[Editor's Note: I originally posted this within a couple months of starting the blog. It has remained one of the most popular pages on the entire website, so I thought I'd give it a revamp, splitting up the original super-long post into 4 separate posts, making it easier to read, and categorizing some of the mistakes. Don't worry though, all 175 of the biggest financial mistakes are still here!]
Whenever possible, it is best to learn from the financial mistakes of others rather than your own. For example, I've made the mistake of using a commissioned financial advisor who sold me crappy, expensive, loaded mutual funds; I've bought whole life insurance, and I've incurred unnecessary taxes in a taxable account due to not fully understanding the kiddie tax laws.
Luckily, these mistakes pale in comparison to financial errors made by some of our colleagues. A recent thread on Sermo revealed a lot of the big financial mistakes other physicians have made before you, and I've detailed them below in this and the other 3 posts in this series:
Stupid Doctor Tricks Part 2
Stupid Doctor Tricks Part 3
Stupid Doctor Tricks Part 4
Consider this a financial “Morbidity and Mortality Conference.” Painful to listen to sometimes, but better than having to make each mistake on your own. Add your experiences as a comment at the end of this post.
Doctors' Biggest Financial Mistakes
#1 Getting Ripped Off
- Working with a “financial planner” who specializes in working with physicians and almost got me into whole life insurance
- Overpaying for legal advice ($3500 to review an employment contract)
- Buying a universal variable life insurance policy as an “estate plan”
- Investing with Bernie Madoff
- Listening to brokers/financial planners/coin dealers
- Not realizing that the goal of brokers is to take your money and make it theirs
- Giving OTHERS control of substantial sums of MY money
-
Turn someone else's financial headaches into your cure for success with money.
Hiring an expert to manage my money. This guy charged 1% per year on the balance. Got a call from the fraud division of the FBI and they seized all my money. After about 2 yrs sweating got it back without interest. Taught me to learn about investing. I decided I may not be a pro, but I won't steal my own money
- Investing (before I learned about personal finance) through a professional who gave “free” advice steering me to load mutual funds and life insurance with high fees
- Listening to an attending during med school for stock pick advice
- Paying a lawyer to do my tax returns for 10 years . . . He charged $10,000 for a return that a national tax preparation company does for $1,500 or less
- Allowing myself to get talked into a variable annuity when I was a chief resident. Bought it at roughly market peak; it sank with the market in 2001-2002; paid lots of charges and surrender charges when I got rid of it three years later to buy my first house, and due to nature of variable annuity, I didn't even get to write the losses off on my taxes… Stay away from those RIPOFF variable annuities; get a tax-deferred or even taxable account like everyone else
- Relying on money managers for too great a percentage of my net worth… It's best to learn enough to oversee a lot of your assets on your own
- Bought front-loaded mutual funds
- Getting ripped off to the tune of 11 k for a real estate closing by my lawyer who charged by the hour. Took his fees right out of the mortgage check before I ever saw it
- Buying time share, buying a variable annuity, buying whole life insurance and depending on brokers to make financial decisions
- Stock tips from friends, relatives, or cab drivers should be avoided at all costs Those free financial newsletters are just scams. What they touted are probably their own holding which they will sell when your rush to buy them pushes up the stock price transiently before they fall off the cliff.
There is a common theme here and it is one I tackle frequently on this blog. You need to be very aware of how, and how much your advisors are paid. This includes financial planners, stockbrokers, insurance agents, realtors, attorneys, accountants, and investment managers.
As a general rule, people don't go into these fields for the same reason firemen and kindergarten teachers choose their jobs. There is no Hippocratic Oath among financial professionals. It is your job to understand how much you're paying and whether that is a fair price. Understanding how the person advising you makes their money also helps you understand their conflicts of interest.
#2 Insurance Issues
- Not buying disability insurance
- Mentioned a few divorce-related situational depression issues resolved in the past on a disability insurance application
- Not getting OWN-OCCUPATION disability insurance on the first day of residency
- Bought too much useless, expensive insurance
Well, no one said they wished they'd bought more life insurance. Of course, there's a real survivorship bias there. All those dead guys who should have bought more aren't here to tell us. Buy plenty of the insurance you need and avoid the insurance you don't.
#3 Personal Finance Issues
- Using credit cards
- Buying too big of a house
- Should have listened to Dave Ramsey and completed his course about 8 years earlier
- Spent too much on a wedding
- Credit card debt in med school
- Marrying a fiscally irresponsible spouse
- Spending $600 to replace the clutch on a $1000 car then donating it to charity 2 months later
- Sending my kids to a private college in the future (50K a year, what a waste!)
