We all know that doctors can earn a good amount of money every month, but they are not free from financial gaffes at some point in their lives.
It is essential that doctors, whether young or experienced, understand the mistakes they can make and how to avoid them.
Here are some of the most common financial mistakes doctors make:
1. Fulfill deferred gratification in one fell swoop. When you start getting your paychecks, it can lead to a huge increase in living standards. Although it may seem like the perfect time to buy everything you’ve wanted for a long time, it’s a common financial mistake.
2. Not maintaining a budget. Another very important mistake to avoid is not maintaining a budget. It’s easy to stick to a budget early in your career, but budgeting often goes off the rails as the scale increases. This can lead to reckless spending. While it’s not necessary to account for every minor expense, it’s important to know where the larger amounts go. This can give you an idea of what exactly is going on with your money.
3. Not saving emergency funds. It is prudent to have an emergency fund, especially in unpredictable times. It helps in times of crisis and prevents you from slipping into a growing cycle of debt. It is highly recommended to have at least 3-6 months of living expenses saved in cash to cover any unforeseen events.
4. Not knowing where to put money for retirement. Taking advantage of retirement programs such as 401(k), 403(b) or 457(b) is usually the first step for doctors. Although these plans offer great value, physicians need to understand how they work. For example, it is good to know what types of investments can be made, what fees are associated with each investment choice, etc. It is always beneficial to seek the advice of an expert and to study all the possibilities available to you.
5. Not managing debt effectively. Another big mistake that doctors usually make in managing their finances is not managing their debts wisely. It’s no secret that doctors usually carry the burden of debt on their shoulders. It can start with student loans and can lead to credit card debt, auto loans, and payday loans.
Debt consolidation is a good strategy to eliminate these debts. You won’t have to struggle with multiple loans to repay on different dates, and you can do it at a lower interest rate.
6. Not making proper investment choices. To maintain financial security, it is essential to acquire financial knowledge and make smart investment decisions.
Physicians need to protect their financial future. This can be done by carrying sufficient insurance to protect them against potential threats, such as personal and professional liability, health issues, injuries leading to permanent disability or death, and loss of valuables.
7. Assuming money is a renewable resource. As a physician, it is reasonable for you to believe that you will continue to earn a steady income month after month. Physicians have a common tendency to view silver as a renewable resource.
On the other hand, this concept can sometimes make it difficult to anticipate a situation where your income could decrease or where you will no longer be able to earn as much money as usual.
8. Having the wrong financial advisor. As a doctor, you may need to consult a financial advisor for various reasons; for example, managing your finances effectively, using your money better, or simply wanting to get the most out of your money. However, you should ensure that your adviser has your best interests in mind and should check to see if your finances are being managed effectively.
9. Unable to maintain income-expenditure balance. The habit of keeping tabs on your expenses based on your income can sometimes become difficult, which can make it easier to break the income-expense balance. To avoid such a situation, you need to keep a monthly budget and stick to it.
10. Not using available resources. This is one of the most surprising choices some doctors make. They rarely take advantage of the resources available to them. It is important to remember that you will not regret treating yourself to an extraordinary trip or investing a large sum in the car of your dreams.
As a physician, it is important to build and maintain your own financial health. The sooner you do it, the better. You can be more efficient with your money if you plan ahead and budget wisely, consolidate debt, learn about taxes, and invest wisely.
Lyle Solomon, ESQ, is a lawyer.
This post appeared on KevinMD.