As a doctor, you’re the definition of a goal-setter. Whether you realize it or not, you’ve been conquering goals since before you went to medical school. Handling your finances is simply a matter of taking the same tactics that helped you succeed through the intensity of years of education and applying them to economic principles and rules.
Like any new information, it helps to have an expert financial advisor walk you through the foundation and details before you dive in headfirst. Financial goal setting requires extensive background, including analyzing your money mindset, future hopes and dreams, and professional aspirations.
But if you’re ready to start on your own today, this guide to setting financial goals and achieving them as a medical professional will provide the basics to help you get on the right path.
1. Plan Your Future
Although we can’t predict the future, you can set a target for where you’d like to be. What does your retirement look like? What age would you like to stop working, and what would you like to do with your time? How much money do you need monthly or yearly to make those targets happen?
These numbers are crucial to planning what you need to do today to prepare for Future You. Let’s look at two examples: Physician A, who began planning early in their career, and Physician B, who waited until ten years before retirement to consider their finances.
Physician A is 32, with a young family and hefty student loans from medical school. They would like to retire at 65 with enough money to travel. In the meantime, they also want to set aside money to pay for college and weddings for two children.
Physician B is 54, without a spouse, with no hefty loans and financially independent adult children. They want to leave their children a life insurance policy and their assets, but their term insurance policy has just ended. They plan to golf and relax in a paid-off home during their retirement.
The two physicians have substantially different needs, which will determine the financial journey they’ll each take.
2. Determine How Much You Need to Save
Once you know how you want to live during your retirement years, you’ll have a better indication of how much you need to start putting away to achieve that goal. The earlier you start, the more you can achieve using interest-accruing investments, letting the power of compound interest and the market work in your favor.
This step can be eye-opening and remind you that it’s important to start saving for retirement now.
Take your target goal and divide it by how many years you expect to work full-time before you retire. Since the average physician makes six figures a year, you may want to use your current income to start, then multiply it times how many years you expect to enjoy your retirement. Here’s an example:
- $239,200 annual income x 20 years of retirement = $4,784,000, divided by 30 years until retirement = $159,467 in savings per year.
Is it realistic to save more than half of your annual income? Not for most of us. So, let’s move on to step three and learn how to maximize what we have to meet our financial goals.
3. Understand Your Best Financial Options
Most experts agree that you should have an emergency fund available with 3-6 months’ worth of living expenses at your fingertips. The important thing to remember about this money is that you should be able to withdraw it without penalties, so a Certificate of Deposit or retirement plan is not the place for your emergency money. However, if you invest it in a high-yield savings account, it will continue to accrue interest until you touch it, adding to your balance in a way that keeping your money in a safe at home won’t do.
Once you have this nest egg in place, the next step is to minimize your expenses, including taxable income. Having a budget is going to reduce unnecessary spending, but cutting that streaming service won’t help you reach a multi-million dollar goal too quickly. You need something more powerful, which is where investments come into the scene.
Your financial advisor can guide you as your finances become more complex. Look for investments that reduce your taxable income, like a whole life insurance policy and retirement accounts, and max out your contributions. If you’re relatively healthy, switch to a high-deductible insurance plan and partner it with a health savings account (HSA) to reduce your taxable income and help cover any medical expenses. This article by OJM Group explains more about the benefits and drawbacks of an HSA.
Investments like whole life insurance policies accrue gains over time, ensuring your initial investment compounds. By the time you’re ready to retire, your income plus your investments will help you achieve your established financial goals.
Conclusion
Knowledge is power, especially when it comes to planning for financial stability. Most of us don’t accidentally become and stay wealthy — it’s a journey as we learn what works and what doesn’t. You have more wealth to distribute as a physician but a higher income to replace during retirement. Use these tips to understand what you’ll need to live your best future, and when you’re ready, hire a financial expert to help you get there.