dosing medication

«

Mar
21

Avoid 5 Financial Mistakes Physicians Make

Would you like to build wealth? The prescription is simple: spend less than you earn, invest wisely and partner with the right people.

Here are ways to avoid the physicians’ five common financial mistakes that stand in the way:

Mistake #1: Imbalance between spending and savings.

At every moment you are faced with a choice: Will I spend today, or save for a better tomorrow?

For an investor time works like gravity. An early start on savings is like riding your bike downhill; you benefit from the magic of compound interest. Conversely, a late start means you pedal uphill.

We physicians already get a late start on saving because of our prolonged training period and the burden of medical school debt. After all the years of deprivation, many physicians feel it’s time to live it up once training is over. It’s easy to grow into and spend any level of income.

The evolving field of neuro-economics suggests that biology may play a role in an individual’s propensity to save or spend. Some people are born “spenders” and others are born “savers.” While biology is not destiny, it takes self discipline for spenders to save—and for savers to spend. Discipline is a limited resource.

Here are some ways to save more:

  • Automate savings. If you don’t see the money, you will not miss it as much!
  • As you anticipate a financial windfall—whether it’s an inheritance, the transition from training to your practice or a higher salary in a new position—plan to save a high percentage of the increase.
  • Get a clear picture of your future you’re working towards. When you say no to something today, you know that you will enjoy more rewards tomorrow.

Mistake #2: Getting financial advice from the wrong people.

You have the intelligence to learn everything you need to know about building wealth, just like you could potentially manage any patient with any medical condition.

However, you also know that patients get better medical outcomes in the hands of physicians who see large volumes of similar patients.

Surveys show that physicians working with professional financial advisors are most secure about their retirement plan. Only half of physicians do so.

Many physicians turn to their colleagues for financial advice. I think of all the investment opportunities I heard about in the surgeon’s lounge between cases. Most physicians who jumped on the bandwagon lost their money. One financial advisor I know says that one of her major jobs is protecting her doctor clients from DDD’s—dumb doctor deals.

Here are steps you can take:

  • Ask yourself, “Do I really trust this person to give me sound financial advice?” Then listen to your intuition.
  • Ask physician colleagues, “Who helps you plan for retirement? What do you like about working with this person?”
  • Ask yourself, “How will I objectively assess investing opportunites?”

Mistake #3: Failing to manage taxes wisely.

Your ability to proactively manage your taxes correlates with your ability to build wealth.

Your CPA works hard to assure that you minimize your tax burden in any given year. However, it’s important look at the bigger picture.

When you place money in a tax-deferred retirement account, you don’t pay taxes on that money NOW; however you will pay taxes on this money when you take it out.

Experts predict that taxes are going up.

Here is a step you can take:
Work with a team of consultants who see the big tax picture for both today and for tomorrow.

Mistake #4: Failing to protect assets.

You carry insurance on your home and your car. You have a medical malpractice policy. You may even insure your smart phone.

Still, many physicians do not insure their most valuable asset: their ability to generate income.

Further, the activities of your partners impact your ability to build wealth. Do you and your life partner have an agreement about how to manage money that works for both of you? Do you trust the judgment and ethics of the colleagues in your practice?

Here are steps you can take:

  • Make sure you’re prepared for the “what if’s” in life. In addition to life and disability insurance, look into an umbrella policy for your home. Check with your medical malpractice carrier and see if you are protected for claims arising from social media activity.
  • Talk with your financial advisor about incorporating—even if you are employed.
  • Have a conversation with your life partner and your children about money. Assure that you and your life partner agree on a vision for your financial destiny. Teach your children wealth-building strategies.

Mistake #5: Ignoring the human condition.

Nobel laureate Daniel Kahneman studied how people respond to changing markets including the 2002 dot-com bust and real estate boom. He concludes that investors make irrational choices.

We make predictable investing errors. It’s part of the human condition.

If you have ever looked at optical illusions, you know how easy it is to fool the brain. Yet, even after someone proves that we have been tricked, our false perceptions persist.

Here are some of the predictable errors that get in the way of building wealth.

Loss aversion. We will take greater risks to avoid loss than to experience gains. That means investors predictably take risks at the time they should be erring on the side of safety.

Over and under reactions. Investors tend to behave with optimism when the market goes up, and become much more pessimistic when the market goes down.

Over confidence. Investors tend to overestimate their ability to beat the market, and underestimate investing challenges.

Relativity. Investors see the world through the eyes of relative experience. Imagine how you would feel if someone gave you a gift card. Now imagine how you would respond if someone gave you two gift cards and took one back. You have the identical outcome is each case, but it feels much different.

Spending as a stress management tool. Spending creates a positive feeling state through the release of dopamine. The medial pre-frontal cortex modulates this response. This part of the brain also regulates stress response. Could the growing numbers of physicians on the edge of burnout be using spending as a stress management tool?

An estimated 5 to 10% of Americans suffer from a shopping or gambling addiction.

Here are steps you can take:

  • Observe your investing behaviors. Ask, “When do I fall into these traps, and how can I avoid them?”
  • Consider whether you are using spending as a stress management tool. Consider healthier alternatives.
  • If you have concerns about a shopping or gambling addition, seek help. You are not alone.

You can build wealth. You simply need to set the intention and assure your actions are aligned with your goals.

 

Permanent link to this article: http://medicalbridges.com/avoid-5-financial-mistakes-physicians-make/

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>