We've all heard that phrase from parents or well-wishers, “be a doctor when you grow up” or more recently "be the doctor your parents always wanted you to marry." Why is that? Because being a physician equates to knowledge, dedication and respect but also wealth. But the latter isn't completely truthful.
After many years of small—sometimes nonexistent—income partnered with a lot of medical school debt, once you get that MD or DO certificate and then the attending paycheck that goes with it, it can be so tempting to spend a lot, leading to poor financial decisions and the accompanying repercussions.
But just because this can happen doesn’t mean it should happen, and in fact, many doctors walk the financial tightrope between economic prosperity and failure based on the financial decisions they make. But, due to those who don’t navigate their newfound wealth as successfully, doctors—as a whole—have a bad rap where financial decisions are concerned, and many people in the financial industry capitalize on this.
Here are 5 reasons doctors aren't great with money and some tips to not fall into that trap. And these tips can apply to anyone who brings home a paycheck of any size.
5 Top Reasons Why Doctors Can Be Bad with Money
1. Doctors think making a lot of money equates with paying off all that debt.
This can be true if you already have sound financial habits in place. However, if you’ve developed poor financial habits in the past, even when you weren’t making any money, those habits won’t usually change when the bigger paychecks start coming in. In fact, you could feed those habits more with all the additional money you’re making, leading to a slower debt repayment process and even additional fees and interest. Unless you make a strict plan and are determined to pay of your student loans and debt, it will not happen by "osmosis" even if you are earning a high income.
Myth buster: No matter how much money you’re making, live below your means. Yes, that can mean lots of ramen, cereal, and pancakes when paychecks are lean, but developing solid financial habits then can lead to wealth and more opportunities, and possibly less school-related debt to begin with. It's important to build good financial habits early and have a full plan in place (PSLF, refinance, budget tracking, monthly expenses input/output) to pay off debt.
2. Doctors believe they are too busy (or too L brained) to learn financial information.
To say being a physician is a full-time job is an understatement. Add to that kids and other life tasks, there is literally no time left. And on top of that, there's a reason why doctors went to medical school, because they didn't love accounting, finances and Wall St.etc focused jobs. However, unlike doctors who take the Hippocratic Oath to do no harm, such oaths aren't taken by professionals in other industries such as finances. While in medicine you can trust your physician to always work in your best interest (infact many doctors and nurses go above and beyond to help someone get the care and treatment they need), that doesn't always happen with a financial advisor. Thus, even though there is limited time, you must make the time to make yourself knowledgeable about your finances. You can and must make the effort to learn the basics, and it will serve you well in the long-run.
Myth buster: Time is limited, but doctors are not too busy to learn financial information, as many prudent doctors have shown. Once you come to the realization how important this is, for you and your retirement, your children and their future etc, you will carve out the time. Listen to a financial podcast on the way to work or while working out, during an hour or two on a weekend or on a off-call day. It's important enough to find the time, and learn about your personal finance.
3. Doctors often outsource in INCORRECT places.
Why do things yourself when you finally have the funds to pay someone else to do them, freeing you up to do more important things? Well, certain outsourcing is great, such as nannies, housekeepers, personal trainers, but others, not so much. Outsourcing financial planning and advising and not learning how to handle your own finances (at least at first) can be a huge mistake. Infact, it can be a multi-million dollar mistake (will post more on this later). Also purchasing items, and then outsourcing work for it such as pool cleaners, landscapers, food deliverers, chefs...can put you in a never-ending money-spending lifecycle. Also be aware that often, the time saved through outsourcing that was meant to be spent on your priorities (family, relationships, personal development, etc.), can get lost on things that aren’t really that important such as scrolling social media. Outsourcing expenditures can add up really quickly if you’re not careful, putting you in dire financial straits.
Myth buster: First figure out what you really need and outsource in areas that will actually help you. Avoid buying things that will require a lot of maintenance or outsourcing, and learn skills (such as meal planning) that you can easily do yourself to save a lot of money. So yes, freeing up funds for tasks you’re not so good at or tasks that will truly free you up to spend more quality time on what matters most, that can work out well, but be mindful of what you outsource. And never outsource your personal finance until you learn the basics yourself.
4. Doctors don’t save money earlier.
When you’re not making much money, it’s difficult to save any of those limited funds, whether through a simple savings account or investing, so you don’t. You tell yourself, “I don’t have the money now, so I won’t save anything. But I will when I start making money as a doctor” But, if you haven’t developed the savings habit when you’re not making much, it will be difficult to develop it later when you are earning more and tempted to spend on things you couldn’t afford before. When you’re not saving regularly, you won’t have that emergency fund set aside when you really do need it, leaving you in those dire financial straits again. And in addition, when you don't save and invest money early, you lose out on growth on tax-advantaged accounts that can't be recuperated with more money - it's the time in the market that helps your wealth grow.
Myth buster: We talked about sound financial habits before, and saving money regularly is one of the best habits you can develop. Start with an emergency fund, followed by student loans, and then tax-advantaged accounts such as 401K, RothIRA, HSA etc and then moving on to investing in broad based index funds. You’ll feel like you’re in control of your finances instead of the other way around, and this feeling of pride will lead to better financial decisions now and into the future when you are making more money and savings is already an ingrained habit.
5. Doctors focus too much on material items.
Back when you were eating ramen and driving that years-old clunker and just praying you’d be able to pay the rent and utilities, you might’ve told yourself something like: “When I’m bringing in that doctor’s salary, I’ll be able to buy what I want, save half, and even more.” Lots of sacrifices and delayed gratification was made, so when the doctor’s salary hits the account, many want to buy all the things they sacrificed, and these expenses add up really quickly. Many doctors also feel like they must keep up the “doctor status” identity, and “needs” can include luxury cars, huge homes, and all the other prestigious things that go with that identity, which can all lead to a lot of financial stress.
Myth buster: This can't be stressed enough, please do not try to "keep up with the Joneses." Studies have shown that most American millionaires are everyday people who live modestly and save frugally. Even when the attending paychecks start coming in, don’t raise your standard of living to meet that paycheck, continue living like a resident and below your means. Instead, set a sound budget, allow savings for emergencies, loans, retirement plans and any other priorities that need to be addressed. Budget well, and understand where every dollar is coming from and going. While this can be a tedious and not so fun process, it will pay off in the present and especially in the long-term. Afterwards, once your finances are all sorted and automated, you can dip into luxuries. After all, you’ve paid the price to get where you are through many difficult and expensive years of training, so focus on what’s important, don’t become a servant to your life through poor financial decisions, and you’ll achieve your financial goals, early retirement if desired and the happiness that comes with financial integrity.
You can absolutely do it! Many doctors have, and you too can both provide excellent patient care and also achieve your financial goals.