One would expect that top income earners like doctors never have to worry about saving for retirement, paying for college education, paying off a large house mortgage or treating themselves to a ski vacation in St. Moritz. Contrary to popular belief, doctors face financial challenges their high income counterparts in other professions or businesses do not have, such as:
- Short career span – many doctors do not start their career until their 30s.
- Large student debt – Not only do you start late, you also likely to start your career in the red.
- Instant transition from low to high income – when you jump from a resident salary of $50,000 to $400,000 as a practitioner in one year, many doctors have trouble adjusting to the “windfall”, and spend money foolishly.
- Longer work hours – Unlike most other professionals, many doctors do not punch the clock at 5 pm and often work into the night and weekends.
- Too trusting – Doctors work in a collaborative environment based on mutual trust. They often do not recognize that the charming advisor they are introduced to could be a salesman peddling shady investments.
Why are some doctors so successful of accumulating wealth while their colleagues with similar income and expenses fail?
Building wealth is not the result of making more or having a financial whiz on your team. It is the result of spending more of your time to reach your financial goals. If your most important goal is to pay off the mortgage, or save for retirement, how much effort are you putting in to reach it? Perhaps you feel you do not have the financial expertise or you are caught up in the daily energy draining whirlwind of treating patients, with precious little time left to work on your financial plan. As the result, many doctors transfer the responsibility for their finances to someone else.
Here is a prescription of building wealth:
- Make time. Set aside a couple of hours each week and stick to it.
- Set goals. Make a list of the important goals you want to achieve within 1 year, within 5 years and within 10 years. The goals are very specific, e.g. pay off the mortgage by March 2018. Write them down to give yourself a visual reinforcement of what you want to accomplish. You dramatically increase the chances of attaining your goals.
- Project cash flow. Start by preparing personal cash flow projections for the next 12 months. They include your expected practice income, personal and living expenses, income taxes, etc. Also prepare a summary of your assets and liabilities, called the Net Worth Statement. The net worth and cash flow statements should be updated every quarter.
- Execute your plan. Working with your financial advisor, identify the important strategies, such as making the maximum lump sum payment on the next anniversary date of the mortgage.
- Keep score. Each month review your financial progress to ensure you are on target. Perhaps each quarter have a meeting with your advisor to review the portfolio.
- Become more financially literate. I suggest you subscribe to a couple of investment newsletters and perhaps read the financial section of the Globe and Mail. This will help you make more educated decisions and a more productive relationship with your advisor. You are gaining confidence which gives a sense of greater control over your financial destiny.
