Physicians can spend over a decade completing college, medical school, residency, and in some cases, fellowships. At the end of that time, many doctors are faced with significant education loans. Between this debt and the later age at which they enter the work force, physicians have unique financial challenges.
In our prior discussion we discussed the idea of Net Positive Income (NPI) and how for physicians this point is often reached later in life. Even though income earned over a physician’s lifetime can be much higher than average, the beginning point for earning higher income is often a decade later than non-physicians. Once the accumulation period begins, physicians frequently have significant debt obligations between educational loans, home mortgages, auto loans, etc. This means savings are often lower than might otherwise be the case. Therefore, not only is retirement savings delayed, but so is education savings for children. This often means that as the physician progresses through their career, they need to continually increase their savings rate to overcome the delay and the time value of money.
Many people understand the general concept of the time value of money. The sooner one begins saving, the less one must save later. The less one needs to dedicate and the more easily they will be able to deal with volatility and mistakes. Time in this case allows for modest saving in the early years when discretionary income is lower, and higher savings later on as income rises. What is somewhat harder to grasp is the magnitude of the effect of time.
For physicians, the time period is compressed, meaning once discretionary income is available for saving, the amount which must be saved is significantly higher, right about the same time as when they are moving from their modest, small, starter home to the larger home they need to accommodate their growing families, a move made by their age cohort 10 years earlier.
This compression of time can be critical to long-term financial success. Other factors such as disability, changes to the compensation of the medical profession, etc., can also cut into savings.
Finally, like other professions, physicians often postpone major financial decisions, not necessarily on purpose, but with long work hours, followed by responsibilities at home, they often do not get around to their own financial affairs on a timely basis. Think about the home remodeler who comes home to a long list of home projects for which he or she cannot find time to complete, even though they certainly have the ability to complete.
If you’re a doctor, it’s worth considering hiring a wealth advisor who has experience and expertise working specifically with individuals in your position. In addition, putting certain measures in place are crucial for a physician’s financial success.
At BerganKDV we can help. We have the expertise, experience, and knowledge to guide you to making timely, and crucial decisions to lead you to a successful financial future.
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The views expressed are those of BerganKDV Wealth Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investment advisory services and fee-based planning offered through BerganKDV Wealth Management, an SEC Registered Investment Advisor.