Financial questions every young physician should answer

Doctors are used to answering the questions, and some very important ones at that: What’s wrong with me? What are my options? Will I be ok?

Being married to a physician, I also know that being on the receiving end of questions every day means doctors are accustomed to being experts. And for good reason, as you have studied and trained for years to reach this point.

However, it is important that this role as an expert in your field does not prevent you from approaching other important areas of your life with a beginner’s mindset. Financial planning is one where you can benefit from asking a lot of questions, leaning on experts and continuously learning.

I regularly meet with medical students and residents at the early stage of their careers, and most realize they are in a unique financial position that presents its own set of challenges.

These early meetings usually involve variations of three main questions:

1. What is the best and fastest way to pay off my student debt?

Student debt is top of mind for many early-career professionals – especially those in medicine. According to the Association of American Medical Colleges (AAMC), the median medical school debt for the class of 2021 was an eye-popping $200,000. That doesn’t even take into account debt from undergraduate studies.

Residents approach their financial lives well-aware of these figures and the need to pay down their education debt, so it certainly makes sense to be asking about the smartest ways to do so. Debt can be a drag on other elements of a holistic financial plan, so the urge to pay down debt is wise, but debt should not always be seen as a bad thing.

For example, I encourage residents to reframe student loans not just as debt but also as an investment in themselves – their medical education increases their earning potential over the long term in a way other debt (like credit cards) certainly does not.

Having this debt therefore is not purely negative, and it can become less of an emotional burden for young medical professionals when they see it in a long-term context.

2. With so much debt, and only a modest income at the outset, how do I live within a budget?

According to Glassdoor, the average medical resident makes $62,849 - a relatively modest starting salary given their level of study, training, and (don’t forget) the upfront investment in their education.

A healthy budget takes into account past, present and future. If you are only budgeting to pay for your immediate needs, your overall financial health long term is being neglected. Working with a financial advisor to get a budget in place can help you prioritize financial goals based on current and future income, alongside managing debt repayments and the cost of living today.

3. I know I need disability insurance, where should I get it?

Disability insurance is an important consideration. With large student loan balances, lots of time spent on education, and high earning potential over the long run, losing the ability to earn an income hits medical professionals particularly hard. So, residents are right to keep this question top of mind in those early conversations about financial security.

Most of my clients in medicine have some group disability insurance through their employer. But when we break it down, that policy alone is rarely enough to support themselves and their family, should the worst happen. Looking at additional disability income insurance, or at least doing the math on what is offered through your employer, is a good place to start thinking about what you need.

The next questions to ask

These questions are excellent starting points, but there are some others I like to encourage medical professionals to consider as their careers and financial situations evolve over time:

1. How do I adapt my budget to avoid lifestyle creep?

As a resident you hopefully build some good money habits, including living on a budget, and it is wise to carry these prudent financial practices into your years as an attending.

Many doctors fall victim to “lifestyle creep”. As their income and wealth build over time, and especially once student loans are paid off, the newfound financial flexibility can lead them to abandon the responsible saving and spending habits they’d developed as residents.

I recommend you save first, then spend. When someone starts making an attending salary with this system already in place, they have a percentage of their income automatically directed into savings before it even hits their checking account. This helps hold them accountable to saving and to living on a smaller income from day one.

2. How do I build wealth and then unwind it to fund my retirement?

An early-career focus on paying down debt is typical, but a long-term, holistic financial plan looks at directing earnings into multiple places to also help build financial security.

Retirement may be decades away, but planning for it should start right away, hand-in-hand with paying down student debt. I see too many young medical professionals who have a narrow focus on only paying down debt before they consider any other financial priorities. Its critical to make early investments in the future as it allows you to leverage time and compound interest to build wealth.

Its also never too early to be dreaming about what your ideal retirement will look like and taking the small consistent steps today that will fund it. And as retirement gets closer, it is important to then have a plan for how to tap your nest egg to support your desired retirement lifestyle.

3. Why am I trying to do this on my own?

You don’t go to a dermatologist for a heart murmur or call a podiatrist to deliver a baby. In just the same way, physicians need to tap the right experts to help them manage their financial lives. While you are expert in you field or specialty, you might not be the expert in this case. You don’t need to be.

Instead, think about creating a “care team” for your finances. Start with a trusted financial advisor who can help you navigate your financial life, from student debt to retirement and everything in between.

In a profession where you’re always looking out for others, make sure you don’t forget about your own wellbeing – physical and financial. Start by asking more questions, at every stage of your financial journey.

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities, and life insurance with long-term care benefits) and its subsidiaries. Sarah Ann Foehrenbacher is an Insurance Agent of NM. Not for use in New Mexico.