Financial Planning and Investment Tips for Medical Professionals

Financial Planning for Physicians: Saving and Investing Tips

Bombarded with a 24-hour news cycle and social media, almost everyone I know feels that their world is already moving too fast and believes that things are going to continue to accelerate. How you cope with this challenge will determine a great deal about your future. The consequences for your family, friends, hopes, and dreams are hard to fathom. Fortunately, you can make decisions to ensure your financial future by understanding how to keep time on your side.

The keys are to take action, bet on quality, measure your results, and adjust accordingly. Obviously, that is an easy thing to write, but it proves highly challenging for many to implement. Even the first step takes most professionals far too long.

Given the time, effort, and money required to complete a medical education, it is hardly surprising that a majority of physicians who start earning as residents do not think about investment but instead focus on living costs, interest on loans, and if lucky, hope to make some debt repayment. However, financial planning for physicians is crucial, and I believe they are missing a major opportunity by not following two basic financial principles:

Pay Yourself First

Even on a first-year resident’s income, it is usually possible to set aside a modest sum every month by directing $50 a month to a savings account that you are not allowed to spend. At the end of a year, you will have enough to buy a small position in something by opening a TFSA. This is not a trivial waste of time. Instead, it should reinforce the concepts of paying yourself first, taking action, and developing a habit of regular saving. With time, you should be able to increase the monthly amount, eventually open an RSP when your rising income as a practicing physician makes the tax deduction worthwhile, and gradually watch the debt number fall away as your assets grow.

If you have not already taken this first step, do it now. I have spoken with many people who delay waiting for a “more stable market” or are paralyzed with indecision or fearful about the complexities. A few minutes entering numbers into a compound interest calculator should persuade everyone that time is a critical factor in investment success and the sooner you can start, the better off you will be. Read this post for a further illustration.

Bet on Quality

The second step to saving and investing for doctors can be summarized by an old market axiom that “in the short term, the market is a voting machine, but in the long term it is a weighing machine.” Basically, you do not want to chase the favorite flavor of the week but are much more likely to do well with solid, steadily growing assets priced at a reasonable level. This directly leads to the third and fourth steps: measure and adjust.

Measure and Adjust

Your ability to make the correct choices (or to choose someone to make those choices for you) must be measured at least annually and compared to standard market returns. If you are not at least close to a risk-adjusted market return, you need to make changes. Your annual rate of return is an essential piece of data easily understood by any physician as it is an order of magnitude more basic than, say, renal physiology. If you do not know this number, it is very easy to determine. (see calculator) Alternatively, your financial advisor should be able to clearly provide this information in an easily understood single percent compared to market numbers. If they do not or the answer is confusing, insist that they make it clear or find someone else who will.

Time is, of course, about far more than money; it is the fabric of your life that we should all use as wisely as we can to enjoy whatever is most meaningful to each of us. A well-executed financial plan should be designed to give you the freedom and opportunity to do those things that make the greatest difference to you. Take those steps now and keep time on your side.

Key Points

• Financial Planning for Physicians: Time is your most valuable asset.

• With respect to finances, avoid procrastination, bet on quality, measure results, and adjust.

• Investment Tips for Medical Professionals: Compound growth powerfully confirms the importance of avoiding delay.

• Saving and Investing for Doctors: Sound financial management provides the opportunity to use your time as you wish.