The Best Financial Advice for Physicians

Being a doctor can be awkward. On one hand, you have the knowledge, training and expertise to save lives, facilitate healing people, and prevent negative health outcomes. You impact lives at the very core. Pretty amazing!

On the other hand, this skill and esteem can make physicians feel like they should be easily able to handle and understand other critical aspects of life. It’s a lot of pressure.

Handling finances can be particularly confusing. Medical professionals study, study, study, then work, work, work. They go from having to borrow six figures worth of debt to earning just enough in residency and fellowship to slide by, and then they get an explosion of income as an attending physician.

Each phase— from med student to training to attending— forms a different mindset and relationship with money. Physicians are highly intelligent, hard-working folks. Unfortunately, those periods of transition can make it challenging for them to manage their own finances. That's why knowing where to find sound financial advice for physicians is so important.

Physicians are financial targets

When people find out that you’re a doctor, they know you’re making a solid income. The average physician earns about $225,000, and many specialists earn $300,000 or more. Only part-time physicians wouldn’t be in the six-figure range.

Earning a high income makes doctors a target for all sorts of money-seeking individuals and companies selling inappropriate financial products, as well as unethical companies targeting people with high student debt. It’s fairly easy to find the contact information of many physicians, and, oh boy, do people get in touch to make a quick buck.

Aside from a handful of resources, doctors are left to fend for themselves in a treacherous sea with no life preserver.

My goal here is to help you identify who can give sound and objective financial advice for physicians. I'll also share some pointers with you that will help you achieve your best financial health.

How to find sound financial advice for physicians

First things first. How do you sift through the sea of scoundrels and find someone who will genuinely put your best interests first?

I'm a CFA/CFP who was a financial advisor for more than 10 years. I've seen the good, the bad, and the ugly in the personal finance industry. Here are some tips that will help you identify those who will look out for your financial life and those who won’t.

Don’t just default to a friend or family member

It seems like we all know someone who works for a financial planning firm. If you’re a doctor, you’ve probably been approached at this point by more than three people you know who say they can offer money advice. It’s like you’re a magnet for them.

A friend or family member who works for an advisory firm might be qualified. But I’ve seen far too many who are out to make a buck or simply aren’t competent enough to help you identify your best investment option.

When choosing a financial advisor, I recommend talking with one or two who you don’t know at all but who have been highly recommended. That way, you’ll be able to figure out if someone is the right fit for you.

Ask the financial advisor about why they got into the financial industry

You can tell a lot about someone’s intentions by how they answer when you ask them why they became a financial advisor. Do their eyes light up? Did they have a pivotal experience that compelled them to pursue a financial career? Do they love numbers or helping people? You should see passion and enthusiasm in their response.

If you get a lot of, “umm,” silence, or you get the feeling that it’s all about the money, that should raise a red flag. Wouldn’t you rather hire someone who is passionate about what they do?

Ask financial advisors how they make money

There are two reasons to ask financial planners how they make their money:

1. You need to understand what the cost is to you and how that compares to other financial service providers out there.
2. You need to understand how their compensation incentivizes them. Is it aligned with your best interests or theirs? (Tip: It should be aligned with your best interests.)

Fees can be all over the map, anywhere from 0.5% to 2% if it’s a fee based on assets under management, Some financial advisors charge a flat fee for their advice and investment management. These are called “fee-only” advisors or planners.

Some investment advisors also may get compensated in addition to their stated fees. These additional fees are harder to uncover and usually come from the investment products they recommend.

For example, some advisors will charge you a fee, then put you in investments where they make a hefty commission on the investments they put you in. Beware of mutual funds with a “load,” which is a fee you pay to invest. You can identify those because they have share classes, like “A share,” “B share” and “C share” mutual funds. Avoid those investments.

Never do business with someone who can’t clearly explain to you the fee structure, and don’t sign up for something you don’t quite understand. If the financial advisor can’t explain it, they’re either hiding something or don’t even know how it works. Either way, that’s a bad sign.

