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.
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.
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!