Resident to Millionaire: How Physicians Can Efficiently Build Wealth After Training

Look, I get it. This is another clickbait article that tells you something you already know about physician finance. Hear me out… Though you may be aware of most of the following concepts, they clearly are not commonly practiced by most of our peers. Don’t let the abundance of Teslas and waterfront homes fool you; many healthcare professionals still create unnecessary financial pressures for themselves. Don’t believe me? Check out the most recent Medscape Physician Wealth & Debt Report 2022.

High-interest credit card debt, massive student loan debt, lifestyle creep… it all plagues our profession. With our post Resident to Millionaire: How Physicians Can Efficiently Build Wealth After Training we take a closer look at how to set yourself up for success shortly after completing training.

Overwhelmingly, the healthcare system continues to create professionals who are not armed with the financial knowledge necessary to navigate the road toward financial prosperity safely and efficiently. Fortunately, physicians can build wealth relatively quickly with the right strategies and mindset. From resident to millionaire status, here is how physicians can efficiently build wealth after completing training.  

Start with a solid financial foundation

Step one to efficiently build wealth after training is to start with a solid financial foundation. You would never begin to build a home on unstable ground, would you? Strong financial foundations are made by creating a budget, reducing debt, building an emergency fund, and planning retirement. It seems pretty simple on paper, but it takes work.

Build a budget

A budget is essential to understanding where your money is going and identifying areas where you need to cut back. It is crucial to prioritize your expenses and ensure you live within the confines of your (after-tax) income. Review your bank and credit card statements for the past few months, and get an idea of where your money is going. Create a budget that recognizes both your fixed and variable expenses. Make it the most honest and comprehensive budget you can. After implementation, regularly review your budget to determine where you excel and where you can improve.  

Eliminate your debt

Reducing debt is another crucial step to building a solid financial foundation. High-interest debt, such as credit card debt, should be paid off quickly to avoid accumulating interest. Also, make sure you formalize a student loan repayment plan. Pick a plan and execute it, be it the pursuit of Public Student Loan Forgiveness (PSLF) or refinancing to a private lender. The sooner you shed the weight of debt, the better. 

Guard against financial disaster

Building an emergency fund is also important to guard against unexpected expenses, such as medical emergencies or job loss. A good rule of thumb I commonly recommend is having at least three to six months’ worth of expenses saved in a liquid bank account that acts as your emergency fund. Secondly, make sure you have appropriate disability insurance and life insurance. I advocate for term-life insurance as the concept of whole-life insurance inherently causes conflicts of interest. Please keep it simple.  

Retirement planning

Finally, planning for retirement early in your career is also critical. The earlier you start, the more time your investments have to compound and grow. Remove the ‘human’ element from the equation and make your retirement contributions automatic. This money should be taken out of your paycheck before landing in your bank account. If you never have the opportunity to see or spend it, then hopefully you won’t miss it.  If you want to learn more, check out How Much Do Doctors Need to Retire!

Maximize your income potential

As a physician, you have the potential to earn a high income, but it is vital to make sure you are being paid what you are worth. Negotiating your contract and salary can significantly affect your income potential. You can also consider additional income streams, such as locum tenens, telemedicine, and moonlighting (if allowed contractually). These opportunities can supplement your income, but weighing the pros and cons remains essential and ensuring they do not negatively impact your primary job.  

Invest early and consistently

Investing early and consistently is one of the most powerful wealth-building strategies. I alluded to this previously, but starting a retirement account as soon as possible and always contributing can make a significant difference in your long-term financial success. Remember, the dollars you invest today will have significantly more time to work for you than the dollars you invest at any point in the future.  

Utilize tax-saving strategies

Tax-saving strategies can also help you build wealth as a physician. Retirement accounts such as 401(k)s, and IRAs offer tax advantages and can reduce taxable income. Also, other tax-advantaged investments are available such as real estate and Opportunity Zones. It is important to consult with a financial advisor or tax professional to determine which tax-saving strategies are best for your situation.  

Live below your means and save aggressively

Living below your means and aggressively saving is another critical strategy for becoming an early career millionaire. Avoiding lifestyle inflation (lifestyle creep) and keeping expenses low can free up more money for savings and investments. Additionally, automating your savings and dollar-cost averaging can make saving consistently easier and reaching your financial goals faster. Your financial goals will broadly define your savings rate. However, it has always seemed like sound advice to recommend a 20% savings rate. This means that you save 20% of your income. This number includes what you contribute to your retirement accounts and your investments (to name a few).  

Take home points

The above strategies will equip you with the tools needed to strengthen your financial foundation. Then, with time and consistency, you can quickly build toward a brighter financial future. If you want more physician finance information like this, check out the rest our blog has to offer!  We would love to have you join our rapidly growing community. As always…

Stay motivated!

The Motivated M.D.

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