Time + Advice = Financial Success
October 15, 2020
A Simple Plan
If you save 20 percent or more of your compensation from the beginning of your career, direct those savings to the investment or debt pay down opportunities with the highest risk-adjusted after-tax returns, keep doing those things through a thirty- to forty-year career, and avoid making any big mistakes, you’ll achieve financial independence.
In a sense, that plan is simple. But it isn’t easy.
Doctors start their careers with two unique challenges. They study and train for longer, so their careers are shorter. And their education is expensive, so they start with more debt. As a family medicine physician, you can overcome these hurdles and build genuine financial security, but you simply can’t afford to make any big mistakes.
The best way to avoid big mistakes is to get good advice. The most likely ways to make costly errors is either to get bad advice, or to insist on doing it yourself and learning from your own mistakes.
Paying for Wisdom by Making Mistakes
What kinds of financial mistakes might derail your success? There will be challenges and distractions in every phase of your life.
For early-career physicians, the biggest risk is buying too much house. Another common mistake is purchasing cash value life insurance early in your working years, and then stopping the premium payments once you understand the commission structure.
As your career progresses you’ll build an investment portfolio. Stock markets can be volatile, and either selling out of a scary stock market after a big crash or buying into a hot stock or sector right after a big run can be costly errors from which it’s difficult to recover.
Later in their careers, many doctors worry about whether they can retire with security. How much of a portfolio will they need to maintain their lifestyle? How should they invest? Even if they’ve built significant wealth, do they have enough? There are well-understood best practices in planning for a successful retirement, but few busy physicians have the time to master this complex and fast-evolving area of study.
Rent Your Wisdom
Should you hire a financial advisor? What can an advisor help you to accomplish?
The training and experience of a financial advisor gives her precious insight into the pitfalls present in decisions you may only make a few times in your lifetime. She’s had a bird’s eye view of thousands of lifestyle decisions and their short- and long-term consequences, including those that can cause otherwise successful people to fail at capturing durable financial security.
For example, you’ll make your first home purchase one time. An experienced financial advisor has observed clients buy houses dozens of times, and she’s helped guide many of them away from typical mistakes. She’ll know that today’s lower mortgage costs won’t reduce the tax, insurance, and maintenance costs of owning a home. And a too-big home can be one of the easiest wealth-destroying mistakes a person can make.
Investing is only one element of your financial picture. One of the great paradoxes of financial markets is that taking investment risk—owning common stocks and/or investment real estate in some form—is essential to building real wealth, but achieving durable investment advantage—“beating the market”—is almost impossible.
The Value of a Written Plan
How should you explore a potential relationship with a financial advisor?
Best practice is to start with a written financial plan. This document should outline the essential elements of your current financial structure, capture your most important goals and intentions, and provide a prioritized action plan designed to get you financially on track. A good plan should be clear enough that you can implement it on your own if you so choose, and should also explain how an advisor thinks she can help you and how she will be paid.
A proper plan looks well beyond simply managing an investment portfolio. Protecting yourself and your family from uncertainty, knowing best practices around student loans, getting the right legal documents in place, taking maximum advantage of pre-tax savings and employee benefits—all of these can be as important to your financial security as knowing which investments you should own.
Jim presents financial workshops for physicians and speaks at physician conferences. He is the co-author of two books: Pay Yourself First: A Financial Guide for Doctors Entering Practice and Changing Outcomes: A Financial Recovery Strategy for Peak-Career Physicians.
TriageMD by TGS Financial Advisors offers programs designed to improve the financial trajectories of physicians and their families.
This article originally appeared in the Fall 2020 addition of Keystone Physician Magazine. Keystone Physician is the official quarterly journal of the Pennsylvania Academy of Family Physicians (PAFP).