Our final book this week is by Vicki Rackner, MD, a surgeon, author, and entrepreneur whose company coaches financial advisors who serve doctors. I read her book, The Myth of the Rich Doctor, a couple of years ago, but I do not believe I have ever reviewed or even mentioned it on the site. One of the chapters in the book is about not leaving money on the table. She says there are lots of ways you can leave money on the table:
# 1 Failure to Negotiate Contracts
In the business world, there is an expectation that you will counter-offer, yet physicians are hesitant to do so. Have your employment, partnership, and buy-sell contracts reviewed by a professional, learn a few negotiation skills, and don't be afraid to ask for more. As so many of you have said when I have turned you down for something you have asked me for, “the worst you could do was say no.” People, including me, don't like saying no. So ask.
# 2 Failure to Collect What You're Owed for Clinical Services
Rackner claims that physicians in private practice walk away from an average of 30 percent of their incomes when they do not follow up on rejected insurance claims. Outsourcing your billing could bring those rates down to 2-5%. She also says that patients pay 50 percent of their portion of their medical bills. She suggests you create a transparent payment policy to share with all patients, accept credit cards, and partner with a company that offers lending for medical procedures, transferring the risk of non-payment to the lender.
# 3 Failure to Negotiate Terms of Contracts and Loan
You will likely borrow money for purchases in your life, but interest rates are not set in stone. Shop around for mortgages and ask lenders to match or beat rates. Do the same thing with any other debt you may have. Refinance your student loans if you're not going for forgiveness. Try not to let those who perform services for you charge you the “doctor price.”
# 4 Failure to Scrutinize Expenses
Look at all the goods and services you purchase and ask yourself
- What is this for?
- Do I need it?
- Can I reduce or eliminate it?
- Can I get a better price somewhere else?
Remember that most of your purchases are done with after-tax dollars, so a penny saved is often more than a penny earned.
# 5 Failure to Minimize Your Taxes
Physicians all think they pay too much in taxes, and many of them are right. Learn the tax code, understand your tax situation, and get help from a good CPA when appropriate. Understand what activities are incentivized by the tax code (saving for retirement or college, having a stay at home spouse, having kids, running a business, being a real estate professional, etc) and do more of those and less of what is disincentivized.
# 6 Being Penny-wise and Pound-foolish
Many of us frugal types make lots of mistakes in this department. Don't be afraid to invest in expanding your clinical knowledge, financial literacy, or business skills. Market yourself well, keeping an eye on your Return on Investment. Don't be the best-kept secret in town. Buy yourself time by outsourcing tasks that are not worth your time. The classics are housekeeping and lawn maintenance. Hire experts and get good advice when appropriate. Don't skimp on insurance that you need. If it would be a financial catastrophe, insure well against it.
# 7 Failure to Harness the Power of Leverage
You can leverage staff, relationships, and money. While too many doctors are debt-numb, borrowing for a medical or dental school education, a practice, a surgical or imaging center, a partnership buy-in, and even a home can be a wise move. Just don't let yourself get suckered into the habit of borrowing to consume just because the interest rates are low.
# 8 Failure to Protect Against Fraud and Embezzlement
Rackner claims that 83% of medical practices report that they have been victims of embezzlement. Make sure you hire the right people, calling references and even conducting criminal and credit checks. Outline your zero fraud tolerance policy and have employees sign it. Use a lockbox for petty cash. Implement safe banking practices like:
- Restricting signature authority of checks
- Get rid of signature stamps
- Restrict online banking access
- Pay bills online
- Get bank statements sent to your home
- Spending habits that exceed salaries
- Refusal to take vacations or time off
- Unusual or long work hours
- Missing receipts, invoices, or purchase orders
- Overdue notices from vendors
- Patient complaints about billing errors
- Unexplained shortages of petty cash
- Unusual patterns in bank deposit statements
Adopt a policy of trust, but verify. Buy business liability insurance and identity theft insurance.
A Few More
Besides Dr. Rackner's excellent list, I would add a few more ways that doctors leave money on the table.
# 9 Beware the $400,000 Mistake
This is the term that emergency docs use (mostly in jest) to describe the last year of a four year EM residency. (EM has both three and four years residencies.) It is also often applied to fellowships that don't increase your income. But it could also be applied to gap years, MPHs, MBAs, PhDs, and any other delay between now and when you start earning the big bucks. Even if an additional year of training increases your income by $50K/year, it could take 5 or more years for that investment to pay off. Now there is more to life than money, and the additional career longevity of a career that comes from doing something you love is worth a lot, but just like you should at least consider the financial ramifications of medical school and specialty choice, you should do the same for all those other years.
# 10 Your Match is Part of Your Salary
Too many doctors don't max out their retirement accounts, but some doctors don't even get their entire employer match in a 401(k) or similar retirement plan. That's FREE money. It's part of your salary. Don't leave it on the table by failing to put at least the minimum required to get the maximum match into the retirement plan.
# 11 Be Sure to Get the Market Rate on Cash
How much money do you have sitting in accounts paying you less than what you can get from a high-yield savings account or a good money market fund (currently 1.7-1.9%)? How long are you going to let it sit there? $100K sitting in a checking account making 0% is costing you $1,700 a year. And that's in a time of very low-interest rates. In more “normal” times that could be $5-6K a year. Invest any HSA money you don't expect to spend this year. Has “analysis paralysis” caused you to not invest money you know that you should have? Get a plan in place and get it invested.
# 12 Take Advantage of Retirement Accounts
Sometimes I run into people who are saving and investing in taxable accounts when they haven't even maxed out their retirement accounts yet. It had better be a VERY special investment to justify losing the tax, asset protection, and estate planning benefits inherent in a retirement account.
The book is much bigger on mindset than financial nuts and bolts, but there are lots of great pearls in there.
Also, don't forget you only have until Monday night when our Continuing Financial Literacy online course sale will end. If you buy the WCI Online Course (Fire Your Financial Advisor) between now and Monday at midnight you will get 12 hours of video from the 2018 Physician Wellness and Financial Literacy Conference absolutely free. As always, the course comes with a one-week, no-questions-asked, 100% money-back guarantee (although you don't get the bonus stuff until the warranty period ends). This combination of courses will never be cheaper than it is right now, so don't delay.
What do you think? What other ways do doctors leave money on the table? How many of these have you done? Comment below!