- Quitting one job before I had another (thankfully savings helped me through that transition)
- Buying a used jeep and not noting it was burning out its engine from an oil leak
- Not being aware of recurring automatic charges. I signed up for AOL when it first came out. Had automatic recurring credit card charges of $24.95 a month for over 14 years (wife paid the bills) for essentially nothing that you cannot get for free now. Just stopped it when our credit card had to be changed.
- Not saving as much as possible early in my career to take advantage of compound interest
- Allowing lifestyle to creep upwards with increasing financial success
- Keeping the house in the divorce — I had to spend $76K repairing it to then short-sell at a >$200K loss. I'll be paying on the loan I had to take for the repairs for the next 15 years
- Giving my daughter a credit card (for “emergencies”) when she entered college in Boston
- Not starting 529 plans for kids early enough, not investing aggressively enough
There you have it. A lot of accumulated experience that may save you thousands. Add your experiences to the comments below.
These are mistakes made every day by millions of people. They aren't particularly specific to doctors, but doctors certainly make them as much or more than other people. Spend less than you earn, be wise with your cash, and if, heaven forbid you get divorced, take the 401K, not the house.
This is the end of Stupid Doctor Tricks Part 1 of 4. Continue on to Part 2. Or better yet, leave a comment below noting one or more of your own financial errors. Too many of us feel that talking about money is taboo, so we just keep making the same mistakes over and over again.
What are your biggest financial mistakes? Share your experiences and let others benefit from them, just as you've benefited from seeing others' mistakes.
Hi,
I am just starting your book and was sent over here. I am just out of residency and am about to start work as an independent contractor in emergency medicine. I decided to open up a 401K through a group that works with mass mutual. Basically I work, money is automatically funneled into a massmutual account and the guy that works at the company takes a little bit off the top.
I have already sent one check from my residency 401K to get rolled into that account but the whole thing seems kind of fishy. Any tips and how I can go about getting out of this contract with that company?
What does the “contract” say? I bet there is none, meaning you can open an individual 401(k) elsewhere (etrade, Vanguard, Fidelity etc) and move your money into it and make future contributions to it. Why not spend the rest of this year learning about investing and finances and start off 2016 on the right foot with a new individual 401(k) plus some backdoor Roth IRAs?
I think that is a good plan.
I actually requested the paperwork that I signed again and it looks like if I ever get to greater than $2M the cost of the managed portfolio is 2.2% which is the lowest it will ever be. I kind of flubbed it.
2.2% is awfully high.
Dear WCI
I am in need of urgent help and advise
I am only 44 yrs old, was diagnosed with Prostrate CA last year, s/p radical robotic prostatectomy, now in remission, my dad passed away from esophageal cancer 1.5 years ago
Here is my situation, I know how very busy you are and need help.
1. I am married, my wife and 11 yr old daughter are dependent on me
2. I was the owner of a Psychiatry Hospitalist Group but the Medical Billing Company failed to collect almost more than 1 million over 1.5 year time frame
3. I was the owner of a part time private practice Pacific Neuropsychiatry and Sleep and the same Medical Billing Company failed to collect almost 250k over 1.5 years
(I used to work 14 to 16 hour days and nights via phone and almost most weekends, sacrificing my personal and family life and this medical billing company has not collected as promised)
4. I had to close both practices and find a State job in a remote California location about 4 to 6 hours drive away from home.
5. I now work a W 2 job 5 hours away from home, and come home on 3 out of 4 weekends so again missing family life again
6. The medical billing company abruptly stopped billing for both my practices
7. The medical billing company via its Attorney sent me a notice to pay for fees which were unwarranted as I was already and had already paid them 6 to 8% of collections
8. In response to their Attorney letter, my company counsel at the time located in MN, initiated a law suit against this company
9. When I realized he was charging me tooth and nail and promised my malpractice insurance would pay when there was a cross complaint, and he didnt do the basic work of finding out if the medical billing company had any insurance, I decided to go with a local Los Angeles based law firm
10. This firm is also charging me a lot and no one had advised me to get business protection insurance or income loss insurance
11. The medical billing company after months of waiting and denying they had insurance, the Hartford insurance accidentally called my new Attorney and we found out that she had comprehensive business liability insurance.
12. I am now over 35 k in Credit card debt and cannot enjoy any personal or family time and the medical billing companies are attacking me with their pool of attorneys asking for this and that evidence etc.
13. How can I get my rightfully deserved income which the medical billing company didnt collect
Also, coincidentally the person handling my case at the medical billing company and I retained her and she prepared a comprehensive report showing negligence and defeciences on part of the medical billing company
The court date is in Sept 2017 and these attorneys are making a huge amount of money on both sides
Please show me a way out I dont want stress to affect my health
Best
OCMD101
As far as the legal situation, I’d work with your attorney.
