Financial Resources for Early-Career Physicians

Financial Planning

8 Common Money Mistakes Young Physicians Make (and How to Avoid Them)

We’ve worked with early-career docs for 15+ years, and have seen it all. Here 8 of the most common financial mistakes we see them making.

James Pommert, CFP

As an early-career doctor, you’re paid to have answers to life’s most important medical questions. But when it comes to your financials, if you're like most, you probably have more questions than answers. From stocks, to bonds, to insurance, to home mortgages, to asset allocation, this stuff can feel confusing... and can make otherwise super-smart doctors feel like an amateur (the same way I’d feel if you asked me to read a scan). 

Most doctors don’t have a financial background. Most parents don’t teach their kids basic financial principles. And med school itself does a poor job of equipping early-career physicians with the know-how they need to manage the financial complexities that come with being a doctor. It’s no wonder we see early-career physicians making avoidable financial mistakes so often.

And to make matters worse, early-career doctors are faced with more high-stakes financial decisions in a narrow period of time—the year before they finish training thru the first year as an attending—than virtually any other profession. 

We’ve worked with early-career physicians for 10+ years, and have seen it all. Here 8 of the most common and costly financial mistakes we see young doctors make… and how to avoid making them!

8 Common Financial Mistakes Young Doctors Make

Mistake #1.  Not getting disability insurance while you're still in training

Except in extreme cases, early-career physicians should almost always have disability insurance. And if you want to get the best coverage at the lowest price, the key is to get insured while you're still in training. The moment you becoming an attending, you lose out on the benefits that come with binding your disability insurance while you’re in training: 

• Younger + healthier = lower rates = less costly

• Many insurers offer discounts specifically to residents/fellows.

• Get additional discounts applying as a group with several of your fellow trainees.

• Underwriting is wayyyy easier. No financial underwriting and many times, limited medical underwriting.

So don't delay getting disability insurance until after training. You'll pay for it.

How to Avoid This Mistake: Obtain disability insurance while you’re still in training. Simply put, you'll likely pay less and get way better coverage.

Mistake #2. Refinancing your way out of PSLF eligibility

Buyer beware: if those student loan refinancing pamphlets you get in the mail have piqued your interest... think twice. The lower interest rate might be tempting. But the moment you privatize your government loans, you have foregone the ability to pursue public service loan forgiveness (PSLF). 

For docs who are on the PSLF path and anticipate working in academic setting, disqualifying yourself from PSLF could cost you tens-of-thousands—even hundreds-of-thousands.

How to Avoid This Mistake: If you think you might be in academic medicine, do not refinance your federal student loans... even if the rates are better.

Mistake #3. Forbearing on loans

Let's stick with PSLF mistakes for a moment. If you're on the PSLF track, you almost certianly want to avoid forbearing your student loans during training. Forbearing your loans—a fancy term for deferring payments—may seem appealing as a cash strappedresident. But if you're on the PSLF path, it could cost you mightily. Here's how:

Nearly every residency and fellowship is a 501(c)3 employer; and therefore, loan payments made during training count towards the 120 PSLF payments needed to qualify for loan forgiveness.

And the cool thing is: under an income-driven payment plan, your payments will likely be $0 (or close to it) for the first year of training anyway. And yes, a $0 payment still counts as one of your 120 payments!

Most doctors forbear because they want a $0 payment when they're starting residency. But by avoiding forbearing, you can have your cake and eat it, too—keep your loan payments low and work towards loan forgiveness.

How to Avoid This Mistake: If you expect you will (or might) be on the PSLF path, don't automatically elect loan forbearence after medical school.

Mistake #4. Not saving for retirement early

Retirement is years away… and I just started my career for pete’s sake! I’ll worry about this later.” Classic mistake. You've probably heard this a million times, but its so true. It's just math. The earlier you save, the earlier you'll be financially independent. 

Start saving early—even if just a little. Trust me: your 50 year old self will thank you mightily.

How to Avoid This Mistake: Start saving now. Set up auto-contributions into your employer's 403(b) or 401(k) to remove the decision and make savings automatic.

Mistake #5. Not taking advantage of financial gimmes

Mama always said: "dont ever leave free money on the table!" Young physicians have access to a number of financial “gimmes,” but we see far too few taking full advantage of them.

• Gimme #1. Maximize your 403(b) / 401(k) match - Many employer plans match your contributions up to a certain amount. This is FREE money! Further, you reduce your tax bill (see Gimme #3).

• Gimme #2. Take advantage of PSLF if you qualify - PSLF forgives student loans if you (1) work for a qualifying employer, and (2) make a certain number of payments. See Mistakes #2 and #3.

• Gimme #3. Put money into a pre-tax account - Pre-tax contributions lower your tax bill. Don't give Uncle Sam anymore than you have to. 

• Gimme #4. Negotiate your salary - Despite what your employer may tell you, salaries are negotiable. Every dollar you negotiate for is a dollar you didn't otherwise have.

How to Avoid This Mistake: Grab the free money! Take advantage of these financial gimmes.

Mistake #6. Making flashy investments

As cool as investing in your neighbor's new nightclub may sound, when it comes to investing, boring and steady is generally better than trying to chase the big win. In the world of investing, it's easy to get caught up in the excitement of chasing the next big win or being enticed by "the next big stock." The promise of quick riches can be enticing, but it often comes at a high price—increased risk.

Investing is a marathon, not a sprint. While flashy investments may offer short-term excitement, they often fail to deliver sustainable, consistent returns over the long haul. By adhering to basic investing principles like thoughtful asset allocation and maximizing time-in-the-market—principles that guide how we work with our clients—you're usually better off in the long term.

How to Avoid This Mistake: Work with a financial advisor. Choose an investing strategy and stick to it. Avoid shiny objects that don't align with that investing strategy.

Mistake #7. Spending too much on things you don’t actually value

Just because you have money once you're an attending doesn't mean you should spend it all. We advocate "conscious spending:"

• Being clear on what you value / what brings you happiness / what improves your quality of life (and what doesn't)

• Spend money on things that align with that

• Avoid spending money on things that don't

It's easy to fall into the trap of mindless spending. Advertisements and societal pressures constantly tempt us to buy things we don't actually need or value. But just because your college bought a new BMW doesn't mean that you'll improve your happiness quotient one iota by buying a new BMW yourself.

How to Avoid This Mistake: Get clear on what you value in life. Spend—within your means—on things that align. Don't spend on things that don't align.

Mistake #8. Not being strategic about repaying student loans

Have you been sweeping your student loan statements under the rug... hoping they'll magically disappear? Do you tell yourself, "I'll get to that later in training?" Big mistake. For residents/fellows, a little bit of planfulness NOW can save you big time down the line.

How to Avoid This Mistake:  Develop a student loan repayment strategy. We wrote a separate article on the topic here.

Important Note: This blog post is intended to provide general information and should not be considered as professional advice nor investment advice. Please consult with a qualified financial or insurance professional for personalized guidance based on your specific circumstances.

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