Managing Wealth: The New Doctor's Dilemma

By Jeffrey Eisenberg, MBA

Congratulations—you’ve finished your residency! Years of long hours and hard work are beginning to pay off with a fresh, well-paying and prestigious career as a medical professional. You’ve earned those benefits. Now the question is, can you keep them?

Because an MD diploma isn’t the only thing you have now. If you’re like the average medical school graduate, you’re also deeply in debt. The median education indebtedness of medical graduates last year was $183,000, according to the Association of American Medical Colleges. The moves you make today to manage those loans and other money matters will have a big effect on how well you can achieve your financial goals. Can you structure your liabilities so you can still be prepared for the future? How do you balance school loans and other debts with your new higher income? What are the big mistakes you want to avoid?

Review Your Situation
Perhaps the biggest problem for a new doctor is one that most people would like to have—the novelty of managing a suddenly larger paycheck. A Medscape survey showed that the national average compensation for a primary care physician was $195,000 last year, while specialists averaged $284,000. The temptation that new doctors have is to start spending a sizable portion of their pay as the well-earned reward for years of sacrifice.

A luxurious house may not be outside a new doctor’s budget, but it’s important to do the math and learn how to balance personal spending with the outsized education loans that have accrued over the years. The best place to start is with a careful review of your financial situation to ensure your “house” is in order.

You start with a chore that most people hate but which is essential to the success of any financial goal. Begin by taking a legal pad and making an itemized list of all your assets on one page, and all your liabilities with repayment terms on another page. Your goal will be to maximize the use of your assets and cash flow, reduce debt in a timely fashion, all while meeting your current objectives and saving for the future. It is not uncommon for people looking at a new higher paycheck to quickly incur more debt by living beyond their means. Others focus solely on paying off loans with a relatively low interest rate, while forgetting they also need to invest for their future.

One effective move can be consolidating all your personal accounts to one financial institution. It will allow you to more easily monitor your money and your investment returns, as well as take advantage of special programs to which high-net-worth customers are often entitled. This also is a good time to find a professional who can help you create, execute, and actively manage a well-defined wealth accumulation plan. Being able to clearly see what you have and where you are going will help you stay on track with your goals and priorities.

Make a Financial Plan
The first step in personalizing a financial plan that meets a new doctor’s needs is to meet with an advisor who provides financial planning services. Planners can help solve a host of issues:

Calculating the amount of annual income you need to cover your expenses and savings;
Preparing a budget to help set realistic financial goals, manage expenses, and reduce debt;
Providing adequate insurance to protect your family and estate;
Selecting smart investments that fit your risk tolerance and objectives, providing a proper asset allocation and diversification;
Establishing an emergency fund to cover unforeseen expenses.

Proper planning can help you achieve your goals, whether that may be saving for a child’s education, buying a house, planning a family vacation, purchasing a new car, or retiring comfortably, all while paying off your debt. An independent financial advisor can also help you determine the best way to plan for future tax liabilities. Are tax-exempt securities or a tax-deferred account a better choice for your situation? Is it a better strategy to save money now or pay off more debt?

Finally, review your financial plan annually with your advisor. This is the time for you to re-evaluate and adjust your goals and asset allocations, and to perform any portfolio rebalancing necessary to keep you on track.

Just as the year spent in medical school and residency form the basis for your career as a physician, the time and effort you spend with your advisor thinking about and planning for your future will be your best way to ensure financial success.

Jeffrey Eisenberg is president and CEO of SecuraWealth Investment Strategies, a Registered Investment Advisor, providing independent fee-only based wealth management services and strategic investment portfolio strategies. SecuraWealth Investment Strategies does not provide legal or tax advice. Please contact your attorney and/or tax advisor regarding any questions you may have specific to your situation. Information contained herein was obtained from sources believed to be reliable, but not guaranteed. Past performance is no guarantee of future results.