly against it."
Why the low success rate? Aren't doctors in the trenches in the best position to spot something that might help them take better care of their patients? "On its face, investing in what you know and understand isn't a bad approach," Altfest says. "But too many doctors fail to do any due diligence, like researching the company's finances and examining the competition. They only look at the product -- or the proposed product -- and then consider what they know and who they know."
2. Not having enough insurance
Malpractice insurance is probably the first thing that comes to mind, and rightly so, given the fear and anxiety that a claim can generate. Although the temptation to "go bare" might be great given the high costs of premiums, you'd be risking your life savings if you were ever found liable in a multimillion-dollar lawsuit against you. For this reason, bite the bullet and pay for the best policy you can afford. "Occurrence" coverage is more comprehensive than a "claims-made" policy, but that blanket protection costs a lot more.
Having sufficient insurance extends to disability coverage as well, which can pay your bills even if you can't. (For more on this subject, see "Hidden Time Bombs in Your Disability Policy.") Ask for "own-occupation" coverage, which will pay you if you can't perform the "material and substantial" duties of your specialty. This differs from a plain-vanilla group disability policy that may require you to handle other work you're capable of doing -- for instance, seeing patients or reviewing cases for a malpractice insurer if you can't perform surgery -- before any benefits are paid to you.
And don't forget about your auto, life, and homeowners policies as well; they need to be airtight in that they provide enough coverage for you and your loved ones in case something truly awful happens. An additional "umbrella" policy, worth $1 million or more, can cover claims beyond the limits of your auto and homeowners policies.
Medscape Business of Medicine © 2011
Cite this: Doctors' 5 Worst Financial Mistakes - Medscape - Apr 01, 2011.