I keep running into doctors who haven't done a thing to improve their finances. They have very little interest in anything but the eventual outcome. They certainly don't want to read a book, wade through endless blog posts, or frequent an internet forum. Personal finance and investing will never be a hobby for them. Everything to do with anything financial is unpleasant, painful, and boring. They don't want to spend the time to meet with a financial advisor, much less hire one.
If you're reading this blog, the above paragraph probably doesn't describe you. But I bet you know someone that it does describe. Do them a favor and email them a link. Or better yet, text it to them so they might actually read it.
Now, if someone just texted this post to you, well, you're my target audience. The good news is someone cares a lot about you. The bad news is your financial life may be in pretty bad shape. I'm going to tell you the bare minimum of what you need to do to get your finances fixed up into “good enough” shape, such that neither you nor your family will ever eat Alpo. Not that it's that bad. Okay, maybe it is.
#1 Get Insurance
First, you probably need some insurance. Ask the nearest doctor (preferably the one who sent you this link) who they used for theirs. Go buy a disability policy from the same guy. Any policy. Get a $10K benefit. ($5K if you're a resident.) If you're married or have a kid, buy a 30-year level TERM policy for $2 Million from the same guy. Any disability and life insurance is 10 times better than no disability or life insurance. Don't buy whole life insurance. Don't know any doctors or just want an insurance agent you can trust? Call someone on this list.
#2 Get A Plan to Manage Student Loans
Still have student loans? Do you (or will you as an attending) work for a non-profit? If so, you need to spend an hour learning about Public Service Loan Forgiveness. If not, you need to refinance your loans. It will probably take less than an hour. Pick one of the companies off my approved list. They're all fine and the rate you get will be better than what the government gave you in med school. Get a 5-year variable loan and make all the payments. Your student loans will be gone in 5 years.
#3 Save Money
You need to save some money. Anything saved is better than nothing saved, but ideally, you'll figure out a way to put about 20% of your gross income toward retirement. So add up what you spent last month and compare it to what you made last month. Did you save 20%? If not, spend less on something. Anything. I don't care what it is. Less travel, less car, less house, less eating out, fewer kids' education or activities.
On second thought, don't bother. That's too much work to add up what you spend. Set up your bank account and paycheck such that 20% of what you make goes somewhere else. It can be auto-drafted into your 401(k). It can be auto-invested into a brokerage account. It can even go into a separate bank account. But put it somewhere you can't easily spend it and forget about it.
#4 Invest
Pull out that paperwork packet that HR gave you when you were hired. Find the 401(k) stuff. Log in to your account. Scan down the list of mutual funds for something that has a date in it, like 2050 or 2040 or something like that. Have 100% of your contributions go into that investment. If there is more than one, just pick one. They're all fine for your purposes. If you can't find one, look for one that has the words “Total Stock Market” in it. Still nothing? Find something with the word “Index” in it. Invest in that.
If you need to invest more for retirement than can fit in your 401(k) or similar retirement account, you will also need to open a regular old brokerage account at Vanguard.com. Don't worry, it'll only take 5 minutes. Set it up to auto-draft your bank account every month and invest the money in the Life Strategy Moderate Growth Fund.
If you are self-employed (i.e. an independent contractor or paid on a 1099), go to Vanguard.com and open a SEP-IRA account. An individual 401(k) is better, but the SEP-IRA involves less hassle. Set it up so that $4,500 a month will be pulled out of your bank account and put in the SEP-IRA. Unless you make less than $300K, in which case just have 18% of your gross income go into it each month. Choose the Life Strategy Moderate Growth Fund as your investment.
While you're at it, have 30% of everything you earn deposited into a separate bank account. On April 15, June 15th, September 15th, and January 15th send 80% of it to the US Treasury and 20% to your state tax agency. These are called taxes and you'll need to start paying them yourself since you are SELF-employed. You can have the person who prepares your taxes help you with this. It can get kind of complicated, but the bottom line is if you don't want to pay a penalty, send the IRS 27.5% of what you paid in taxes last year each quarter.
#5 Estate Planning
Do you have any kids? Go to LegalZoom and get yourself a will to tell your extended family which of them is going to be lucky enough to have to raise your rug rats lest you haunt them eternally. Eventually, you may have to do something more, but that'll do for now.
#6 Spending
Still have money left over after taxes, savings, and those student loan payments? Great! Spend it. On whatever you want. Have a good time.
Don't have any money left over? Cut up your credit cards and spend only green stuff for a few months. That'll probably fix the problem. If that doesn't work, you might have to actually budget.
Learn More About Finances
At some point, you might get curious to learn more about financial stuff. Remember, this is just the bare minimum. With a little more interest, effort, and discipline, you can improve your finances even more. So if you get curious, come on back to the website, buy the book, or check out some of the other recommended books. Want some professional advice? Start here.