Using the CFP Board's search tool to find Certified Financial Planner near you could be a great way to start looking for a trustworthy financial advisor. You could also check out our list of investment advisor sponsors of Student Loan Planner®. Every CFP has committed to act as a fiduciary to his or her clients. CFPs are also trained to consider the tax implications of investments. Consulting with a CPA may be a better option, however, for doctors who need advanced tax advice or help with filing their tax returns.

Both spouses should be involved in selecting a financial advisor

Most couples designate one spouse or partner to handle all things financial. This dynamic develops for any number of reasons, but you should both be involved and agree on the financial advice given.

Chances are each of you thinks about money differently and sees things differently. Use your differing perspectives to your advantage so you can make the right choice for your relationship and your family.

Choose a financial advisor experienced with medical school student debt

Being in the financial planning industry for as long as I was, I could talk all day long about retirement plans, the benefits of low-cost index funds, and the Modern Portfolio theory of asset protection and wealth management. But I can easily admit that I was totally oblivious to how student loans worked.

It wasn’t until I started working with Travis Hornsby, founder of Student Loan Planner®, in 2017 that I really gained an understanding of the student loan industry. Knowing what I know today, I can confidently say it's a “must” to see advisory services from someone who either is a student loan expert or knows that they need to get outside help. Poor financial advice for physicians in this area can cost them five or six figures of hard-earned money due to improper debt management.

Here’s a great Student Loan Planner® podcast in which we discuss what to look for and what to avoid when getting financial advice for physicians. Two of our very own consultants, Lauryn Williams and Justin Harvey, are on this podcast episode and they both offer comprehensive financial planning services outside of Student Loan Planner® as well.

Physicians should avoid financial advice from insurance companies

The insurance industry is full of well-meaning people. But most are either drinking the Kool-Aid or are oblivious to how the rest of the financial world works.

All you need to know is how commissions on insurance products work: The commission on insurance products is 100% of the premium in the first year (yeah, that’s all of it), 50% in the second year, and then becomes somewhere between 3% to 5% after five years.

Permanent or whole life policies are billed as an investment vehicle, but let me ask you this: Would you ever deposit money into an investment account knowing that the first 18 payments your deposits won’t actually make it into your account? Imagine putting $1,000 a month into an account, and after 18 months, you have $0 instead of the $18,000 you put in (plus or minus investment returns).

Besides, even after getting past the five-year mark, you’re paying 3% to 5% in commissions on your “investment contributions,” which is a multiple higher than industry-standard fees. Paying those kinds of fees can have a devastating effect on your long-term returns.

This assessment goes back to understanding how someone is incentivized. This type of product is way out of line with a physician’s best interests. Take, for example, an insurance professional wanting to sell you a term policy or a permanent or whole life policy with the same death benefit but at a 10- to 20-times greater premium. That higher premium means 10 to 20 times the commission for them.

In my experience, most insurance agents can’t explain this, they don’t want to, or they’re oblivious to it. Avoid solely getting financial advice from insurance companies. Check with a trustworthy financial advisor without a misaligned incentive structure before choosing any insurance product.

Financial advice for physicians: 3 simple tips

Doctors of medicine can get in trouble by selecting the wrong financial advisor. But there’s one area of money management that is even more critical for doctors to focus on than choosing a financial advisor.

Plenty of doctors, despite earning six figures for decades, aren’t even close to having financial independence (FI). The main reason is due to one area: spending habits. A person’s savings rate (cash flow) is the greatest predictor of reaching FI, not income. Focusing on managing savings and spending well needs to be a high priority for any doctor.

I know what you’re thinking. “I work hard and want to enjoy my money. My job is stressful and kids are expensive.” I completely understand, so I’m not asking you to live like a pauper. Below is financial advice for physicians that will allow them to live the life they want while also reaching FI.

