While it’s true that young physicians have their whole lives ahead of them, there is a lot to be learned from the lessons of the last decade which can make living them a whole lot easier. The financial events of the last decade brought hardship to physicians of all ages, incomes and financial status. But, the ones hardest hit were those who weren’t prepared. Some may never recover. Yes, you have your whole life ahead of you, but if you could avoid these top 5 financial mistakes that young physicians make, you could be assured of making it a good life.
Top 5 Financial Mistakes Young Physicians Make
Living without a Budget
There’s no real denying it – young physicians tend to be free spenders, living in the moment after a decade or more of delayed gratification. The number one reason why so many physicians of all ages are in financial trouble today is the failure to live within their means. Budgeting is nothing more than a habit, so earlier your can start, the easier it will be to maintain as life grows more complex. Setting a strict budget and accounting for each dollar of cash flow will ensure that you not only have the means to live, but also to have the surplus to spend frivolously.
Not having a rainy day fund
No matter your age, life happens, and the unexpected can be costly. Whether it’s a car repair, a medical expense, a family emergency, or a short term disability, something is bound to happen. If you don’t have the money to cover it you will either have to borrow, if you can, or go without. Your budget should allow for setting aside a fixed amount – $500 – each month into an emergency fund that is only to be used for, guess what? Emergencies!
Of course, if you don’t have a budget, and you live beyond your means, and you don’t have savings for emergencies, you are very likely using credit cards to make ends meet. Credit cards in and of themselves are not the problem; you are, if you don’t really understand how credit works and how credit cards can potentially destroy your finances. Spending more than you have budgeted for and then making minimum payments on your credit card is the path to insolvency. Missing payments or attracting collectors is a life a seven year jail sentence because that’s how long these negatives remain of your credit report.
Credit cards should only be used for emergencies, or only when you know you can pay the balance in full each month.
Not saving early or often
Setting financial goals is one way to become motivated to save. But think about this, if, at the age of 35, you start setting aside $1500 per month earning an average of 5% until you are age 65, you will have nearly $1,250,000. If you wait until you are 40 to start saving, it would require $2,200 a month to accumulate the same amount. The one thing you have over older physicians is time. The sooner you can set goals and begin saving towards them, the less it will cost you to achieve.