What do you think? What do you see as the bare minimum for docs to do with their money? What do you do to help someone who has little to no interest in this stuff? Comment below!
This is a great post and hilarious. If I would had read this as a Med student or early resident I’d had been better off tremendously. Yet, now I’m laughing at the sarcasm and have enough finance knowledge to ignore the simplicity of these points.. which I acquired just by STARTING (and then continuing) to learn – which I think is the barest bare minimum!
Haha, not sure if this is a serious article or a parody article, but all the information is spot on.
I’ve seen some 401k plans where the target date fund is actually a portfolio of high cost mutual funds, so you need to be careful. Then again, if you’re going to do the bare minimum, at least he or she would have a diversified portfolio with any target date fund.
Although the undertone is sarcastic, as discussed below this is a sadly necessary post. Not everyone cares about personal finance and this is a great link/post for them.
Yea, the tone was a risk (especially on the internet), but intentional. Hopefully it makes even those who really need this info chuckle a bit at themselves.
Right. Remember, this is the bare minimum, not optimizing everything. If the target retirement fund in your 401(k) is crummy, chances are the whole thing is crummy anyway. Might as well have a diversified choice.
Do not buy a house in residency.
Do not buy a house until you have been at your new job for at least 2 years and have a down payment.
Do not reward yourself with a sports car right out of residency.
Be careful about expensive European vacations and African safaris until you can pay cash after funding retirement plans.
Great points to add, but my husband has just bought an expensive sports car right out of residency and that was remedied without too much stress, I just made him pay it off immediately when we met. The house is a much bigger danger and far harder to sell. That’s the one I’d warn against when taking to “minimum effort” folks who won’t listen to much advice. I’d beg them not to buy. That’s what saved us during an unexpected and fast job change & out of state move. Brilliant post!
Yea, the house screw-up is big. Guess the post should have covered that too.
That last clause is really important. AFTER funding retirement plans. As physicians and other high income professionals, we can often afford to pay cash for something if we don’t fund retirement. It can take a surprisingly long time to save up enough to buy a Tesla if you’re maxing things out.
It is a bit sad that such basic advice is needed – but it is.
I agree that countless numbers of my colleagues don’t even pretend to want to learn the basics. They usually say it is boring. I have passive income exceeding my expenses. I find nothing about that boring – but rather quite liberating! To each his own, I suppose. I’m reminded of PoF’s blog post about how people spend more time on their fantasy football league, or since it is March – their NCAA bracket – than they do on any of these important areas. http://www.physicianonfire.com/fantasyfootball/
Why you REALLY don’t want to have to eat Alpo: https://truthaboutpetfood.com/the-largest-beneficiary-of-fda-generosity/
We surge and (gasp!) feed our beloved standard poodle human food. And yet I can still check off all of the above financially sound minimums. No way you’ll ever find me in the pet food isle!
Aaarrgh! “Splurge” not surge
Regarding the estate planning, the reason to have a will when you have negative net worth is, indeed, to appoint guardians for your children should you simultaneously achieve room temperature. But the problem is not that your relatives will be running away from the responsibility. The real reason is that you are likely to leave behind multi-million dollar life insurance policy settlements (term, of course) that court-appointed guardians would have control over in raising your children. Given that scenario, it’s possible that your choice of guardian may not win in court. Control over $5M or so could lead to quite a protracted legal battle. It’s just not worth the risk of putting that decision into the hands of the legal system.
Awesome post! I’d argue the bare minimum might be better off than the super tinkerer.
One critique: why would you tell someone who is not keeping a close eye on things to use a variable rate for their student loans?!
Because it will nearly always win out over a short time period such as 5 years. Its likely in reality to always win, even with the caveat its possible to not be as good as a fixed rate.
https://www.whitecoatinvestor.com/fixed-versus-variable-loans/
I think maybe I’ll do this as a podcast. Basically, with a loan 6 things can happen, and the variable comes out ahead of the fixed with 5 of them. If the likelihood and consequences of the other one are not a big deal, might as well self-insure that risk.
1) Interest rates go down- variable wins
2) Interest rates stay the same- variable wins
3) Interest rates rise a little early in the term- variable wins
4) Interest rates rise a little late in the term- variable wins
5) Interest rates rise a lot late in the term- variable wins
6) Interest rates rise a lot early in the term- fixed wins
Can you self-insure the worst case scenario? If so, then go with variable. If not, “buy interest rate insurance” with the fixed rate.
A doc committed to getting rid of her student loans in 2-5 years after residency can almost surely afford to run that interest rate risk herself. Now if you can barely afford to pay them off over 20 years….maybe you can’t afford that risk and will have to pay the premium for the insurance.
