While all physicians face the same financial challenges early on in their careers, each one begins to make decisions about their financial future that will set them on an individual course largely determined by the consequences of their actions – or inaction. Challenges not met early on with deliberate steps to overcome them can eventually become obstacles to financial success which can grow increasingly insurmountable in a shrinking time horizon. Perhaps the biggest difference between financially successful physicians and those who struggle is the realization that there is not a minute to waste in setting the right course. For younger physicians, the best course is the one followed by physicians who have achieved financial success.
Financial success begins with having the right mind-set and understanding that, if it is to be, it is up to me. Our lives are nothing more than a composite of the actions we take, or don’t take today, tomorrow and in the years to come. Financial achievers understand that inaction is the biggest enemy of wealth.
With shorter time horizons for accumulating wealth, physicians need to grasp two critical concepts very quickly – compounding interest and the time value of money. Most people have heard of the “magic” of compounding interest, but there is no magic without time. When the compounding effect of interest is combined with time, the growth of you money at work turns exponential. Consider the case of two young physicians:
Setting clearly defined retirement goals early on, with a specific target date and a vision of your desired life style in retirement, becomes the motivating factor for establishing and committing to a systematic accumulation plan. The mistake many physicians make is to assume that they can wait until their prime earning years and then make maximum contributions to their retirement plan and acquire additional non-qualified investments. First, it’s far more costly to wait (see #2 above). Secondly, practitioners in their prime earning years are also in their prime life-style years making it more difficult to reduce their consumption in order to increase their savings.
It often takes some expensive trial and error for physicians to realize that not having an investment strategy based on sound principles and practices to guide their investment decisions is fraught with costly mistakes. Studies clearly show that investors, who adhere to a plan with clearly defined objectives and a properly diversified portfolio, will outperform those who don’t. A well-conceived investment strategy is what keeps investors from falling into investment traps, such as chasing returns or trying to time the markets.
When it comes to understanding the level of complexity in their own financial situation, much less the complexity of developing a financial plan to address all of their needs, physicians are particularly disadvantaged. The body of knowledge required to develop and implement a fully integrated, comprehensive financial plan involving multiple planning disciplines is beyond the scope of anyone, especially those who need to spend as much time as physicians mastering their professions. Financially successful physicians acknowledge this, which is why they align themselves with an independent financial advisor experienced in working with the medical community.