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Simple and Practical Wealth Building Advice for Physicians

This article may appear to contain only simple advice that everyone already knows. However, it’s this advice that can lead to confident wealth creation. And the reality is, the goal of creating significant wealth has become far too elusive for many physicians.

If following this advice is so simple, then why is only 1% of our population wealthy? Interestingly, more people are making earnings sufficient to be in the 1% than those who actually reach the 1%. In fact, many physicians are among the top earners who, somewhat antithetically, have created relatively little wealth.

Well, the answer is simple. Creating wealth is common sense and easy to understand but hard to execute.

When seeking to create wealth, there are some important points you should consider while focusing on long-term investing and goals.

1. Commit to Growing Wealth

Just like you made a commitment and followed through on becoming a physician, you can make a commitment to grow your wealth. Do you think it is harder to grow wealth than becoming a physician? Of course not. You can do it if you commit!

2. Develop a Specific Plan for How You Will Grow Your Wealth

Stay away from “get rich quick” schemes or “too good to be true” investment deals from friends. Your plan should be based on a slow, methodical approach, and most importantly, you should hire a financial advisor who knows and understands you and your family and can hold you accountable to your commitment to wealth.

3. Stop Paying Others and Pay Yourself

You have worked extremely hard to become a doctor. While others pay you for your expertise, do you pay yourself for your expertise? Committing to saving your earnings is your way of paying gratitude to yourself for your hard work. Purchasing stuff and living a large lifestyle you cannot sustain does not reward you but adds additional stress and anxiety. Instead, target saving 35% to 40% of your net earnings.

4. Monitor Your Cash

No one can adequately save when they spend more than they make or are racking up high-interest debt to cover an excessive lifestyle. Think of the U.S. Government; someday, we will have to pay the debt back, and those days will not be sunny or happy for most Americans. 

5. Create a Simplified Budget and Follow It

You read about this all the time. And no, saving money on the $5 latte is not what it takes to create wealth nor is tracking all your expenses in detail. Take it from me, a CPA: you will not have the time nor want to put in the effort to track the details. And by the way, it’s unnecessary.

Here’s an easier way to create a budget. Start with how much you want to save and subtract that from your earnings. This is how much you’ve got to spend monthly. Allocate the big, fixed-cost items, such as mortgage, real estate taxes, automobiles, and insurances. After considering these big items, the leftover is your discretionary spending. Go wild, but do not fund your lifestyle with debt, as you have already factored in your savings (i.e., paid yourself first).

6. Avoid Peer Comparison and Marketing Scams

Avoid trying to keep up with your friends and colleagues and their perceived successes. Over a long career, you learn rarely does the picture or perceived success you are seeing tell the whole story.  Additionally, advertisers tell us what we should spend money on to make us happy and successful, but happiness and success are a mindset, not material items. If you stay away from personal comparisons, you will probably be happier, less stressed, and have more time for your personal growth and family.

7. Good Debt vs. Bad Debt

Stay away from credit cards and personal debt to buy unnecessary things. But do not shy away from incurring good debt, such as a low-interest automobile, mortgage, or business debt, to increase earnings.

8. Plan For Higher Cost in Future

You must consider that things are going to cost more in the future and you need to save and invest accordingly so as to not reduce your purchasing power over time.

9. Mute Your Expectations About Big Investment Returns

People who believe their investment returns may be large over time tend to save less money. It’s better to save more money and have large returns than the opposite.

10. Follow Long-Standing, Time-Tested Investing and Not the Fad of the Day

There is a lot of investing advice that gets thrown our way—from CNBC talking heads to investing articles, all designed to grab our attention. However, it’s best to stick to the basics and follow time-tested, evidence-based investing practices. These strategies have been heavily researched and continue to hold water.

11. Stick to Your Investment Strategy in Good Times and Bad

In my experience, more money is lost trying to not lose money by attempting to time the market than just riding the wave of market ups and downs.