Hope that helps.
All good points but I’d argue someone doing the bare minimum can’t self insure much of anything and if you can you might as well pay it off instead leveraging off your debt.
Remember, “the bare minimum” doesn’t mean only putting a minimum amount of money toward building wealth. You’re paying off your student loans in less than 5 years and putting 20% toward retirement. Someone in that situation has a lot of financial reserve for emergencies.
Dear TWCI:
On your application to be a recommended provider of insurance services why do you specifically ask if the financial advisor/broker has a relationship with Guardian or Northwestern? Is there something that we should know about those companies or their practices?
Thanks!
They’re two of the largest insurance companies out there selling insurance to physicians. I’ve run into a lot of agents associated with Guardian who sell Guardian disability insurance almost exclusively, which I think is wrong. So I like to know if they’re a Guardian agent up front so I can ask the relevant follow-up questions.
NML is a different issue. I can’t remember meeting a NML agent that I would feel comfortable referring a reader to. I’m sure there are some out there, but I haven’t met them yet. The culture at the company, their training, and the incentive structure leads agents to do the wrong thing for a doctor entirely too often. I hope I’m pleasantly surprised someday by a NML agent, but it hasn’t happened yet in six years. At this point, it seems unlikely I will be recommending a NML agent to readers for their insurance needs. I’ve had agents tell me they are allowed to sell policies for other companies, but I can’t remember running into a doc where it actually happened. It’s all very disappointing too since NML is a mutual company, and a large, relatively stable one at that.
This response is why I love your blog–you’re always looking out for us and not just concerned with getting an advertising fee or a kickback from any old agent!! Thank you!
You’re welcome.
What’s the possibility of being able to refinance student loans immediately upon graduating medical school?
You can do it, but really only one company doing it right now, DRB. It makes sense for private loans, but not federal loans since your effective interest rate under REPAYE is probably lower than the 5.5% or so that you’ll be able to refinance to. Not to mention you eliminate the possibility of PSLF.
So many people don’t think about this stuff. They assume like everything else that someone will take care of it. I would add to pay attention to where the money is going. Are you spending $1000’s on Amazon (we do sometimes) and how can you slow it down. This should be done in concurrence with getting insurance, investing, estate planning, etc.
Although the article may have a hint of sarcasm, it is actually an easy step-by-step to follow. Often, our minds are running this way and that. Here is a simple guide to follow that doesn’t involve that much more brain power to get started.
cd :O)
Nice post. I just gave a financial talk to a group of mixed young primary care providers. Easily 50% were taking notes throughout the talk, many had no financial plan. So much to learn, and time is not on your side if you put off dealing with taking care of your personal finances until later in your career. I consider my self a WCI ambassador.
Kind of weird to realize you can teach them more about finances that they’ve never heard than medicine huh? Taking notes is one of the sincerest forms of flattery.
I had a similar experience. I lecture to FP residents frequently about medical issues. They are usually half asleep and not too interested. I tossed that up to distraction and sleep deprivation. No biggie. But when I talked about investing and personal finance I had an alert, engaged audience. They took pictures of my slides with their phones and had follow up questions in person and by email afterwards. The future looks bright for WCI and other bloggers in this space.
Me as well. Was giving a talk to senior residents at the societies meeting last year. People were very engaged and on the panel I had tons of questions from the audience, as well as lots of chats afterwards.
Most are so focused on their training, which makes perfect sense if this wasnt also so important. I think theyre initially just shocked at this major blind spot in their life.
Yet another great post chalked full of useful information and tips. Everyone keep spreading the word to their colleagues/residents/students. This information can truly be life changing. As an attending I have seen this in some of my residents.
I had the opportunity to meet Jim last evening and see him present. Like his work on the web he does not disappoint in person.
It was great to meet everyone last night. San Diego was beautiful. I could get used to doing more talks on ships.
Perfect post, On the continuum from financially unprepared doc to super finance enthusiast, the steps above would actually get you about 90% or more of the financial rewards of being an enthusiast. Remember the enthusiast always has to fight the temptation to meddle, so many who are “savvy” don’t actually reap a higher yield than someone who just followed the advice above.
(Obligatory military comment: Substitute TSP for 401k, and remember you get paid when disabled at full rates until medically retired or discharged, meaning you can take the disability plan with the longest gap between injury and payments beginning – this plan will be the cheapest. You will almost never lose active duty income for something like a broken hand or jaw that you will recover from, so no need to insure for that type of short term disability.)
