30
Jan

5 Tips for Avoiding Financial Catastrophe

Advice for Doctors on Disability Insurance
By Charles Matt, CFS

As a financial adviser, I have found that just because someone has a high standard of living and is highly educated—as is true of most of my physician clients—does not necessarily mean that he or she is in sound shape financially.

This disconnect is true especially for doctors, who face a unique set of financial challenges. Often they must go through lean financial years while in school, and most incur large student loans before they start earning a substantial income. Under those circumstances, the temptation to start living beyond your means can be overwhelming.

Fortunately, it doesn’t have to be that way. By using the discipline that got you through medical school, you can secure your financial situation and protect your family and your future. Here are five tips to help you avoid a financial train wreck.

1 Resist the temptation to splurge.

1 After the lean years of medical school, who wouldn’t want the finer things in life? This happened to one of my clients—big house, beautiful furniture, nice cars. But before he knew it, his spending was spiraling out of control and he was facing mounting debt. Paradoxically, the more my client earned, the worse his financial situation became.

On the other hand, I have a couple as clients who earn a combined $100,000, roughly 1/6th of my doctor clients. They have no debt, take a European vacation every year, and are on target with their retirement. The lesson: How much you earn is not the key to financial success. Spending less than you earn is.

2 Beware the “can’t miss” investment.

Another reason for the state of the first client’s finances was that other doctor friends convinced him to invest $75,000 in a “can’t lose” medical equipment start-up company. The investment returned a few thousand dollars before encountering legal problems and going into litigation.

Get-rich-quick schemes are surprisingly common in the medical profession, particularly when the investment is related to the medical field. Unfortunately, many investments that promise to pay big and fast, fail. So treat them with great skepticism.

3  Don’t put off retirement planning.

In this client’s case, he married, bought a big house and cars, and didn’t start saving for retirement. He thought he’d pay off his student loans and enjoy life a bit before saving for retirement. But he could never seem to find a good time to start saving.

Instead, it’s better to do both from the start. Pay down your debt aggressively and save between 5% and 10% of your income for retirement from the beginning.

4 Make sure you’re covered.

Chances are that you acquired disability income insurance while in training. But have you taken a look at your policy lately? It may no longer support the level of income to which you and your family are now accustomed. Without the right amount in disability insurance, the trauma of injury or illness can be doubled by dramatic loss of income. Regular reviews of your disability income insurance are critical to protecting your lifestyle.

5 Plan for the worst.

None of us want to think about it, but we should: We could die prematurely. Dying early is not only emotionally traumatic for the survivors, it can be financially traumatic. Without life insurance, should you suffer premature death, debts can be left unpaid, and your survivors could experience a significant loss in income.

Even if you don’t yet have dependents, it’s a good idea to purchase life insurance while you are young and healthy. Waiting could make you uninsurable due to ill health, or you may have to pay more.

With the help of a financial adviser, develop a budget in which you spend less than you earn, and invest the remainder.   Have written investment goals in place so you are not tempted to stray off course when markets rise and fall. Review your investments’ performance with your adviser at least annually, and refine as necessary. These steps will help bring you closer to financial security.