10 Easy Ways for Medical Students, Residents and Early-Career Physicians to Sabotage Their Journey to Financial Serenity

Let's talk today about ways that medical students, residents, and other early-career physicians can avoid some common and unforgiving financial pitfalls. We all make some of these errors, but the less that you commit, the better off you will be financially and emotionally.

I have made many of these blunders over the years and I hope that you will heed this warning and not make them also. Make too many of these errors and you will spend far too many decades of your career worrying about how to get out of debt and bemoaning the disappointing size of your nest egg.

Financial well-being and economic security are critical components in maintaining physician well-being. Excessive physician financial stress and chronic worry about your cash flow can undermine your ability to deliver excellent patient care. Achieving your goal of becoming financially secure will require that you acquire a basic foundation of knowledge, be committed to prudent decision-making, exercise some self-discipline, and also have an element of luck.

Unfortunately, having a good income as a doctor does not guarantee financial security. Counterintuitively, having a great income can lead one to a state of complacency about the many risks that can undermine your ability to build wealth. Regardless of how much you will earn, you still must try to prevent costly errors. If you can avoid this list of 10 ugly financial traps early in your medical career, then you, your family, and your patients will all benefit.

Here are 10 painful financial traps for the unwary and how to avoid them:

#1 Ignorance of Basic Financial Matters

In addition to learning medicine, learning the basics of finance and investing early in your medical career has to be a priority. Ultimately, it will serve you well. Unfortunately, there are lots of folks who are eager to separate you from your money by using an infinite number of legal and illegal methods. Your lack of knowledge in money matters is their biggest ally. Thankfully, there are lots of great resources (such as the WCI blog and books) that will make learning the basics that you must know relatively painless.

#2 Too Comfortable Having Debt

Many of us take on too much debt and get too comfortable dragging out loan payments. The average medical school graduate owes about $251,000 in total student loans. The average doctor takes about eight years to pay off medical school debt.

Make a conscious, careful decision about your relationship with debt. While many are comfortable with “good” debt (low-interest student loans and mortgages), all forms of debt contribute to stress. If you become accustomed to years of being in debt, it may just become too easy to take on “bad” debt (such as high-interest credit card debt) and to live beyond your means.

About 50% of Americans with a credit card have a balance of unpaid debt. Avoid joining this club that feels the pain of paying more than retail for their purchases.

#3 Failure to Have an Emergency Fund

Unexpected and costly events can happen. Be ready for the unexpected. Medical professionals see the consequences of the unexpected every day at work. Be prepared with an emergency fund to cover 3-6 months of expenses.

More information here:

My Emergency Fund in Action

What Happens When You Actually Have to Use Your Emergency Fund?

#4 Be Overconfident (Arrogance)

You are a smart doctor, but you still should have some humility when it comes to investing.

Being an overconfident investor by picking individual stocks instead of index funds, trying to time the market, day trading, or “investing” in commodities and futures will not go well for the vast majority of physician investors. Just aim for “average,” and you will do much better than most.

#5 Forgetting That Doctors Are Shark Bait

You may have a negative net worth due to all of your student debt, but there are still lots of folks who think that all doctors are rich and financially naive. They will try to entice you with their charm and “great” investing opportunities. If very sophisticated investors can fall for these recurrent scams, surely doctors are at risk. Study the famous scams and hopefully you will be paranoid and lucky enough to just say no.

More information here:

How This Financially Literate Doctor Got Scammed Out of $75,000

Beware of Pump-and-Dump Schemes

#6 Incorrect Belief That a High Income = High Net Worth and Financial Security

Making a lot of money understandably leads to lots of spending.

Do not confuse achieving a high income with having a high net worth. You still have to spend less than you make. You still have to save (25% would be a nice goal) and fund your retirement plans.

#7a FOMO

Acting on “hot tips” and jumping in on a bubble is a reliable pathway to financial remorse. We all make this mistake, and if you can't fight the urge to join the party, at least try not to make too big an “investment.” Please learn about tulip bulbs in Holland in the 1600s, the dot.com bubble circa 2000, and the real estate bubble pre-2008. History shows that investments that go up very quickly in price often end very badly.

#7b YOLO

It is understandable to have an overwhelming sense of financial entitlement the year that you finally become an attending and you are, at long last, making real money. You are the masters of deferred gratification. Try to follow the simple but difficult advice to live like a resident for a few more years and pay off your student debt, establish an emergency fund, and start building a nest egg by fully funding your retirement plans.

#8 Getting Married and Divorced Multiple Times

Is there anything better for your happy neurotransmitters than being madly in love? Who wants to be a killjoy and discuss sobering financial matters amidst all the passion? You do!

You must have the brutally difficult conversations with your potential partner about money matters. Schedule the tough talks about spending styles, savings, housing preferences, long-term financial goals, and budgeting. Find out early in the relationship if you two are financially compatible. If you are not financially compatible and you do not find out early on, it will be painful and expensive later on.

More information here:

Navigating the Finances of Divorce

#9 Failure to Diversify (Both Investments and Income Sources)

One of the first rules of investing is to not put all of your eggs in one basket. It is the height of overconfidence to think that you can predict which asset class will be the future winner.

On the income side, it is smart to also diversify. Developing multiple streams of income—such as consulting, real estate, and diverse income-generating investments—will serve you well if your main career path gets derailed.

#10 Trying to Keep Up with Dr. Jones

The world expects you to buy a big fancy doctor’s home, drive an expensive car, and have pricey toys. The pressure to overspend will be intense. Stay strong and do what is best for you and your family.

The Good News

As a physician, you will make serious money (even though you will have a late start).

According to the Bureau of Labor Statistics, doctors had a median annual wage of about $229,000 in 2022. This is about five times more than the general median wage of $46,000. According to Medscape, the average primary care doc makes $277,000 per year, and the average specialist makes $394,000 per year.

You will have lots of options to consider to pay off your med school debt more rapidly or to have the loans partially forgiven. Examples include Public Service Loan Forgiveness (PSLF), individual state-specific loan forgiveness programs, and military programs. Some hospitals and other employers offer student loan repayment as a recruiting incentive.

If you are lucky enough to avoid most of the 10 financial traps above, you should get out of debt quickly and become a financially secure physician with a comfortable nest egg.

Have you fallen into any of these traps? What happened, and how did you get out of them? What other potential pitfalls are out there for new docs?