As a pediatrician, how can you build lifelong financial stability? Being informed and having a long-term dedication to a comprehensive financial plan can help you avoid potentially financially devasting mistakes. When you consistently make sound financial decisions, you’re setting yourself up for a lifetime of personal financial success. We give you 5 financial mistakes to avoid on your financial planning journey.
Waiting to begin saving and investing
Putting away a portion of your monthly salary into savings to build a healthy emergency savings fund of three to six months of living expenses can help protect you against unexpected expenses. An emergency fund also helps keep you out of debt—a contributing factor to long-term financial success.
Investing early and often is also one of the best ways to set yourself up for financial success. Rather than trying to time the market, a history of steady, reliable contributions can help you grow your wealth over time. An additional benefit: the longer you let your investments grow, the more money you’ll likely earn due to compounding. Saving regularly in a tax-efficient account and prudently managing your funds is an excellent start to achieving your long-term goals. If your employer offers a corporate retirement account, take advantage of it.
Living Above Your Means
Typically, with proper planning, pediatricians can earn enough to pay down a high level of debt within a few years. The key is keeping expenses low and building a realistic budget until the loans are paid. As you continue to increase your earnings, continue to prioritize saving, paying off debt, and setting aside money for future short-term and long-term goals. While paying off student loans and other types of debt should be a financial priority, develop a budget beyond debt repayment. Don’t let loan repayment stop you from building an emergency fund or blocking saving for retirement.
Not Protecting Your Assets
As physicians, pediatricians face many financial and legal risks not seen in many other professions, including malpractice lawsuits and personal liability. Asset protection can encompass three layers of protection, including malpractice insurance, a strategy for alternative dispute resolution, and the formation of trusts to hold and manage assets. For layer one, malpractice insurance, you should ensure that your malpractice insurance policy not only meets legal and regulatory requirements but also offers comprehensive coverage tailored to your specific practice. Additionally, as malpractice settlements become more costly, alternative dispute resolution (ADR) agreements (layer two) have emerged to protect physicians against prolonged and expensive litigation. ADR agreements also offer a level of confidentiality that court proceedings may lack, allowing for more discreet resolution of sensitive matters. And finally, layer three: the establishment of trusts. Trusts are one of the most potent strategies for protecting a physician’s assets. They serve as an effective barrier against potential creditors and legal liabilities.
Not purchasing the correct disability and life insurance policies
While disability insurance is important for everyone, it’s essential for pediatricians, who should consider an own-occupation policy. With this type of coverage, if you become disabled, you will receive the full policy benefits if you can’t perform the specific duties of your specialty. If you are still capable of working outside of your specialty, you will not receive benefits with a regular disability policy.
For young pediatricians, it’s common to have a significant amount of debt and a young family, and maintaining a suitable cash flow to pay all your expenses may be challenging. In such a scenario, term life insurance may be the best solution. If you are young and healthy, you can obtain a high level of term life insurance coverage for an affordable price for three decades or more. The premiums can remain level over the life of the policy, which is helpful from a cash flow perspective. Revisiting your policy over the years to determine if term insurance is still the optimal solution for you is advisable. For pediatricians with estate planning, legacy, or tax considerations, permanent life insurance may be a more appropriate solution.
Not Having an Investment Strategy that Matches Your Goals
One of the most important steps to position yourself for financial success is to become educated about personal finance. Working with a financial adviser can enable you to make smarter investment choices, build a retirement nest egg, and feel more confident that you are making the right choices for your family. For pediatricians, there are a myriad of financial planning strategies that may be beneficial. These include Roth IRA contributions and conversions, asset allocation strategies, gifting techniques, philanthropic planning, and estate tax minimization strategies. Finding a financial advisor who is a true fiduciary and knowledgeable in the field can pose a challenge.
Don’t assume that financial matters will take care of themselves. Finding a financial planner who is right for you can be an integral part of reaching your financial goals. At Northern Way, we think that life is about creating memories, experiences, and moments with the ones who matter most to you. That’s why we’re dedicated to helping pre- and post-retirees and healthcare professionals spend their time doing what they love — like enjoying life. Contact us and start your journey now.