Physicians face a unique set of challenges when it comes to managing their finances. Saving money for retirement requires careful planning and research. With so many different investment options, doctors often have limited financial knowledge and may not make the profit they anticipate if they sell their practice. A financial planner can offer multiple scenarios and strategies to supplement retirement goals. In addition to helping doctors manage their finances, financial planning professionals can offer a range of services that may include:
Disposable Income Phase
When doctors are financially successful, they reach the Disposable Income Phase. This is the stage of their career when expenses become equal to income. This phase gives physicians the freedom to donate their time and treasures to causes that matter to them. It also marks the beginning of the “true significance” phase of their financial planning. Here’s how to move from the Disposable Income Phase into the true significance phase.
The income from medical school has already been low, but after specialty education, physicians face new challenges. They have to allocate higher income to their personal and professional goals. This is why proper financial planning for doctors is important, especially with student loan debt. After all, it is only when the debt feels like it will never go away that it becomes an impairment. So, physicians should plan carefully for the Disposable Income Phase and make a list of short-term goals to reach.
Cash-flow management opportunities
As the costs of medical care shift from insurers to patients, cash-flow management has become more important for physicians. While some commercial businesses can use aggressive collection tactics to recover unpaid balances, the same can’t be said for healthcare practices. In addition, many patients cannot afford to pay their full balance on their own. By leveraging a cash management solution, physicians can maximize their time and increase their cash flow. Here are some tips to improve your cash flow management process.
Banks: When a medical practice is experiencing cash-flow issues, banks are a good source of funding. A medical practice can use a bank loan to expand, but it can take a while to close. Bank loans, for example, often take several weeks to clear after Congress has approved them. Therefore, it is important to understand the ramifications of using banks for medical practice financing. Cash-flow management opportunities for doctors can be tricky to identify. However, a financial expert can help you make the right choice.
Estate planning
Considering your assets when planning your estate is vital for your loved ones. You may be a physician with significant assets, such as a primary home, a vacation home, and other property. Adding your business to your estate will drastically change the balance of your assets and liabilities. Without estate planning for physicians, your family may be left with a huge financial burden. While these plans might seem morbid or time-consuming, they can actually save your loved ones’ lives.
An estate plan may need to be updated periodically as your marital status or beneficiary may change. You may want to update your plan when you adopt a child, or if you move across state lines. This is because state laws vary from one another. Estate planning for physicians should include a life insurance plan. It will protect your loved ones, and your family, should something happen to you. But there are several other things you should consider.
Student loan repayment
For physicians, student loan forgiveness programs may be available to help them pay back their debt. Many states offer loan forgiveness programs to attract physicians to underserved communities. You can find a list of these programs at the AAMC database. Some programs only cover direct federal loans; others offer repayment for private educational loans. Be sure to research which program is best for you and your situation. If you are eligible to apply for student loan forgiveness, here are a few tips.
One way to get your student loan paid off faster is to defer it. This is possible if you qualify for public service loan forgiveness, but it is not ideal and may cost you tens of thousands of dollars in interest. Also, doctors can try deferment to get their loan paid off before graduation, but this can be risky because interest will continue to accrue. Instead, opt for an income-driven repayment plan, which will allow you to ramp up payments as your income increases.
Compound interest
Compound interest is an extremely powerful tool for building retirement savings, but physicians tend to have limited time to invest in their own future. Doctors spend far more time in school than the average person, so their peak earning years are short. But even though their income will be much higher in the future, doctors must still pay off medical school and start saving as soon as they can. This means that physicians are faced with a unique set of hurdles.
One of the most important principles in financial planning for physicians is to focus on compounding assets. Compound interest is the most powerful wealth creator known to man. Albert Einstein said that compounding was the most powerful force in the universe. Over time, an asset will generate exponential growth as it earns interest on its interest income. This compounding effect leads to wealth that grows exponentially. When physicians invest wisely and follow their financial plan, compounding will benefit them.