You’re probably reading this post out of curiosity and maybe to prove to yourself that the title doesn’t apply to you. It is interesting to think that surgeons who have studied relentlessly for the better part of 15 years could be uneducated regarding finance. As it has been demonstrated to me time and time again as I teach on this topic,1 the painful truth is that most surgeons, although knowing medicine well, are terrible with personal and business finance. Often when I mention concepts such as deferred compensation, public service loan forgiveness, and estate planning, faces turn as blank and empty as their nest egg. However if this also applies to you, you may see that fixing this problem is not as difficult as you may think.
Multiple studies have highlighted the need for financial education,2-4 but very few medical schools or residency programs have addressed this glaring deficiency. Why? Accrediting bodies do not require it, standardized exams such as the USMLE, ABSITE, or board certifications never test on it, and trying to find someone unbiased, yet sufficiently educated to teach business and personal finance is nearly impossible. I think this leaves us vulnerable and unprepared in financial matters starting on day 1. What if the lack of financial education is playing a role in the changing tide of surgeons becoming hospital employees, as trainees do not have the financial savvy required to practice confidently and independently?
While surgeons are high earners, historically we are poor savers and big spenders.5 We have good cash flow from month to month, but often do very little to protect our future. This leaves our profession full of individuals who have worked countless hours in a high stress environment unable to enjoy the fruits of their labor later in life. All too many surgeons have made hundreds of thousands of dollars per year during their careers, yet find themselves with insufficient savings upon reaching retirement.
Now how do we fix it?
- Get to reading! – As surgeons, we dedicate years educating ourselves so we can provide exemplary care for our patients so why do we not educate ourselves on financial principles? Self-education in business and personal finance is much easier than it used to be thanks to well-written blogs and easy to read books. Some of my personal favorite blogs specific to physicians are The White Coat Investor (whitecoatinvestor.com – the best website and book in my opinion), www.physiciansmoneydigest.com, www.physicianonfire.com, and www.futureproofmd.com. Read about topics such as a back door Roth, term insurance policies, real estate investing, and contract negotiation. You will be amazed at how beneficial this information can be.
- Learn the jargon. – While it is often helpful and wise to utilize a financial expert to avoid making mistakes (see #3), all physicians need a basic understanding of finance so you can spot when someone is taking advantage of you. Learn the difference between a 403b, a 457, a 529 and a 401(k).6 What’s the difference between an asset and a liability? What’s your rate of return on your retirement savings, and is that better than the standard index fund of the S&P 500? Financial planners, insurance salesman, and mortgage companies know surgeons are high earners, and unfortunately prey on our lack of knowledge. They sell us investment vehicles and encourage us to take out loans that are loaded with fees, commissions, and high interest rates intended to help them become high earners as well. These fees can literally cost you millions of dollars upon retirement (no exaggeration – I’ve seen the math).7,8 There is no substitute for knowing basic financial terms and principles to know when you need to find another advisor who truly has your best interests at heart.
- Start paying yourself first. – A common mistake made by individuals who end up with insufficient retirement funds towards the end of their career is this: they pay their expenses, with plans to give what is left over towards retirement. The problem arises when there ends up being nothing left over to put into retirement at the end of the month. Instead, set aside money at the beginning of every month for retirement (especially if your employer provides a match). This not only increases your chance of having financial independence later in life, but it also helps get you accustomed to living on less. Living below your means is a discipline that will reap exponential returns for your entire life.
- Analyze your spending. – Sit down and determine how much you spend each month on various items. How many times have we discussed data in the hospital? You may be surprised how much money is spent on clothes, your golf game, or the monthly craft beer tab. Look over your credit card statement. You might be surprised to find automated charges that you forgot you were paying. Maybe even go crazy and create a budget to limit your spending. Personally over the last 3 months we dropped cable and switched to Sling and Netflix, cancelled a fee-heavy whole life insurance policy, and got rid of our twice monthly house cleaners (we now have Power Hour on Saturdays as a family where we clean together) – we now have nearly $400 extra dollars per month of income without having to work a single hour more.
- Use experts. – Too many times we think a few hundred dollars or a 0.5% fee is too much to pay for expert financial advice from a well-trained CPA, financial planner, or attorney. But think about this – we will spend tens of thousands of dollars on cars that immediately depreciate approximately 25% as soon as they are driven off the lot, we tip our waiters 15-20%, and invest in speculative companies because we got a “good tip” from a friend who usually has no knowledge of the stock market. However, it is well known that estate planning, wise use of tax deductions, and a thorough review of your contract can save you hundreds of thousands of dollars and countless headaches later in life. Some physicians don’t have an interest in financial literacy at all. If that’s you, surround yourself with people that will take an interest for you. As a colorectal surgeon, when I have a patient who needs surgery and is a poorly controlled diabetic, I consult experts in diabetes management to lower the chances of postop complications. We should use the same logic to reduce the chance of adverse outcomes in our finances, as well.
- Invest in yourself and those you care for. – Investing in yourself financially is good, but investing in your physical, mental, emotional, and spiritual health is better. The demands of our high intensity jobs can monopolize our time and mental reserve. Instead, carve out time so you can think about what really matters to you, and then re-align your priorities if needed. Spend time with your family, especially your spouse. Divorce is an easy way to lose your home, your savings, and your future income stream. We often think we should work hard now, and take time for others and ourselves later. But when is “later?” It will do no good to sacrifice all your time now to leave yourself (and your retirement account) empty at the end of your career. We tell our patients to care for themselves, and we should heed our own advice. Burnout is real, and it can be prevented.
The main point is to start somewhere by learning and doing something. I’m in the process of completing my first acquisition of a rental property to begin a steam of passive income for my future. Did I know anything about this just a few months ago? No way! Do I know something about it now? You bet (thank you BiggerPockets.com). Was it hard? It was actually quite fun and not nearly as difficult as learning glycolysis – and it will definitely pay off more!
References:
- http://whitecoatinvestor.com/a-business-of-medicine-class-for-ms4s/
- Cantor, Joel C., Laurence C. Baker, and Robert G. Hughes. “Preparedness for practice: young physicians’ views of their professional education.” Jama 270.9 (1993): 1035-1040.
- Lusco VS, Martinez SA, Polk HC Jr. Program directors in surgery agree that residents should be formally trained in business and practice management. Am J Surg 2005; 189:11-3
- Mizell, Jason S., et al. “Money matters: a resident curriculum for financial management.” Journal of Surgical Research 192.2 (2014): 348-355.
- http://www.medscape.com/sites/public/physician-comp/2016
- https://www.learnvest.com/knowledge-center/your-money-bible-25-financial-terms-to-know/3/
- http://www.physicianonfire.com/investment-fees-will-cost-millions/
- http://www.businessinsider.com/amazing-power-of-compound-interest-2014-7
Update from the President