Dealing with Life and Money Changes

Change happens, and, for the most part, we adjust. Some of us fight change for a while but eventually settle into a new routine and new way of being. Others cling to the past hoping that the future will not come. The future though is always around the corner.

Throughout our lives, we experience expected and unexpected changes. Both of these changes affect us emotionally, physically, socially and even financially. For instance, declining reimbursement provokes a distressing feeling, often accompanied by an uncomfortable physical response along with a change in relationships at home or work, and even an adjustment to our finances.

Expected changes

Expected changes include but are not limited to:

• Graduating or completing a postgraduate training program

• Entering the workforce as a practicing physician

• Deciding whether to become employed

• Joining or even starting your own practice

• Deciding when and how to retire from the practice of medicine

Each one of these expected changes is accompanied by an impact on your personal finances for better or worse. Given that you can expect these changes, it is essential that you plan ahead. By planning ahead, you are mastering that which you can control or at least “see coming down the road.” Physicians who embrace this type of forward planning are engaging in what is called financial transition planning.

Unexpected changes

Unexpected changes include, but are not limited, to divorce, disability, downsizing and premature death of a loved one. Most of these changes are unwelcome. Given the fact that these unexpected changes are unwelcome, there is the human tendency to avoid even thinking about them let alone trying to plan for them.

It is highly likely, if you talk with actuaries, that a physician may experience some form of disability, even a short-term disability during his or her working life. As unpleasant as this is to consider, and to plan for, ask yourself: What happens if you are disabled and can no longer work?

Disability coverage for physicians comes at a high cost. You could “self-fund” your own disability coverage. You may decide to become an employed physician in part because of the challenge of obtaining disability insurance coverage on your own. This coverage is typically effective only as long as you are employed by that organization.

If you cannot get a policy on your own, you are not inclined to become employed, and you don’t have sufficient financial reserves to “self-fund” you may want to join an association or medical society to get disability coverage as part of being a member.

Choices free you from feeling trapped

When change strikes, we often feel trapped. Below are five tips to guide you in responding to change in a way that increases your sense of control and maximizes your choices.

1. Evaluate the situation (whether expected or unexpected change) from the perspective of deciding whether a decision or action is required now, soon or later.

2. Assess whether your resources to adjust to the change are greater than the demands placed upon you. If your resources are less than the demands, be cautious of the impact of that stress. If your resources are greater than the demands, be grateful for having the capacity to meet the challenge of this change.

3. Define the financial impact of the change by enlisting the services of a financial planner who will guide you in assessing how the change impacts your cash flow, savings, and investments.

4. Brainstorm options realizing that any decision or action will have an impact, not just financially, but also emotionally, interpersonally and physically.

5. Now with a sense of control, you can make a decision and engage in actions with confidence.

When life changes, money changes. When money changes, life changes.

Money matters

Money makes a difference. Imagine a young resident who jots down on a piece of paper or taps onto a smartphone how much money will be flowing into her bank account after completing her residency in just a couple of weeks.

This financial windfall, even with a pile of student debt, will have an impact on the daily decisions made by this resident. When money changes in our life, new doors open that were previously closed. The possibility of buying a home, a new car or perhaps taking a really nice vacation, are now realities. The wish, for these things, was always there, but the money was short. When wishes are financed, life changes.

These situations are welcome life changes due to a changing financial status. But it is important that you recognize three typical patterns of how physicians deal with financial windfalls.

• Maintain the status quo

• Plan ahead

• Spend as if there is no tomorrow

If you fall under the category of “maintain the status quo,” then you are likely to celebrate the financial windfall but not make any changes in your financial life. In short, you give yourself time to adjust. If, on the other hand, you are a planner, then you walk through the five tips mentioned above to make sure that you can control that which is under your control and adapt to that which you cannot control.

And if you are a spender, with little regard for today’s cash flow and tomorrow’s balance, you may try to not only catch up with the Joneses, but pass the Joneses.

A couple — both physicians — bought a house that they could not afford given other expenses. They felt as if they had to buy this house, in a particular neighborhood, because this is where the other physicians in the group lived. They were so consumed with keeping up with the Joneses that they failed to consider what it’s like to be “housepoor.”

Financial downfall

Money matters not only when there is a financial windfall but also a financial downfall. Typical financial downfalls facing physicians today include the following:

• Losing a contract with a hospital, insurance company or other organization.

• Seeing more patients for the same level of reimbursement or less reimbursement.

• Earning less income because of a shift from fee-for-service (FFS) to pay-for performance (P4P).

• Making unwise investments due to the seducing forces of “fear and greed.”

• Failing to set aside money for retirement early in your career.

When money changes, life changes. Many of these financial downfalls can be anticipated. The key is to overcome overconfidence, to dissolve denial and to face the financial facts even if unpleasant.

Marty Martin is on the faculty at DePaul University and is a financial psychologist at Chicago-based Aequus Wealth Management, a financial planning firm specializing in helping people bounce back and thrive during times of transition. For more than 10 years, he has conducted and applied research in the psychological aspects of money and how to help individuals, couples and entrepreneurs make better financial decisions. To reach Dr. Martin, email him at marty@aequuswealth.com.