Expect the unexpected: Why young physicians need a financial plan

Last week a young physician walked into my office and laid out his current financial situation – not unlike many other physicians whom I have met before. His primary questions for coming into my office are: should I pay down my debt or invest?Or do both?And if I invest, should I hire a professional or do it myself?

This young doctor had a very familiar financial profile. He:

• Was finishing up training and starting in a new practice,
• Had just signed a contract lucrative at the onset but heavily weighted on performance and production,
• Had student loans north of $200,000
• Held a small disability policy, and
• Didn’t have a spouse or kids yet.

His expenses were still relatively low because he’d been accustomed to living like a resident for several years and hadn’t yet tasted some of the finer things a new income can provide.

After considering his financial situation, I determined that he had a large excess cash flow to work with. I asked him to consider the following:

1. Should you pay down debt, invest, or both?
2. And if you invest, should you hire a professional or do it yourself?

This young doctor came in for a prescription, but what he really needed was a consultation and a plan. Why? Because although much of his situation was similar to that of other young physicians, this particular doctor had a unique set of aspirations, goals, and perhaps even some concerns. And like anyone, this doctor came to the table with pre-conceived notions on money both learned and inherited from family and derived from experience.

Invest, pay down debt, or both?

I could build a case for all three, but a better question to ask is: “What is the five-year plan?” This could include buying an apartment or a house, buying a new car, relocating, changing jobs, raising a family, starting your own practice, or being one step closer to retirement.

If you build your five-year plan, the answers to all your questions will fall into place. If you take time to plan for the unexpected, you’ll ensure nothing stands in the way of where you are going. If you understand your employment contract, benefits, limitations, and uncertainties, you’ll be closer to reaching your financial goals. If you’re conservative and realistic when considering your future income – like avoiding inserting a rosy scenario into your plan if that’s not practical – you’ll be able to set and reach certain expectations. Also, consider this: how do you think the changes in medicine will affect this outlook based on the specialty you are in?

You’ve probably heard that you should protect yourself from becoming disabled or sick and losing your ability to work, also known as disability insurance. There is a lot to know about the subject and the product itself, as it is somewhat complex. To answer any questions you may have, you can find a complete guide on disability insurance here.

Before I leave you with all of this food for thought, here’s some general advice on the topic of refinancing or paying down loans. It is highly advisable to understand the benefit you have under a federal program before refinancing to a private loan that may appear more attractive at first glance. Consider protecting a co-signer of a private loan or someone that may inherit your debt with life insurance. You also may need to accumulate more debt to accomplish the goals set in your five-year plan. Investing early illustrates the powerful principle of “compounding interest.” Wealthy people understand this principle as well as the power of leverage and use both to their advantage. Debt does not have to be considered bad if it’s used properly. Lastly all of the points I have made can be followed by doctors of any experience and age. They can help keep you on track.

Vincent Cucuzza, CFP is a registered representative of and offer securities, investment advisory services through MML Investors Services, LLC. Member SIPC. www.SIPC.org 6 Corporate Drive, Shelton, CT 06484, Tel: 203-513-6000. Vincent can be reached at vcucuzza@barnumfg.com or 914-372-2963.