5 financial moves EVERY new attending physician should make

Andrew McFadden, CFP, MBA

© Panoramic Financial

There’s never a better time to start on your personal financial management than when you start your first attending job. The obvious reason being that up until now, you haven’t really had any financial resources (AKA money) to pay down your student loans or start building wealth. But with your first attending paycheck, all that delayed gratification is finally (and literally) paying off.

I believe it was The Notorious BIG that said, “Mo money, Mo problems.” Well, while this can certainly be true, and physicians are notorious themselves for experiencing this cause and effect, I think that new attending physicians don’t have to suffer from this dilemma if they can get organized and create an actionable financial plan. By doing so, more money can end up being a very good thing in terms of your overall financial success, and allow you to cruise through your first year as attending and beyond.

To help you get started, here are the five financial moves every new attending physician should make:

1. Set up an emergency fund

The primary purpose of an emergency fund is to protect you during a gap in employment, which could be financially catastrophic if you are not prepared, causing you to take on tens of thousands in high interest personal debt. And you could be out of work for any number of reasons. I've seen new attending physicians who after a month already hate their work environment so badly that they need to quit before having their next job lined up. I've seen some physicians get laid off because of a change in direction their employing group is taking. And I've seen physicians out of work for a couple months or more because a global pandemic hits. You’re not establishing an emergency fund because you expect a gap in employment. Rather, you establish one because you're wise enough to realize that the unexpected can happen, and you don't want to be found wanting when it does.

As such, you need enough money in your emergency fund to cover you, should finding a new job (or returning to work, in the pandemic’s case) take an especially long time. And so, as solid as the physician job market is, that is why the typical rule of thumb for an emergency fund is to cover three to six months of living expenses. This would be the prudent plan of action for most every physician. However, there will be a few cases where certain physicians, depending on their specialty, job situation and aversion to risk, might desire closer to a year's worth of savings stored up.

Here's a tip: Thanks to the increasing interest rate environment over the past few years, high interest online savings accounts are likely paying out at a significantly higher rate than your local bank. They are typically FDIC insured and very easy to utilize in tandem with your existing banks checking account. It will help you earn a lot more interest over time for money that's just sitting there. I recommend using a financially resourceful website like NerdWallet to search for the best high interest online savings accounts.

One more tip: Make sure your credit card debt is paid off first. It doesn't do you any good to be paying 25% interest on your credit card while earning 4% in your savings account. So if you have an existing credit card balance, use your savings towards paying the credit card balance off until it's gone. Then, you can focus on your emergency fund.

2. Get a student loan analysis

Your student loans are probably your largest debt right now, and will likely be the second largest debt throughout your lifetime, second to only your mortgage. Accordingly, the financial consequences of choosing a suboptimal repayment strategy are obvious.

Before the pandemic, it was fairly status quo that the best route to take with student loans was to either pursue public service loan forgiveness and choose the federal repayment plan that minimized your payment amounts over time, or to refinance your loans on the shortest term you could afford, in an effort to get an interest rate between 2 and 4%.

However, coming up with a student loan payoff strategy today is extremely difficult given the quick changing nature of the federal loan system, as well as the recent volatility in interest rates. This makes it impossible for anyone who is not an expert in this field, to be able to determine how to minimize total payments. I don’t even think our government representatives could tell you how the federal loan system works, if prompted.

As a result, my best advice, and the same advice we recommend to our new clients today, is to seek a professional student loan analysis from a reputable provider. There aren't many out there, but the one that we see continually see doing a great job for young physicians is Student Loan Planner. Student Loan Planner says that, “90% of their clients save an average of $53,000 projected over the life of the loan repayment period.” That’s seems well worth the cost (currently $595), not to mention the peace of mind you’ll get from having a plan you didn’t have to develop yourself.

3. Make sure you have the proper disability coverage

I can't emphasize this enough: As a new attending physician, your income is your GREATEST ASSET! If you suffer a long-term disability right now, that lasts the remainder of your career, you would be financially destitute. That is why long-term disability insurance is so crucial could attain.

However, there are a couple of potentially disastrous hurdles you need to overcome.

First and foremost, make sure you don't get the wrong type of disability insurance. The scary thing here is the most common type of disability insurance IS the wrong type. It’s known as “any-occupation.” Policies with this definition of disability will only pay out benefits if you can't work in any occupation, given reasonable accommodations. That might not sound bad, until you learn about the type of insurance that is best for physicians.

The type of disability insurance you want is what’s called “own-occupation.” This will cover you if you are unable to work as a physician in your specialty. Sounds a lot better than that any-occupation stuff, yeah? Well it is. Miles better. You don’t want all your hard work in med school and training to go completely down the drain if you suffered a long-term disability. I sure wouldn't.

A second trap lying in wait for you is that your employer-provided coverage, even if it’s own-occupation, probably isn’t enough to cover your all your expenses. Because they usually only cover 60% of your gross pay. Remember, you are insuring against a long-term, catastrophic disability, so you don't need just enough money to cover your monthly bills. You also need to think about your student loan payments, saving for retirement, and helping your kids out in the future. In the majority of situations I see, supplemental private disability insurance is needed.

