Critical Money Management Tips for New Physicians
Paying attention to finances is usually not a high priority for many new physicians. In fact, an AMA study several years back showed that over half of young physicians said they don’t spend enough time planning their finances. However, if you’re not mindful of taking the right steps to protect and improve your financial situation, you can lose the opportunity to maximize all the hard work you have put into becoming a doctor.
So here are some important money management tips young physicians can employ to start their career off on the right financial path.
Make Saving a Priority
When dealing with your student loan debt, monthly expenses, and social activities, building your savings account might feel like a far-off dream. However, saving money is an important component of financial health, no matter how much you earn. At a minimum, you should strive to have three to six months of daily living expenses saved in cash. This can act as an emergency fund when unforeseeable events occur.
Choose an amount you can easily commit to every month. Even after you have your emergency fund saved, continue to put that amount away and watch your bank account grow. It’s a great habit that will serve you well into the future.
Work with a Financial Advisor to Make a Personalized Plan
Hiring a financial advisor helps to sharpen your financial management skills. That person becomes a critical ally in reaching your financial goals. They help you create a personalized financial plan that can adapt to life events and keep you on a path to wealth. Plus, they can provide an objective view of your finances and their expertise can help reduce stress from financial decisions.
Use the 10% Rule to Fight Lifestyle Inflation
Economic inflation has been a hot topic recently. But there is another type of inflation that can impact your journey to financial success: lifestyle inflation, or “lifestyle creep”, which is an increase in spending when your income goes up. It’s normal for new physicians to want to splurge on themselves as their income rises; however, you can get into trouble if lifestyle inflation goes too far.
To keep lifestyle creep from eating up your paycheck, stick to the 10% rule. For each extra dollar you earn, use 10% of it for fun and use the rest towards your monthly expenses and savings. Put the rest toward your financial obligations and goals. This will ensure you don’t feel deprived of fun, while also avoiding lifestyle creep, so it doesn’t get in the way of your financial well-being.
Start Investing Early
Investing in securities, real estate, precious metals, or other wealth-building assets is a way to pay your future self. Wealth building takes time, and your needs will likely change over the years. Start developing an investment strategy as early as possible. Take some time to educate yourself on investment tactics. Then start with a small, mixed (diversified) portfolio of safe investments that will earn a steady income and speculative assets, like stocks, that you can build on. The earlier you start investing, the more you can compound your gains over time.
This is also where having a financial adviser is wise. They can help provide you with advice on investing, including ways to reduce your taxable income so you’re not hit with a large tax bill on your gains each year. Keep in mind, though, that you shouldn’t blindly outsource your investment strategy. Stay in close contact with your adviser, create a long-term plan together, and routinely check your balances to ensure your going in the right direction.
Start Making Money Moves Now
It’s never too early to start making sound money management decisions. And making smart financial choices early in your career can pay off exponentially better than if you started later. When done correctly, good financial planning can lower your stress levels and ensure that you’re comfortable now and in the future.
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