As a physician, most of your life has been about setting goals and then rising to the occasion to meet or exceed those goals. For many, however, financial planning can be a stumbling block or even uncharted territory. Financial planning can be difficult because of the critical transition that physicians make from focusing on survival to building and then later enjoying wealth. Simply having a plan in place can be the most important step towards meeting your goals. Set up a system for cash flow to cover expenses, live within your means, and plan for your future.
Since financial planning can be complicated and overwhelming, start by working backwards. What are your retirement goals? Then figure out what percentage of savings would be needed to meet those, and find a way to incorporate that saving into your current lifestyle. Know your goals, but know your limits, too. If you’re just starting out, you’re likely paying off years of debt and becoming financially stable. Set a percentage of your pay that you’ll automatically set aside for saving and giving, and use the rest to cover expenses. Even if your savings percentage isn’t as high as you’d like, it’s a starting point, and it will grow. Every dollar contributed is aiming towards your retirement target.
There are three phases of income and wealth building: the lean years focused on survival, the success building stage with increased disposable income, and the meaningful wealth stage. As you transition from one level of financial stability to another, adjust your goals accordingly. If you have recently completed residency, you can probably afford to increase your savings percentage. Set aside time to develop this plan prior to the transition between the levels of financial stability. Many physicians simply increase living expenses to meet their new income, which leaves saving and giving completely out of the equation. Setting a plan and sticking to it is crucial.
Perhaps you consider yourself a spender rather than a saver, but spenders can develop good savings habits by applying these four tips: maintaining emergency reserves, categorizing your life and a budget to meet those needs, giving to causes you care about, and working backwards. As a doctor, consider the five primary financial responsibilities you face: giving, saving, living, debt reduction, and taxes. Divide up your percentage of income according to your needs, and adjust it as parts of the equation change. Even a step as simple as this applied consistently can make clear where the money is going. As you reduce debt, reassign that percentage portion to the other aspects of your life, particularly as you consider concerns like children attending college.
To summarize, sometimes the first step can be the most daunting. It can also be the most beneficial. Start by looking at the final page of where you’d like to be at for retirement. Then consider the current situation and what you can contribute towards those goals. Assign a percentage of your paycheck for each financial responsibility and stick to it.