Financial Priorities for the Newest Attending Physicians
Congratulations! You’ve finished your residency or fellowship and are about to start making the big bucks. The day you thought would never come is finally here. So, let’s get into the financial priorities that are crucial for new attending physicians. This topic is one of my favorites and is a common one for new clients in their first five years as attendings. It’s an exciting yet crucial time to get your financial house in order.
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Common Client Profile
Our typical client is usually in the transition from the late training phase to their first few years as an attending physician. Most of you are in that sweet spot where you’ve signed your contract and are just a few months away from starting your attending role. Itâs an exciting period full of promise and possibility.
Disability Insurance: Protecting Your Biggest Asset
The first financial priority should be disability insurance. You’ve completed years of intense training, and your biggest asset right now is your ability to work. Disability insurance protects your future income. Ideally, you should have added a policy during your training, known as a Guaranteed Standard Issue (GSI) policy, which locks in your insurability. Now is the time to increase that policy, especially with a guaranteed insurability rider.
Choosing the Right Policy
Your specialty will influence the type of policy you need. You want a policy from one of the five true own-occupation providers. These providers offer the best terms, ensuring that you’re covered if you can no longer perform your specific duties as a physician. Avoid going with big-name firms that aren’t independent, as they usually only offer one company’s average policy. Look for an independent insurance broker who can provide you with the best options available.
Life Insurance: More Than Just a Safety Net
Life insurance is crucial if someone depends on your income. You might think itâs just for your spouse or kids, but it can also be for parents, siblings, or even extended family who rely on you financially.
Term Life Insurance
Term life insurance is generally low-cost and provides substantial coverage. If marriage or kids are in your near future, you should consider locking in some insurability. Again, look for a good independent insurance broker to compare plans. Group plans can be an alternative if you have medical conditions that make private insurance expensive or challenging to obtain.
Umbrella Policy: Extra Layer of Protection
An umbrella policy provides additional liability coverage over your existing home, auto, or renters insurance. Itâs essential because, given your profession, youâre likely to be targeted in lawsuits.
How Much Coverage?
We usually recommend coverage that at least matches your net worth. If your net worth is negative due to student loans, start with a million dollars in coverage. This will vary by state, so check local costs. For example, in Pennsylvania, a million dollars of coverage might cost around $200 annually, whereas in Florida, it could be closer to $600.
Create a Budget: Manage Your Income Smartly
With the âbig kidâ paycheck hitting soon, it’s crucial to create a budget. You don’t need to be a financial wizard or create elaborate spreadsheets; just track your income and expenses. This helps you meet your goals, enjoy your money, and maintain a good work-life balance.
Make Budgeting Fun
Turn budgeting into a fun activity. Make it a date night with your significant other. The key is to keep an eye on what’s coming in and what’s going out. This practice is essential for achieving your financial goals and enjoying your money responsibly.
Eliminate High-Interest Debt: Pay Off What Hurts the Most
It’s not uncommon for early attending physicians to have high-interest debt, such as credit card debt or car loans. The first step is to eliminate this debt or at least have a solid plan to do so.
Tackling Different Types of Debt
Focus on credit card debt first, as it usually has the highest interest rates. Car loans can be next, especially if they’re above average in interest rates. However, some car loans might have very low rates if you got them during certain economic periods. In summary, eliminate what costs you the most money first.
Financial Planning: Donât Go It Alone
You need a financial plan to guide you through this new phase of life. Whether you choose a one-time financial plan or ongoing financial planning services, find an advisor you trust.
Finding the Right Advisor
There are many resources available, like the White Coat Investor’s list of recommended advisors. You can also find hourly advisors or those who offer one-time plans. The important thing is to have a roadmap that takes you from where you are now to where you want to be, financially.
Paying Down Student Loans: Strategy Matters
If youâre aiming for Public Service Loan Forgiveness (PSLF), pay just what is required. Don’t pay more than you need to reach the 120 qualifying payments. For private loans, look into refinancing options to lower your interest rates.
Develop a Payment Plan
Create a plan tailored to your circumstances. Are you aiming to pay off your loans in five years? Ten years? Can you refinance at a lower rate? These are the questions you need to answer as you build your strategy.
Tax-Advantaged Accounts: Maximize Your Savings
As an attending physician, you should take advantage of tax-advantaged retirement accounts. One popular option is the Backdoor Roth IRA. This allows high-income earners to contribute to a Roth IRA.
Building Roth Accounts
These Roth accounts can grow significantly over time. In retirement, you may benefit from Roth conversions, which allow you to move funds from a traditional IRA to a Roth and pay taxes on the conversion amount now rather than later.
Plan for Home Ownership: Take Your Time
If youâre planning to buy a home as a new attending physician, take your time. If you’re relocating to a new city, consider renting for six to twelve months first. This gives you a chance to get to know the area before making a significant financial commitment.
Physician Mortgages
Physician mortgages can offer favorable terms but donât jump in just because it has your name on it. Compare it with conventional mortgages to see what works best for you.
Build an Emergency Fund: Be Prepared
An emergency fund is non-negotiable. You need to start building this fund as soon as possible. Look for online banks that offer high-yield savings accounts, typically anywhere between 4% and 5%.
Appropriate Fund Size
A good rule of thumb is to aim for six to twelve months of living expenses. The exact amount can vary based on what makes you comfortable. For some, a $20,000 emergency fund is sufficient; for others, it might be $50,000 or more.
Max Out Retirement Accounts: Secure Your Future
With your higher income, itâs now time to max out your retirement accounts. Whether itâs a 403(b), 401(k), or a backdoor Roth IRA, make sure youâre taking full advantage of these opportunities.
Pre-Tax Benefits
Maxing out your pre-tax accounts not only lowers your taxable income but also builds a solid foundation for your financial future. If your employer offers additional plans like a 457(b), consider those as well.
Reward Yourself: You’ve Earned It
After all the hard work, donât forget to reward yourself. Yes, financial discipline is important, but so is recognizing your achievements. Plan a vacation, buy that item youâve been eyeing, or treat yourself in some other meaningful way.
Avoiding Lifestyle Creep
Be wary of lifestyle creep. Set your financial priorities first, so any remaining money in your checking account is truly discretionary. This will help you spend responsibly while enjoying your hard-earned money.
Conclusion
Congratulations on finishing your residency or fellowship and stepping into your role as an attending physician. This period is filled with exciting opportunities and responsibilities. By focusing on these 13 financial priorities, you’ll set a solid foundation for your financial future.
Remember, it’s not just about making the big bucks; it’s also about protecting and growing them wisely. If you have any questions or need further guidance, don’t hesitate to reach out.
Enjoy this next chapter of your lifeâ you’ve earned it!
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