It's never more important or valuable to get this coverage in place than when you're in training. However, most physicians don’t want to pay for it on a trainee’s salary, so they delay until reaching attending status. So, make sure you attain the proper coverage soon after starting your attending job. You will probably still be eligible for training discounts the first few months.

A helpful tip for acquiring private disability insurance is to make sure you work with a reputable agent that only serves physicians. They will know the type of coverage you need, as well as any discounts you could qualify for based on your specialty, employer and state of residence, among other things.

4. Start saving 15% for retirement

There's never a better time to start contributing the ideal percentage towards retirement than when you become a new attending physician. The reason being, you aren’t used to spending the extra money you’re earning and it would be best to keep it out of sight and out of mind. In the physician world, you might hear this called, “Pay yourself first.” It means that you are going to set aside money for your “future self” so that you can retire someday, which allows you to freely allocate the rest of your monthly paycheck to current expenses and goals.

The great thing is, you can set this ideal percentage, start attacking your student loans and a few other personal goals and still experience an increase in net pay to be able to enjoy. All of that hard work hasn’t been for nothing, after all.

Many new attendings get this wrong, though. Either out of ignorance, or because they're putting the cart before the horse when it comes to other life expenditures. I see many new attending physicians quite eager to buy an expensive house, an expensive car or move to a high cost of living area, which makes it extremely hard to start funding retirement like you should.

Buyer beware, though.

This approach will lead to feelings of being cash poor, with the stress of knowing that you're not on track for retirement. And you will eventually need to cut expenses in order to increase your retirement contributions later on. And every year that goes by, you will have to raise your contribution percentage even higher, which just means a more drastic cut in your expenditures. Do you like pay cuts? Go this route, if you do. If you don’t, avoid this by setting your target retirement contribution percentage at 15% of your gross income from the start.

A helpful tip is to maximize your employer-provided retirement plan(s) and fund a backdoor Roth IRA (as well as your spouse’s, if applicable), because of the added tax benefits. Plus, most employer-provided plans offer a company match if you contribute, which is basically free money.

5. Maximize your employee benefits

Health insurance and retirement tend to grab your focus when it comes to your employee benefits. But don't slouch on the other offerings, as there can be some helpful insurance coverages and some great tax savings tools, which are highly coveted given the high income tax bracket you are jumping into.

When it comes to health insurance, you definitely want to consider a high-deductible health plan (HDHP), if it is offered, because it should give you access to what is called a Health Savings Account (HSA). A Health Savings Account allows you to contribute money on a pre-tax basis every year. That money can then be invested inside the account, and any earnings grow tax deferred. Any time you make a qualified withdrawal from this account for health care expenses, the money comes out tax free. We call this a triple tax benefit, and you can't find it anywhere else in the world of financial accounts. That is why it is so valuable.

Also, the HSA has an added benefit in that when you turn 65, you can treat it like you would a pre-tax IRA and make distributions from it for non-medical purposes without paying a penalty. You will still owe income tax on this amount, but that’s how a pre-tax retirement account works.

Just remember, these high deductible health plans tend to be pretty bare bones in terms of actual health care coverage, so you can expect to pay higher out-of-pocket amounts when utilizing a plan like this.

You also might have access to what are called flex spending accounts, which allow you to contribute a set amount of money each year to cover specific expenses on a tax-free basis. Depending on the type, you might be able to cover healthcare expenses, childcare expenses and all sorts of other things. Make sure to read specifically what purpose your flex spending accounts are for.

Also, an important tip is to make sure to spend all the money in these accounts before the year ends, as they are often what is called a “use-it-or-lose-it” type of account. Some may let you roll over a very small portion from year-to-year, but it's better not to rely on this. Instead, only fund these accounts to the level you know you will have matching expenses for.

When it comes to life and disability insurance, you definitely want to take advantage of what your employer is offering you. The only exception typically occurs when your group disability insurance is not own-occupation, and your employer allows you to opt out of the coverage, so that you can get a larger private policy (that is own-occupation).

Be careful about paying for supplemental insurance coverage. More times than not, this coverage will be more expensive for you over your career than if you were to get a private policy. Again, the exception to this is if you have a pre-existing condition that would preclude you from getting private insurance. In this instance, you will want to try to secure as much group coverage as possible, that doesn’t require medical underwriting.

As far as other insurance offerings go, you probably want to avoid them like the plague. The reason being is that most of these policies don't really offer catastrophic coverage, and if you have a healthy emergency fund, you should be able to self-insure against these types of issues. But be careful, these types of coverages usually sound too good to be true or play on your emotions to get you to secure coverage. Good examples of this are pet insurance or cancer insurance. Obviously, every coverage should be evaluated on a case-by-case basis, but from my experience these coverages are not necessary. All that to say, if your employer is offering to pay for these for you, then you can definitely take advantage of them as there is no downside. Free benefits are always pretty awesome!

Andrew McFadden, CFP, MBA, is the Founder of Panoramic Financial. Follow him on Youtube or Instagram.