As far as the stress, I’d focus on uniting your family and getting your personal finances on track using your current income. That probably means moving your family to where the work is, living frugally, and paying off your credit card debt.
If it doesn’t look like you’re going to get any money out of this lawsuit, then quit paying the lawyers and walk away. If it does, then see if they’ll work on contingency.
Thank you.
I have spent more than 25 k on Attorneys and they said since the medical billing company has Hartford insurance, there is a high likely hood of getting 1 million or mediating with the insurance company if we provide enough evidence. I have paid a third party biller almost 8 to 9 k and a collection agency, the attorney wants another independent biller to make the case stronger, the chances of winning are quite high, the question is when? My family will not move from an Academic town like Irvine CA to a remote town in Central CA
Do you have any legal recommendations or attorneys you work with.
Also, would you suggest to continue investing in Roth 401k and 457b, I have 60k so far and 80 k in Pension savings, or pay of 35 k CC debt?
Sounds like it is worth fighting. No, I don’t know an attorney in your state that does litigation like this that I can refer you to.
I would pay off credit cards before investing anything other than what is required to get any possible match.
But I’ll be honest, I’m lost why you’re in such dire straits that you’re borrowing on a credit card as a practicing physician at 44. Your med school costs should have been pretty low. You’ve only lost a few thousand on attorney fees and you only got hosed by your billing company for 1.5 of the last 15 years. You had an illness but it sounds like you’re back working. If you were out longer than a few months, didn’t disability insurance kick in? Where’s the rest of the money you’ve earned since getting out of residency ~15 years ago? I know Irvine is expensive (spent a month there in residency) but it’s not THAT expensive. Did you pay your employees out of your pocket even though there was no money coming into the business or something?
Also, which is worse, being away from your family or moving them to Central California? My family has followed me to some less than ideal places to keep the family together. Is there really no work closer than 5 hours away from Irvine? That seems unlikely given how many people live in Southern California. But if that’s your long-term work situation, I think it’s time to move the family.
LOVE the WCI brand, good job. I know how you find the time, we doctors are crazy hard workers. What do you do with the time you were studying when you were residency after you become an attending? Develop a business and manage your own finances of course…
MISTAKES:
1. Buying an office building for more than the appraised value, from relatives, touting their financial acumen saying it would *surely* continue to increase in value. In 2008.
2. Going all in with a medical spa business and above mentioned real estate investment. Which tanked after 2008, resulting in us having to declare BANKRUPTCY to get out of the deal. Still owe my mother a considerable amount of money which she borrowed from her paid off house to help us start the business.
3. Not taking the chance to move to a state with no income tax.
4. Paying for several years of private school for our kids (now in public school).
5. Allowed a bookkeeper, accountant and lawyer to take advantage of our naivete.
6. Working for a failing practice under a less than market value contract out of residency.
SUCCESSES:
1. Buying our house with a fixed rate, 30 year loan when everyone else was getting a variable rate loan at a mortgage payment we could afford after flipping a smaller house with a 150K profit. In a place we love to live with great neighbors.
2. Getting jobs (hubby and I are both internists) as full time hospitalists in a very busy underserved area paying very high compensation and thus boosting our combined income by over 700K per year allowing us to recover from the horrible financial mistakes of our past and not work until we’re 95. Yep making 1M combined with just internal medicine certification.
3. Hubby put over 35K in 403b during residency from which we were able to borrow 10K to get into the first house that we flipped (paid off a long time ago).
4. Getting into an excellent low cost public university for medical school and refinancing loans at very low interest rates in ’99-’00.
5. Putting as much money as we could afford in the kids’ 529 accounts even in the bad times.
6. Avoided financial planners and excessive insurance.
7. We now use an excellent accountant.
8. Married the right person. Super important. You can recover from anything with a good spouse at your side. Had kids while in residency and very very early in practice.
9. Taking the time to become knowledgeable about our financial health and develop a strong financial plan while emotionally letting go of the prior mistakes.
10. Taking care of our emotional and family health by prioritizing healthy activities, travel, and exercise in our disposable income and not engaging in highly expensive activities (fancy cars, airplanes, country clubs etc.).
Thanks for sharing your story!
Someone mentioned this blog post on a forum thread. Some conflicting information, it seems.
https://www.whitecoatinvestor.com/forum/insurance/173496-disclosure-of-depression-history-on-life-insurance-application
I replied to the question on the forum. I see no conflict, just a dilemma best resolved by working with an independent agent.
Mistakes I’ve made:
Paying no attention to money at all in my early career
Not investing earlier
Lots of little purchases ($20) for convenience here and there really adding up
Taking out max loans and not being frugal in med school
Putting down roots in a high cost of living, high tax city
Wonderful blog, good luck out there everyone! 🖖