A Physician Investor Tells: Smartest Financial Steps for Young Doctors

Karen Riccio


March 27, 2019

Three Key Principles to Build Net Worth

Young physicians are eager to get their first "real" paychecks, and most have some ideas about what they'll do with them.... whether it's buying luxury items, paying down debt, or starting on their path to savings.

Financial experts cite three key principles that can help young physicians start building their net worth. Those important concepts involve: (1) deciding how much to save regularly; (2) taking advantage of compound interest; and (3) investing your money wisely.

James D. Turner, MD, an anesthesiologist in Winston-Salem, North Carolina, and creator of The Physician Philosopher website, said he used these sound financial principles to pay off more than half of his student loans in one year, and also increase his family's net worth. Turner is also author of The Physician Philosopher's Guide to Personal Finance: The 20% of Personal Finance Doctors Need to Know to Get 80% of the Results.

Turner followed the key principle of the "10% Rule," which he feels is useful advice for physicians. That guideline, used for many years in the financial industry, states that "for every bump in pay, bonus, or unexpected money you receive, 10% of the money can go toward lifestyle improvement and the other 90% should go toward building wealth." (That advice assumes that your debt is paid off or you have an aggressive plan in place for paying it off. If you still have significant debt, that should be where any newly earned money goes.)

If you're debt-free, you can splurge on yourself for the hard work you put in during medical school—ensuring that you stay within the 10% mark. Turner had gotten an $11,000 monthly raise when he went from making $6000 per month in a nonaccredited fellowship in regional anesthesia to making $17,000 per month as an attending physician. That granted him the "right" to spend $1100 more per month (10%) on quality-of-life-boosting items.

"Nothing eats at the money you could be putting into destroying debt or investing more than increasing your lifestyle drastically upon finishing training," Turner said.

Compound Interest: A Big Boost to Your Investments

Physicians should use the money allocated for investing to take advantage of what has been described as "the eighth wonder of the world": compound interest.

Compound interest works when the interest you earn on savings gets added back into your savings, so that you're earning interest on an increasingly greater amount. As interest grows, it begins accumulating more rapidly and builds exponentially.

So, the sooner you start saving and investing money, the quicker and more you'll earn toward short- and long-term goals.

While it is true that most young physicians do not take advantage of investing early in their career, they certainly should.

"While it is true that most young physicians do not take advantage of investing early in their career, they certainly should," Turner said. "We know that the biggest determinant of financial success early on is our savings rate." Missing out on investing a sufficient amount and not taking advantage of compounding interest puts physicians behind the eight ball and, in part, may explain why 34% of physicians aged 50 to 64 do not have $1 million in net worth despite earning millions of dollars during their career, according to a Medscape Survey.

Turner gave this example of the importance of saving early and often: If you save $50,000 per year—and assume an 8% growth from compounding interest—you'll reach a $2 million goal in 19 years.

However, not until year 17 do the investor's savings have more to do with their investment returns than the money they have personally contributed, which is only 2 years before reaching the goal of $2 million, Turner explained. "Simply, nothing matters more than your savings rate early on in your career."

Understandably, most young doctors are not concerned about retirement early in their careers. Still, it's important to begin saving for long-term goals such as an early retirement, if desired, or your children's college education; or paying off a mortgage. These goals take several years and often decades to meet.


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