Doctors: 4 Steps to Building Your Finances

Karen Riccio

Disclosures

December 21, 2018

In This Article

4. Decide Whether You Need a Financial Advisor

Ideally, medical students would be required to take a Financial Planning 101 course to learn the basics of budgeting, banking, credit, and debt, but that's not the case.

Does that mean you should automatically seek advice from a third party? Not necessarily, especially with the number of free online tools that make it easier than ever to calculate your net worth and create a budget that works toward meeting your short- and long-term goals.

Once you've accumulated some wealth, and investment and tax questions become more complicated, then it's a good idea to find a fee-only advisor, said Eiman Jahangir, MD, a cardiologist for the Permanente Medical Group and owner and creator of dadsdollarsdebts.com.

I would advise young physicians to find a good insurance agent to purchase personal term life and disability insurance, but that is it.

"I would advise young physicians to find a good insurance agent to purchase personal term life and disability insurance, but that is it. Then they should spend 1-2 years reading about personal finances while contributing to their employer-matched retirement plan, funding a back-door Roth IRA, and paying off their debt," he said.

Jahangir, however, cautioned that by finding an advisor before becoming educated, "they may be tricked into purchasing some unnecessary and costly products."

Chris Long couldn't agree more. Long is a certified financial planner with Consolidated Planning, a financial advisory firm in Charlotte, North Carolina, and his wife is an anesthesiologist.

"Often, the first exposure students or residents have to professional financial advice comes from insurance agents. For advisors working with medical students and residents, the highest short-term revenue source is insurance sales," he warned. "As a general rule, insurance companies pay a commission of about 50% of the first year's annual premium. There's no way to bypass this."

"So, if you buy a disability policy with an annual premium of $1200, the agent is going to make about $600 plus renewal commissions; life insurance works the same way. Keep in mind, too, that they will get paid more as you increase your coverage at the attending level. A good question to ask would be, what other financial services can or should you expect from the insurance agent? If you feel like they're just trying to sell you insurance, then they probably won't be able to help with your loans," says Long.

However, White said he thinks it's in a young doctor's best interest to seek professional advice, but that it's not always easy to find it.

"The battle is finding the time to learn what's best or finding someone you can trust to tell you what's best," White said. "With the ever-growing complexity of our evolving systems and the sheer number of options in the marketplace, coupled with the fact that young physicians have a limited desire and amount of time to learn the necessary information, the need for customized expert advice is more crucial than most realize."

Make Paying Down Debt a Priority

If you haven't done so already, secure an aggressive payment plan for eliminating student loan debt.

Jahangir stressed the importance of paying down loans as quickly as possible.

"We are told throughout our career that debt is no big deal. Eventually, we will become high-paying physicians and be able to pay it off," he said. "But if you do not have an action plan to rid yourself of the debt, it will linger and potentially affect your satisfaction with your job. By focusing on becoming debt-free, young physicians can give themselves more options as they move forward."

One option is to refinance possibly at a lower interest rate and shorter time frame.

"In order to conquer this monster, young physicians have to be zeroed in on their student debt like never before," said Dave Denniston, CFA and managing partner at Capital Advisory Group, LLC, based in Bloomington, Minnesota, suggesting refinancing as a good option. "I suggest you pick a program that forces yourself to pay it off as soon as possible: 5-7 years."

Once you know how much you'll need each month to pay down what should be your top priority—student loans—you can add the amount to your other essential expenses.

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