Financial Tips for Transitioning From Doctors Residency to the Workforce
Check out these essential tips to ensure a smooth financial journey as you embark on your new career.
What Happens After Residency for Doctors?
After you’ve completed your residency, there are many career paths you can choose from, such as becoming a board-certified attending physician, applying for a medical fellowship in a sub-specialty, going into the public sector working at a hospital, or getting a job with a private practice. No matter which path you choose, it’s essential to set yourself up for long-term success by planning your financial future as a physician.
Financial Planning Tips for Transitioning From Physician Residency to the Workforce
By utilizing these tips early in your career, you can plan for a financially stable life as a practicing physician:
Plan Your Financial Journey
Creating your financial plan starts with envisioning your ideal life. Fast forward one, five, and 20+ years from now, and ask yourself:
- What will your life look like?
- Are you financially independent or still needing to work?
- What does financial independence mean to you?
- What about money is most important to you and why?
- Are you willing to make sacrifices today for a secure financial future?
Once you have a clear vision, map out the steps needed to reach your financial goals. Take a look at your current spending habits and adjust your lifestyle for future financial security.
With these tips, you can find a good CPA for your medical practice that can help improve your tax situation.
Control Your Cash Flow
Next, take control of your finances by focusing on your cash flow by considering the following:
- Review your financial planning goals. Whether it’s buying a home, traveling the world, or retiring early, knowing your goals will help you stay focused.
- Determine how much money you need to achieve your goals to give you a clear idea of what you’re working toward.
- Take a deep dive into your expenses and find areas where you can cut back or optimize. By giving every dollar a purpose, you’ll ensure that your money is working for you.
- Document your total cash balances at the end of each month and evaluate if your expenses align with your targets.
- Review your plan regularly and make adjustments as needed.
Build Cash Reserves
Having cash reserves is essential for reducing financial stress and providing security in uncertain times. To start building your cash reserves, set your priorities for holding cash by dividing them into three buckets:
- Normal Lifestyle Spending: Set a target balance for your joint checking account that allows for flexibility and eliminates the need for random transfers.
- Unexpected Emergency Spending: Establish a separate account with enough cash to cover four months of expenses. This ensures you can operate for up to five months without income.
- Expected Major Purchases: Create another savings account, separate from emergency savings, for non-emergency big spending. Fill this bucket only when #1 and #2 are full, and prioritize major purchases based on your available funds.
Address Life’s Risks
Life can bring us unexpected challenges, especially when it comes to finances. As a young physician, the biggest risk you face is losing the ability to earn income due to disability or death. However, physcian’s insurance can help you offset this risk and protect your family’s financial future.
But that’s not all. There are other risks to consider too, like lawsuits, job loss, or even losing your home to fire. Good planning involves taking all these risks into account and having a plan for each one. Let’s take disability insurance as an example. If you become disabled, you can rely on emergency cash reserves initially. But what if the disability lasts longer? That’s where long-term care insurance comes in, providing 80% income replacement after six months. As you become financially independent, you can gradually take on more risks and reduce your reliance on insurance. Remember, life is constantly changing, and so should your risk management plan. Revisit it every year or two to ensure it aligns with your evolving circumstances.
Unlike traditional advisors, quality advisors aren’t in it for the sales pitch. Instead, they help teach you how to create a financial map tailored to your goals and keep you on course. Think of them as your personal mentor, always putting your best interests first. They won’t push you to buy a specific financial product just to earn a commission. With their vast knowledge and experience, quality advisors provide invaluable insights to help you make informed decisions.
Build In Margin
If you’re feeling overwhelmed by your finances, even though you think you’re making smart decisions and saving money, the issue might be that you’re not allowing for any margin of error. Not having any wiggle room can lead to credit card debt, early withdrawals from investments, and other financial issues. You can solve this issue by incorporating some margin of error into your financial plans. When estimating expenses, taxes, or retirement savings, be conservative and add in some extra cushion. Don’t assume everything will be perfect and linear—set yourself up to succeed in an imperfect life.
Including margin helps you avoid financial stress and makes your goals more achievable. When you reach your goals, you’ll gain motivation and momentum for the future. And while margin is important at all stages of life, it’s especially essential when you’re starting out and figuring things out as a physician.
If you’re just starting out in your career as a physician, it’s important to financially prepare for your future. Physician’s Resource Services has been providing healthcare organizations with high-quality financial planning consulting services since 2007. By working with our experienced consultants, you can save time and focus on what you do best—providing exceptional care to patients. Contact us today to learn more about our financial planning services.
This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.
Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.
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