For some physicians, financial planning isn’t their strong suit. After all, you can’t be great at everything, right? After decades of being in school, new doctors can get so worked up about establishing their new career that strategic planning for their future can get kicked to the curb. What many don’t know is that avoiding a few common pitfalls and purchasing the right insurance policies can protect their ability to earn a living and save for retirement. Take a look at the biggest financial mistakes doctors make, and how to avoid them.
Low Savings Rate
A new doctor finally receives his/her first paycheck as a professional. It’s time to celebrate with meals out, a fancy house, or a new car. It can be easy for new doctors to live beyond their means when they finally receive their license to practice. What many don’t realize, however, is that doctors on average have about 30 years to save for retirement, while individuals in other occupations have closer to 40 years. That means that new doctors need to save even more for retirement, usually 20 – 25% of their yearly income compared to about 15% for the average working professional. This doesn’t even include saving for a new house, car payments, or their child’s education. Doctors can avoid financial mistakes early on by saving more every year.
Carrying around years of student debt doesn’t make life after graduation a walk in the park. A sizable chunk of a new doctor’s paycheck probably needs to go toward paying down student debt. According to Medscape, 64% of residents in their fifth year still have between $50,000 and $200,000 in student debt. New doctors need to protect their financial futures by paying off their loan’s principal- not only interest. Enormous student debt will impede a doctor’s ability to invest in real estate, set up his or her private practice, or save for retirement. New doctors need to manage their student debt properly and pay it off as soon as possible.
One of the biggest financial mistakes doctors make is not getting malpractice insurance. The slightest mishap can lead to a multimillion-dollar lawsuit that will effectively ruin a new doctor’s financial future. As soon as new doctors start practicing medicine, they need to protect themselves with malpractice insurance. It’s not worth the risk to go bare.
In addition to malpractice insurance, new doctors need to protect their ability to earn a living. Disability insurance is designed to protect a doctor’s income if he/she becomes injured or disabled and, as a result, is unable to practice medicine. Physicians and doctors stand to lose their yearly incomes, anywhere from $250,00 on up, in the event of an illness or accident. If they suffer injuries that keep them out of the operating room for more than one year, they could easily face millions of dollars in losses. Doctors should also ask about partial disability riders, insuring their current yearly income if, due to illness or injury, they are limited to part-time duties. Get a physician disability insurance quote now.
Just as with car insurance and homeowners insurance, it’s important for individuals to take precautions to protect their assets before it is too late. For many doctors, their ability to earn an income is, in fact, their greatest asset, so it’s important to protect it.