Excellent article. It made me laugh! 🙂
The first book you should read is Random Walk Down Wall St; second is Bogle’s book on mutual funds
Nothing better than to reap the rewards of compounding
Before you know it the tens of thousands grow to hundreds than millions
I cannot imagine the BILLIONS wasted on fees, commissions, loads, etc solely because the investor is uneducated
Two terms to know among many: marginal utility of wealth and the tyranny of compounding(google them); the first is critical nearing retirement
I did not find it sarcastic in tone at all, it is the “straight talk” I wish I had heard twenty years ago. Some people don’t want to wade through the details or become experts on the nuances, they just want to be told what to do by someone they can trust. Busy working fulltime, managing a two-physician household and raising two kids, this kind of stuff was just not on my radar (and apparently still isn’t for many physicians). Perhaps we need to get signed off on having gotten a basic financial education from our “elders” just like we get signed off on lumbar punctures, etc. This article is the Ultimate Financial Scut List!
Where does an emergency fund fit into this? How much? When?
Thanks.
Emergency funds are great. I highly recommend one. I’m a fan of having 3 months of expenses in a very safe account somewhere. But I’m more flexible than most on it. $1000 is better than nothing. 1 month’s expenses is better than $1000. Direct Roth IRA contributions can technically be used as an emergency fund, particularly if invested in something safe. But I don’t necessarily say “You must save up 6 months of your income before investing anything or paying down any debts.” I just find it very hard to leave $10K earning 1% at best in a savings account while not paying 8% debt or not maxing out a retirement account. So I’ve raided my e-fund many times in the past to pay off debt or take advantage of a big tax break. Then I gradually build it back up again. I guess we didn’t stop doing that until we were millionaires.
If all professionals followed this minimum financial advice, the world would be a much better place. Not contributing ANYTHING to a 401k is the biggest mistake I’ve seen colleagues make. Companies make it pretty clear nowadays how to sign up but apathy usually wins.
Great post! This should be handed to every intern at orientation and then re-handed to them when they graduate. Many residents and young physicians are paralyzed by the choices available to them with different types of insurances, financial plans, budget plans, etc. This boils down the essential action items into very manageable tasks.
Great post, but it’s too complex!
I think for the target audience it really should be bulleted step by step with links. Step one go here and open Roth IRA, etc, etc.
As you said in many ways you’re preaching to the choir and providing info to folks who already know. I think for the uninformed it needs be really simple.
I think it was Einstein who said make things as simple as possible but not simpler. Gotta be careful not to cross that line.
But I am working on a project that should help with that. It’ll start as an email series and move into a book.
This post got me thinking…. I work in a teaching hospital with residents and students. In between lectures on ARDS and septic shock sometimes I’ll go off on a tangent and talk about finances and them getting their situation together (Roths, disability, loans, etc). I usually plug this site.
I often wonder, do any of you all work in an environment with some formal or even not so formal financial education for trainees by attending physicians. (i.e. not just the pizza lunch from the disability guy…) I feel like many of them can use it.
This is interesting. When Michelle and I set up a booth at the Southeastern Surgical Congress in February, one of our freebies was post-it note pads with our logo on them. I was literally writing out the url of WCI for the residents who stopped by our booth and pointing them to this site. We told them “You need us, but you need to go here first”. I’m thinking about printing something up if we go to the Georgia Surgical Conf in Sept – chippies, WCI?
Wow! That would go over great to give out chippies with WCI emblazoned across their bellies.
https://www.merriam-webster.com/dictionary/chippie
I have no idea what you think a chippie is, but I hope it isn’t what Google thinks one is.
Feel free to do a bulk book order and throw a Fox Wealth Management sleeve over the cover. 🙂
LOL, that’s a new one on me. Don’t think I saw any chippies at the conference, but you never know, given that the conference was near Printer’s Alley.
My dad used to say “No chippies” when we took turns driving on long road trips and were speeding. If we got a ticket, he made it very clear he was not going to chip in.
Short and to the point. I like it. At risk of becoming too complicated, maybe I’d add a bullet point about how much you need to save to retire?
Not sure how to be much more direct than this:
When we talk about bare minimum – here is the bare minimum from movie The Gambler – https://www.youtube.com/watch?v=xdfeXqHFmPI
And here is the same video done by revered Jim Collins –
https://www.youtube.com/watch?v=eikbQPldhPY
Total time to watch the videos – 2 minutes and 37 seconds. It doesn’t get any more bare minimum than that.
[Profanity warning on both videos.-ed]
This is very interesting blog. I have a hard time saving my money before because I spend too much in anything that is sometimes useless but in the long run, I managed to keep up my finances. Your points are most of the things I did. First, I applied for insurance. This is a good investment because you are saving your money for the future with good interest. One think I am in mind now is to invest but still in search for a good one. One thing in mind is through Forex Trading that I will develop soon. Anyway, Thank you for the good blog that you shared.