By Sam Rouman
Physicians have committed a significant amount of their life to their work. They spend years educating themselves, tens of thousands of dollars in tuition and related expenses, and have extended the beginning of their adult life often well into their 30s. This sacrifice has also likely impacted their spouse, children and even parents. The commitment made to the practice of medicine is a tremendous benefit to society and should not be underestimated.
I have a friend who is a physician, and when we were young and in college together, I asked him why he wanted to be a doctor. I assumed he would say something about wanting to make a lot of money. He did admit that he was hoping he would make a very good income, but he said, and we were 18 years old at the time, that you do not go into medicine to make money. You go into medicine to make an impact, a difference in the lives of people. If you want to make a lot money there are many other ways to do this. This conversation continues to stick with me today.
Physicians are some of the hardest working people, but they do not necessarily start making a Net Positive Income (NPI) until many years after their educational cohort. NPI is the sum of one’s net income minus expenses, debt payments, student loans, etc. For a doctor who had to take out student loans to pay for their undergraduate education, and then possibly a master’s degree, and medical school, they face a debt burden of several hundred thousand dollars the day they start practicing medicine. Their NPI will be negative to flat for several years, potentially. This does not even begin to address saving for retirement, college expenses for children, etc.
When one considers the income and circumstances of a physician and compares this to other high-income professions such as finance, technology, or engineering, the sacrifice is substantial. Many physicians by the time they begin their practice have also married and are buying a home and taking on even more debt. Yes, income is rising, but NPI is still likely negative for several years, and now they are in their mid-30’s, raising children and contemplating college costs for their children while still paying off their own student loans.
Many physicians, especially specialists, and sub-specialty physicians, will make substantial income, but more often than not they did not start earning significant income until many years later, whereas other high-earning professions began earning high incomes and did not have the same level of debt to service, beginning wealth accumulation much earlier.
These circumstances delay the financial planning cycle, which includes important topics such as retirement, taxes, investing and estate planning. Because a physician’s income cycle is delayed, they begin their planning later. For other professions the planning cycle begins much earlier, allowing for changes in life circumstances to play out and to also adjust to situations that arise. Physicians have a shorter planning cycle due to the delay in beginning.
The delayed gratification of net earnings requires a different approach to finances due to compressed timelines. Financial planners that are aware of the challenges faced by physicians can be invaluable, which are also common to other medical professionals including dentists, surgeons, orthopedics and veterinarians.
Sam Rouman, AIF®,CFP®, CLU, CHFC is the chief planning officer and a wealth advisor at BerganKDV Wealth Management, a financial advisory firm and a subscriber to MyPerfectFinancialAdvisor