By Dr. Jim Dahle, WCI FounderDoctors and other high earners need to become financially literate. Basic financial literacy, when combined with a bit of discipline and a physician's income, is worth millions of dollars over a lifetime. You can't afford NOT to become financially literate.
The initial process of becoming financially literate requires some basic education and the development of a written financial plan. This can be done by reading a few good books (I generally recommend one on personal finance, one on investing, one on behavioral finance, and a doctor specific one), by taking an online course such as our online Fire Your Financial Advisor course, or even through multiple meetings with a financial advisor who does a lot of teaching and helps you come up with a financial plan.
However you choose to do it, that initial financial education is critical. Even afterward, you need some continuing financial education just like you do continuing medical education. This usually involves following a good blog/podcast or two and reading one good financial book per year.
This book would be a good option. It doesn't cover ground that my books have not covered, but if you would like to hear it from someone else, this is the best book out there that I know of.
Financial Freedom Rx
This book, written by ophthalmologists and Bogleheads Chirag P. Shah and Jayanth Sridhar, deserves special mention this year as the best physician-specific general financial book published in 2021. Sure, I published a book this year, but it was specific to medical students. Financial Freedom Rx is just under 200 pages and is subtitled The Physician's Guide to Achieving Financial Independence.
Nothing in this book is going to be particularly new to someone who has been following this blog for years, has read one or two of my books, and regularly has spent time on the Bogleheads forum. I don't think that is the target audience. However, it is a well-written book that covers all of the basics of physician-specific financial planning and investing.
The first five chapters are all about financial planning:
- Why financial planning matters
- Jobs and contracts
- Initial steps post-training
- Disability, health, and malpractice insurance
- Student loans and retiring debt
The first chapter includes the most important four words in physician financial planning—Live Like a Resident—so I give the book my stamp of approval. If someone will just do that for 2-5 years after training, they can screw up just about any other financial aspect for the rest of their lives and still be fine.
Table 3-1 is a nice addition to the book. It is a chart that considers your savings rate, annual spending, starting net worth, and the real rate of return and then tells you how many years it will take you to reach financial independence. For example, at one end of the table, it shows that a doctor with a $300,000 income, a negative-$250,000 net worth, a 10% savings rate, a 2% rate of return, and annual spending of $150,000 will reach financial independence after a 72.5-year career. However, if that same doctor already has $250,000, saves 35%, earns 6% real, and spends just $75,000, the doc will be FI in just a decade. It's a nice doctor-adjustment attached to Mr. Money Mustache's famous table from his post about the shockingly simple math behind financial independence.
The insurance section was pretty minimal, not surprising given the larger focus on investing in the book. But just one paragraph on malpractice and nothing at all in the book on asset protection?
The next section of the book, chapters 6-8, is all about investing. It hits all the right notes, although I found the brief discussion of tax location somewhat superficial. Don't expect any discussion of private investments or alternative asset classes.
The remainder of the book includes short chapters on property and umbrella insurance, interacting with advisors, estate planning, calculating your number, retirement spending, and a really nice chapter on the big pitfalls.
If you took the 20 most important posts on this website and put them all together in one offering, it would look like this book. I can't really quibble with much in it, but there's nothing there that is particularly revolutionary in the physician financial space. It has all been said many times before, but Drs. Shah and Sridhar did a really nice job packaging it all up together, so I'm going to add this one to my recommended list (and actually remove some other ones from that list).
Perhaps the most impressive part of the book (although I confess I did not read every single word) is that they didn't get anything wrong. That's actually pretty rare in financial books, particularly in those aimed at doctors. Sure, one can quibble that more should have been included on any given topic, but it's really nice to see a book that doesn't give any bad advice at all!
By far the most influential book in my lifetime is Random Walk Down Wall Street. If nothing else it will show you that Wall Street is a crooked playing field where you cannot beat them. From this book I knew Indexing rules and the last 45years bears this out. No one can refute passive investing over a long term investing career. NO ONE!!!!!!