12. Protecting Hard-Earned Assets Should be Paramount

Being proactive, not reactive in protecting your assets, is best.  Trying to protect them after a lawsuit or claim arises is generally too late. While most medical lawsuits may be covered under malpractice insurance, you still want to make sure your hard-earned assets are locked down and protected to provide extra peace of mind.

13. Estate Planning is a Necessity and Do Not Forget About Your Parents

A basic estate plan is a good start, but a physician’s wealth is more complex than the average person’s. Moreover, your children may stand to inherit significant wealth from you, so you should consider how much you want them to have access to and how you can protect them from future creditors, ex-spouses, and the like. 

You also need to coordinate with your parents on their planning if you stand to inherit wealth from them. Because you are a physician, it’s important to make sure any money you inherit from your parents is protected from lawsuits; this is often overlooked and rarely addressed in estate planning.

14. Real Estate Investing Can Work But is Not as Glorious as You’d Imagine

Investing in real estate has been proven to generate large wealth over time for many people, but it is not as easy to do as you may think. Just like the marketing for luxury products, real estate investment marketing is meant to attract you. To be successful in real estate investing takes a long time, a lot of work, and many headaches. It is not a part-time job but a full-time focused business. Most of the physicians I talk to are just as well off, if not better, by just getting real estate exposure through their regular investment portfolio.

15. Have a Lawyer and Financial Advisor on your Team

Before you sign any contracts, especially ones with non-compete clauses, or get involved in a business deal, make sure you have a lawyer and financial advisor looking out for you.  Bad agreements can have adverse effects on your wealth and health.

16. Purchasing a Home as an Investment is Dumb

A primary home is a lifestyle choice we all make, not an investment. It is actually a liability that continually needs money fed into it to keep it up and to pay real estate taxes. Additionally, a second home (although you may rent it) is not generally a good investment, although it may turn out to make some money;  a second home appreciating is more luck than a skilled investment. Do not base your future wealth on luck. Also, keep in mind real estate is not easy to sell and turn into immediate cash if the need were to arise.

17. Legally Minimize Your Income Taxes

Always pay the taxes you owe, but afford yourself legal and appropriate tax deductions or implement prudent tax-saving strategies to keep more money in your pocket. However, I caution you to avoid tax strategies that sound too good to be true. You do not need aggressive tax strategies to build wealth. There are plenty of tried-and-true tax reduction strategies you can use.

18. Life Insurance and Disability Insurance Is Paramount (Even If You Do Not Currently Have a Family) 

Having disability insurance to protect yourself and your family should something happen is a must. Do not rely on group disability provided by your employer since you may not work there your entire career. Control your own insurance coverage by having a personal policy; thus, giving you the freedom to move jobs.

You can not rely on group life insurance for the same reason you should not rely on group disability. Association-based insurance looks cheap at first but gets very expensive as you age and may not be available when you need it the most.  Again, own your own policies and control your future. 

Rarely have I found a person who needs whole life insurance coverage. Term is usually best at a younger, healthier age. While you are young and single, you may not think you need life insurance; however, it is good to get insurance when you are healthy, and it is cost-effective.  This will enable you to maintain your insurability. Also, get as long of a term as possible. As a physician, you, of all people, know that health can change unexpectedly and make you uninsurable.

The Bottom Line - Hire a Team to Look Out for Your Best Interest

It is important to hire a financial advisor, accountant, and lawyer that looks out for you and your family. A good financial advisor will serve as a leader of your team and hold your team of professionals accountable for providing you and your family with exceptional service and advice. A good financial advisor can also guide you in adding team members as you need solutions to financial issues that arise.

As you seek to grow wealth for yourself and your family, I hope the above thoughts guide you into making better-informed decisions.

Rx Wealth Advisors is a physician-focused financial advisory firm. Their primary focus is to help medical doctors maximize their earnings, keep more money in their pocket, and cultivate wealth so they can live the life they’ve earned and deserve. Rx Wealth can be reached at 412-227-9007, via email at croe@rxwealthadvisors.com, or on the web at rxwealthadvisors.com.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.