What New Doctors Are Doing Wrong
New doctors are prone to making mistakes – and not just medical mistakes. At least doctors acquire medical malpractice insurance to protect them against medical mistakes!
In some ways, the worst mistakes young doctors make aren’t medical mistakes but financial ones. After all, you can buy medical malpractice insurance, but no one will insure you against making preventable financial errors.
Let’s take a look at some of these financial landmines out there, and discuss some ways you can avoid them.
PracticeLink.com looks at some of the most common financial mistakes, which they define as:
- Failing to integrate advisors.
- Failing to engage an advisor in the role of a fiduciary
- Taking on too much investment risk
- Failure to educate themselves on investments and finances
- Failure to live within their means or within a reasonable spending plan.
Let’s discuss these in turn:
Integrating your advisors.
Being a doctor is much more complicated than just treating patients. Anyone in private practice must also juggle the responsibilities of being a businessperson, marketer and salesman in charge of peddling his or her own services and expertise, managing a physical plant, administration, compliance with federal and state sanitation, medical and administrative requirements and mandates, accounts payable, accounts billable, insurance, retirement planning, asset allocation, employee benefits, tax compliance and much more.
No single person can be an expert on everything, of course. You need to build a team of experts. At a minimum, you’ll want the following experts in your corner:
An attorney
Often the financial planner, accountant or attorney acts as “quarterback,” coordinating the actions or strategies of these teams. It doesn’t matter who acts as quarterback, though, so much as it matters that you ensure the quarterbacking gets done. Changes in your investments may require changes in your insurance protection plan, for example, or changes in your legal posture.
A fiduciary
Ideally, at least one of the members of this team should be functioning as a fiduciary. Under the law, a fiduciary has the highest standard of good faith and fair dealing recognized under the law. If he or she is knowledgeable and experienced, this can be a useful reality check against some people with a more sales-focused approach who have a lower standard of care under the law. For example, a stockbroker or insurance agent legally need only establish that any recommended investments are suitable, for you – not necessarily that they are the best products on the markets for your needs. A fiduciary may be able to give you some ideas – but often times the best insurance products are available through brokerage channels and not available from fiduciaries or other professionals, so do your own due diligence as well.
Retirement investing
Doctors have long been vulnerable to stockbrokers pushing individual securities and market-timing schemes or other gee-whiz investment systems. But these are usually the financial equivalent of snake oil. It is nearly impossible to jump in and out of the market to advantage, or identify in advance what the best stocks are. If that were possible, everyone would be doing it!
Meanwhile, while the stock market overall has returned about 7 percent per year on average for the last 140 years or so, recent research from DALBAR and the Securities Industry and Financial Markets Association establish that the average investor – prone to buying and selling at all the wrong times – is actually only experiencing about 1.9 percent returns per year.
Lack of Education
Doctors stand to earn millions of dollars over the course of their medical careers – yet too often expend almost no effort into educating themselves about how to manage their substantial incomes. There’s nearly nothing required in medical school about it. You’ll have to go to a seminar sponsored by your student loan lenders prior to graduation, most likely, but that’s usually it. Unless you make a serious effort to educate yourself on the basics of financial management and individual finance and investment planning, you are on your own.
Failure to Budget
This should be a simple thing to grasp, but we constantly run into physicians living well beyond their means. This costs them a good deal of flexibility and causes tremendous personal and professional stress that tends to get worse over time, not better.
Part of the reason is unrealistic expectations of what a doctor’s lifestyle should be like, borne of an unhealthy desire to keep up with the expenses and lifestyles of senior physicians. Part of it is pressure from family members and spouses, and part of it is just carelessness.
Regardless of the underlying reason, it is crucial to live within your means, limit consumer debt, drive a reasonable and sensible car, and don’t go crazy with the ski trips and Caribbean cruises. Instead, concentrate on fully funding your available retirement plans, getting a good cash savings cushion in place, and protecting yourself and your family with adequate life insurance, disability insurance, long-term care insurance and liability insurance.
We promise that if you do these things, you will be glad you did.
About Doctor Disability
Doctor Disability Insurance, Inc. is an innovative, one-stop service that makes disability insurance shopping quick, affordable, and easy to understand. Physicians save time and money by comparing plans and prices from multiple insurance companies. The site provides free quotes from leading names in the disability insurance industry along with friendly and knowledgeable customer support. The best values in the insurance industry are located in one place and are available any time doctors are ready, including late at night and on weekends.
Based in San Clemente, California, President and CEO Charles Krugh is a Certified Financial Planner with more than 15 years of experience working with people in the medical industry.
Call us toll free at 866-899-7318 to speak to one of our disability insurance professionals.