Focus on total cost, not the monthly payment

Most people make financial decisions based upon what monthly payment they can afford. “I can afford an extra $200 a month for a nicer car.” “We can buy a bigger house. Mortgage rates are low, and the monthly payment is manageable”.

This thinking gets people into trouble. Fixed expenses lock us in and make us feel trapped. The higher our payments, the lower our flexibility, so shift your thinking from the monthly payment to the total cost.

For example, instead of thinking about $200 per month more, start thinking about the $20,000 extra being spent on the car. Instead of thinking about the extra $500 monthly housing payment, think about taking out an extra $100,000 in debt.

Think about that total cost and ask yourself, “Is there anything else I’d rather do with that money?” “What would I do with an extra $20,000 if I didn’t spend it on this car? Two nice vacations a year? Retire earlier?” These are the questions you need to consider.

Identify what you can scale back while still being content with the accompanying lifestyle

If you make a good living and should have the things you want, but if it never feels like there’s enough money at the end of the month, it’s time to reevaluate. Many doctors have credit card debt because their spending gets out of hand.

When you can borrow as much as you want, you can forget that money is actually finite. Think of your money like your time. There are only a certain amount of hours in a day. Similarly, there’s only a certain amount of money you have to spend each month.

Ask yourself, “Is my spending aligned with what I value in life? What could I cut back on or get rid of entirely that is out of alignment with my values?”

Why is it important to ask yourself these questions? One of my budget clients put it so perfectly: “When I spend money, I’m transferring my wealth to someone else.”

If you’re not saving, investing or paying back debt, you’re not putting yourself in a stronger financial position.

Put another way, every dollar spent doesn’t advance you toward your financial goals. Keep spending in areas that bring you true joy and reduce or get rid of spending that feels wasteful or causes regret.

The 50/50 Rule

What do you do when you get a raise or a bonus? I like to joke that some people get a $20,000 bonus and spend $25,000, but it’s a real problem for some people.

I understand wanting to enhance your lifestyle but don’t squander a golden opportunity. You don’t want to be that doctor that keeps ramping up their lifestyle and then looks back and wonders why they don’t have any money saved up after working for 25 years, realizing that IRA income won’t come until well into their 70s.

Here’s a rule I use that can get you the best of both worlds. I call it the 50/50 rule, and here’s how it works:

1. Anytime you get a raise, bonus, tax refund, etc., take at least half of it and add that amount to what you’re currently saving, investing or using to pay off debt.
2. Take the other half and feel free to spend it.

For example, if you get a $12,000 raise ($1,000 per month), put at least $500 of it each month into your savings. That way, you’re saving an extra $6,000 but you also can spend the remaining half.

This strategy will increase your savings rate to get you closer to financial independence and still allow you to add things into your life without going overboard.

Physicians need a plan for medical school student loan debt

Most medical students graduate with six figures of student debt. For those who owe 1.5 times their income or less and aren’t working or don’t have plans to work for an employer that qualifies for the Public Service Loan Forgiveness (PSLF) plan, the choice is simple: Refinance to get a lower rate and pay off the debt in 10 years or less if you can afford the payment.

But for those who owe more than twice their income or are going for PSLF, it’s best to get a student loan plan to figure out the best way to save money while paying back the loans.

Most financial advisors aren’t student loan experts, but we’ve helped more than 3,000 people come up with optimal plans for their combined $800,000,000 of student debt, including doctors paying off high amounts of med school loans. Student debt is all we do, and many financial advisors send their clients our way to help people manage student debt beyond their expertise.

Physicians need to take their personal finances seriously

Doctors work hard and are quite literally miracle workers. You help others, but you need to take care of your future, too. You can make strategic financial choices to set yourself up for life, free of student debt and with enough money to cut back your hours or retire if you want.

Earning a solid income isn’t enough. You have to manage that income wisely. Find a good financial adviser who has your best interests at heart and will take your entire financial situation into consideration. Taking these steps can help you achieve financial independence so that work becomes a choice rather than a necessity.