Top 4 Money Mistakes Doctors Make
Yes, this sounds very ominous. However, there is a reason why I wanted to alert you to the fear of mismanaging your finances. Doctors live in the limelight and are highly trackable on the internet. Also, physicians earn large amounts of money, which can sometimes be overwhelming with a false sense of never running out of it. Therefore, I want to review the top four mistakes doctors make with their money.
Mismanaging Finances
Pay off Debt. Failing to pay off student loans, automobile loans, and credit card debt can saddle you years of costly interest. College and medical school were pricey, and now you are making a significant income that can service the debt. Start paying these loans off with surplus monthly cash flow. Also, understand your options for refinancing and student loan forgiveness. It is vital to get organized since you cannot hit the target you cannot see. Implement a debt paydown strategy by listing all debts by balance, payment, interest rate, and provider. Then, budget how much you can add to one loan and start paying it off orderly.
Giving Money to Friends and Family. I always tell doctors that they will be targeted for money once they start their full-time job. Stockbrokers, insurance agents, and business ventures will be hounding you the rest of your life to invest in a new business or product. Also, friends and family will think you are their lifeline to help in financially strapped situations. These examples are a recipe for disaster. Do not loan to friends or family. If you feel moved, give them the money with no strings attached. Do not start lending money to friends and family. Moreover, do not invest in business ventures that sound too good. There are more pressing needs for your money.
Overspending. Now that you have your first job as a doctor and see how much you will make, the urge to spend money can be overwhelming. Establishing a budget and sticking to it is key to not spending more than you make. It will also help you determine how much you can invest and pay off debt. Set up direct deposit into your savings account and 401(k) plans. Doctors are no different from high-earning occupations that can live paycheck to paycheck.
Neglecting Savings
Overlooking savings is often part of poor money management. Spending too much and not allocating income towards retirement or emergency savings can be catastrophic. Not doing so poses a considerable risk to your short-term and long-term goals.
Establish an Emergency Fund with 3-6 months of expenses. Your emergency fund should be in a savings account not for investing but for life’s emergencies. Aim for six months, as this will enable you to self-insure.
Invest 10-20% of your Paycheck into Retirement Savings. You cannot borrow for retirement! Set up an automatic draft to flow money from your paycheck or checking account into retirement accounts.
Other Savings Goals. Set up savings accounts for these goals, whether a vacation, wedding, or new car. Start paying into them so you can pay cash when the event arrives. Not using debt to finance your lifestyle will keep more of your hard-earned money in your pocket.

Insufficient Insurance Coverage
Insurance is the best way to protect yourself from major financial disasters. The purpose is to secure your wealth. Since you earn a substantial salary, your insurance needs are more important.
Life Insurance. Life insurance aims to pay for future income and expenses if you pass away. The amount of insurance will depend on your needs and what you want the money to cover. Some of these include the income for a spouse, mortgage paid off, children’s college paid for, and potential future weddings. Also, as your assets increase, your insurance should decrease. Term life insurance is the best product for a doctor. $1-3 million over 20-40 years should suffice.
Disability Insurance. You are 3.5 times more likely to be disabled than to die. Also, 25% of American workers will have a long-term disability before retiring. Getting the right disability policy is crucial for a physician. There are many kinds of disability policies, but the essential riders are own occupation and non-cancellable and renewable. These two features ensure your get paid if you cannot perform your profession’s job duties, and the policy renews each year at the same price.
Umbrella Insurance. A doctor must have an umbrella policy for liability claims on your home and automobile. Being a physician requires you to be highly visible. People can google you in an instant and realize you are a physician. A $1-2 million policy is cheap and worth insurance if you get sued. Remember, the goal of insurance is to protect your assets!

Poor Investing Standards
Do you know what investments you own? Do you know why you invest in the assets you own? If you cannot answer these questions, you should research the answers. Many doctors are subject to the investment options their employer’s retirement plan chooses. Also, many of those investments have hefty expense fees you are paying each year. Research the expense ratio for each investment and determine if that is worth paying. Usually, expense fees over 0.5% are costly. There are always substitute investments that own the same companies but for a lower cost.
Do not invest in things you do not understand. If you question how to make money in Bitcoin but do not understand how it works, do not invest in it. There will be plenty of salesmen knocking at your door asking you to invest in their new business. You need to ask yourself, why are they coming to me? Why aren’t banks or lending institutions giving them credit for their business? They are likely not safe businesses to invest in.
It is easy for physicians to fall into these financial mistakes or bad habits. With some planning, you can avoid these hazards and be on your way to financial wellness.
About The Author
Jordan Benold, CFP® provides fee-only financial planning and investment management services in Frisco, TX. Benold Financial Planning serves clients as a fiduciary and never earns a commission or sells a product. Jordan has over three years of experience as a financial advisor in Frisco.