With Financial Planning, First Do No Harm

As physicians we are fiduciaries to our patients -- we put the patient’s interests first before our own.

Part of that fiduciary duty involves determining the risk-benefit ratio of any treatment, whether it’s prescribing a drug or performing a procedure. We generally won’t use a particular treatment if the risks involved are far higher than the potential benefits.

A great example of this is the use of thrombolytics in acute ischemic stroke. Giving thrombolytics to patients more than a few hours after the onset of stroke symptoms tends to tilt the risk-benefit equation more toward risk (higher rates of hemorrhage), so we generally avoid it altogether. It’s debatable whether we should use them at all.

This is the same approach you should use in your comprehensive financial plan.

While most physicians think of financial planning as investing, the reality is that investing is only one component of a comprehensive financial plan. In fact, it’s low on the list of priorities and should not be addressed at all until you’ve protected what you already have.

Your financial plan should address three broad areas of your financial life: wealth protection, wealth enhancement, and wealth transfer.

After determining your financial goals, wealth protection comes first and it involves two parts: protecting your assets, and buying appropriate insurance to transfer potentially catastrophic risks.

Proper wealth protection involves addressing and answering all of the following questions:

1. Do I have enough liquidity (cash) to meet potentially unexpected cash requirements?

2. What activities in my personal and professional lives expose me to risk?

3. What risks can I eliminate altogether?

4. What types and amount of risk am I willing to accept?

5. What types and amount of risks am I not willing to accept?

6. What types and amount of risks must I accept but which I can tranfer to someone else?

7. What will happen to myself, my family, and my retirement if I become disabled?

8. How much disability insurance do I need and what type of policy is appropriate for me?

9. What will happen to my family if I die suddenly?

10. How much life insurance do I need and what type of policy do I need?

11. Will my family be able to take care of me if I require long term medical care?

12. Do I need long term care insurance and if so what type of policy do I need?

13. How much dwelling coverage do I need in my homeowners policy?

14. Do I have adequate personal liability protection from my homeowners and auto insurance policies?

15. Do I need umbrella insurance and if so how much and what type of policy?

16. Am I adequately shielded from potential creditors?

17. What types of investment accounts and trusts can provide asset protection?

While this is only a partial list, you’ve got to have appropriate wealth-protection techniques in place first before thinking about enhancing your wealth.

Your financial prescription: Protect yourself first before doing anything else.