Imagine this, picture this.
The sun is shining brightly. A cool breeze sweeps over the brilliant green grass. Your body is filled with the warmth of the energy of the sun. You raise your face to the sky and drink in the moment. Silence fills the air as you enjoy your moment in the sun.
Life is good. You’re in practice. You have a gorgeous home and a loving family. You sigh contentedly with happiness.
You wander back into your abode and check your bank account… you gulp and shiver in response to what you see.
A mere $1,000 is left. That’s all you got to your name. $1,000 plus some retirement accounts.
Finances are super tight! Although life is good, financially you’re still barely making it paycheck to paycheck.
You have student loans still hanging over your head. You’re feeling frustrated and upset. You have 2 car loans and a jumbo mortgage.
You’re holding off on making the credit card payment and the mortgage payment and the utility bill until the paycheck comes in.
As a matter of fact, you are now itching to snatch that paycheck. Nervousness fills your inner being with dread.
Can you imagine what that would feel like?
How would you feel being in this pinch?
Here you are many years into practice and you feel like it’s residency all over again. You wonder where did I go wrong?
Unfortunately, my friends this isn’t unusual. I’ve seen this story play out time and time again. I’ve seen physicians and many residents make some mistakes that could really screw you over for the long term. Needless to say, the wrong decisions can significantly delay your retirement.
Let’s call them the 7 Deadly Sins.
If you are a practicing physician, I’d love to know what’s on your list! If you find this piece to be useful, please pass it on to the residents and fellows that you work with.
Are you ready? Let’s go!
Sin# 1: Not Buying Big Ticket Purchases in Cash
I have to confess that the biggest sin in my opinion in NOT buying big ticket items in cash.
You can learn more about that and why I feel this is so important in a guest post at FutureProofMD which you can find here:
The Biggest Financial Sin of Residents & Fellows on FutureProofMD.com
Sin# 2: Not Signing Up for PSLF When Residency Starts
We all know how medical school and undergrad debt sucks! I speak to many physicians with $200,000 or $300,000 in debt.
Unfortunately, the interest rate on these loans royally suck. Some are private, but for the majority of physician loans I see are federally backed loans like Stafford or Perkins.
This means that the interest rate is close to 6.8% and the average physician is accruing well over $14,000 a year in residency.
It’s really easy to get scared by these numbers. So much so that you bury your head in the sand like an ostrich and don’t even want to think about it.
My friends, we have to get on these issues as soon as possible.
The best way to do this in 90% of cases is to sign up for PSLF, the Public Service Loan Forgiveness Program.
A lot of physicians get this done, but for those of you that have chosen to defer, defer, defer, and forebear. I really encourage you as soon as possible to sign up so that you can begin to accumulate credits for debt forgiveness. It’s 10 years for PSLF, so as a resident you can get 3 years of credit really quickly and if you do a fellowship, you’re halfway there and you’re getting paid jack squat in relatively slave wages. Might as well make use of that time!
Worst case scenario even if you don’t qualify for debt forgiveness when you go for profit? You are paying $300/month and that is keeping your interest from compounding and preventing that mountain of debt from becoming a mountain RANGE of debt.
You can find out more about PSLF/IBR/PAYE by checking out these links:
Determining Your Interest Rate Subsidy
Sin# 3: Not Filing Married As Separately
If you are single, skip this sin!
=-)
However, for our married friends, once you are enrolled in PSLF and you KNOW that you are going for debt forgiveness, make sure that you look into filing your taxes as married filing separately.
To make a long story short, it lowers your payment and you still get credit for loan forgiveness. The best of both worlds!
You can learn more about married filing separately in this article:
The Math Behind Married Filing Separately
Sin# 4: Not Refinancing Your Debts When You Start Practice
If you are going for debt forgiveness and are going to be working full-time at a non-profit, please move on to the next one.
However, if you may be working for a for-profit or are considering working part-time (meaning the employer’s definition), then please looking into refinancing.
This is because you can often shave 1% or 2% or maybe even 3% off the interest rate.
There’s so many companies to do this with! It’s pretty overwhelming.
You could check out Credible, SoFi, CommonBond, Earnest, DRB, and about 10 others.
So far, I’ve had the best experiences with SoFi and Earnest.
My good friend, PhysicianOnFire, has an affiliate link where you can get $300 credit at SoFi when you refinance there.
You can check that out here:
Sin# 5: Buying a Home in Residency
In my opinion, this isn’t talked about enough.
I’ve ran across many practicing physicians who state that buying a home in residency is their BIGGEST regret by far.
There’s a few basic reasons why NOT to buy a house during residency:
- Higher payments and higher maintenance costs via insurance/property taxes/ etc
- Once you buy a house, you have to fill it with stuff that costs more money
- You have to repair stuff like heaters and clean ducts and every bill is higher- heating, cooling, utilities, trash, yard, etc
- You’re likely to move
- It can be hard to sell (Although, truth be told in today’s market many homes are getting multiple offers and selling super quick, but that’s certainly the exception and not the rule)
- If you choose to rent it later, you likely have a decent mortgage and it will probably be cash flow negative making a sucking sound out of your bank account monthly
Sin# 6: Not Taking Advantage of Free Money
This doesn’t pop up too often, but I am shocked when I do see it.
Your 401k/403b- the employer sponsored retirement plan- may have a match.
This is free money! They may match 50 cents or dollar-for-dollar of what you put in.
There’s no debt you have which will have a guaranteed 50% or maybe even 100% rate of return just for socking away a few bucks.
Of course, they may not offer it either.
If that’s the case, I recommend socking away in the cash cushion account and the Roth IRA instead.
Sin# 7: Buying Whole Life/ Universal Life Insurance & Not Buying Cheap Term & Reasonable DI
If you are a reader of the White Coat Investor or follow my writing, you’ll know that neither of us are a fan of cash value life insurance except in very limited circumstances.
Go down this checklist and see if you have completed the following:
- Have $10,000 or more saved in a cash cushion
- Max out 401k/403b
- Max out Roth IRA
- Saved another $30,000+ in non-qualified accounts
- Paid off your student loans and all consumer debt including car loans
- Max out 457 DC
- Saved another $30,000+ in non-qualified accounts again
- Looked at small business retirement plans for side hustle/private practice
- Paid off your mortgage (or have enough saved up for a house to buy in cash)
If you’ve gone through this WHOLE checklist and checked off every circle, you are AMAZING! Please give me a call so that I can congratulate you and learn how you did it.
Cash value life insurance may be okay for you if you accomplished this monumental task list.
Otherwise, if you are like most of us, you still need to check off some of these boxes. Then, once you do, let’s chat about it.
In the meantime, snatch some 20 year level guaranteed term life insurance and get reasonable disability insurance.
Final Thoughts
There’s so much more to say, but I think that’ll do it for now.
=-)
If you are a practicing physician, I’d love to know what’s on your list!
If you are a resident, do you agree or disagree with this list? What would you add or subtract?
Let me know what you think!
Dave Denniston, Chartered Financial Analyst (CFA), is an authority for physicians providing a voice and an advocate for all of the financial issues that doctors deal with.
You can find his latest blog post by clicking here.
Advisory services through Capital Advisory Group Advisory Services LLC and securities through United Planners Financial Services of America, a Limited Partnership. Member FINRA and SIPC. The Capital Advisory Group Advisory Services, LLC (CAG) and United Planners Financial Services are not affiliated.
The views expressed are those of the author and may not reflect the views of United Planners Financial Services. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Individual needs vary & require consideration of your unique objectives & financial situation