How Doctors Can Set Realistic Financial Goals
Welcome back. I feel like we are really hitting our stride now. This publication marks the third contribution to our content series titled Doctor Money: A Personal Finance Guide for Physicians. Each week, we publish a new post that (essentially) acts as a de facto chapter. This week, I submit to you Chapter 2: Setting Realistic Goals; however, I have formally named the blog post How Doctors Can Set Realistic Financial Goals.
Before truly deep-diving into the nuances of physician finances and its other aspects, we must grasp ‘the big picture.’ If you march blindly into personal finance without understanding your motivations and future goals, you are unlikely to find true happiness when you come out the other side. There needs to be a sense of purpose driving your monetary decisions. True, much of that purpose will be practicality and sound financial planning. Sometimes, that is enough, but it will not always be enough.
As you grow your wealth, you will transition away from a scarcity mentality and (hopefully) enter a phase of abundance and generosity. When this transition happens, if you predicate your wealth on larger goals and legacies, you will have real opportunities to find fulfillment and impact the lives of those around you.
Table of Contents
Doctor Money: A Personal Finance Guide for Physicians
Chapter 2: Set Realistic Goals
There is a reason I titled this article How Doctors Can Set Realistic Financial Goals. It is important to remain grounded when creating your financial goals. It is important because it will help you create achievable goals, and further, it will help you better create non-financial goals. With that, let me provide you with (what I believe to be) a framework we will use to create realistic goals.
You Will Not Be Poor
The first important understanding we need to address as we build a foundation for goal creation and expectation is that, as a physician, you will not be poor. Sure, we all hear horror stories of catastrophic malpractice, disability, civil lawsuits, and divorce that lead to devastating financial consequences. Fortunately, these scenarios are rare occurrences. These risks exist, and I do not wish to underplay their impact, but statistically, most physicians, though they may encounter financial setbacks, will not experience financial ruin.
More than likely, you will practice medicine for twenty to thirty years (or more if you wish). During that time, you will make a healthy six-figure salary. According to the 2023 Medscape Physician Compensation Report, the average primary care physician will make $265,000, while the average specialist will make $368,000. This leaves overall physician compensation around $352,000 in 2023.
The median U.S. household income is $74,580, according to the most recent U.S. Census Bureau data, which means that the average physician will make approximately 4.7 times that annually. Using overly simplistic math, over a 25-year career, the ‘average physician’ will likely make 8.8 million dollars (before taxes). That does not include any income your significant other generates or interest on investments!
You will not be poor.
You Will Not Be Filthy Rich
The second important understanding that needs to be addressed is that you will also (likely) not be filthy rich either. True, my comments in the prior section might have you rolling your eyes, but hear me out. Though I offer a more comprehensive explanation for this in last week’s post, Why Doctors Struggle With Money, I will do my best to paraphrase it all here.
Though the average physician will generate millions throughout a twenty- or thirty-year career, you will also suffer some of the highest effective tax brackets, you will statistically carry equally colossal educational debt, you will suffer a lack of basic personal finance education, and you will receive immense pressure both internally and externally to inflate your lifestyle rapidly upon completion of your formalized medical training. Therefore, your ability to turn those millions into tens or hundreds of millions will be drastically hindered by obstacles you will face along your financial journey.
There are exceptions to this rule. These include physicians who own successful businesses, carry profitable patents, or receive large inheritances. However, the majority of physicians will not be filthy rich. I apologize if I burst your bubble.
However, now that we have painted our expectations with a dose of realism, here is the good news: Baring the unexpected and the occasional recession, your finances will afford you an incredible life. Statistically, it will afford you a lifestyle better than 95% of Americans, according to data from the Economic Policy Institute published on Investopedia. Financially speaking, that places you in the top 1% of lifestyles in the world.
No, you will not be filthy rich, but please maintain a sense of perspective. By definition, we are discussing ‘1% problems.’
‘Copy and Paste’ Financial Goals
Now that we understand where you will ultimately live on the financial spectrum. Let’s create a basic list of financial goals that should be prioritized. Here is what I consider to be very simplistic financial goals that every physician should use as a blueprint:
- Build an emergency fund of three to six months’ worth of living expenses
- Save at least 20% of your income
- Max out your retirement accounts
- Eliminate your debts within five years of training completion
- Purchase term life insurance
- Purchase own-occupation disability insurance and adjust as income grows
- Purchase umbrella insurance
- Purchase malpractice insurance if not provided by your employer
- Save $150,000 in educational funds per child before they turn 18
- Save at least a 20% down payment on a home worth no more than three times your annual gross income, with the mortgage payment no more than 30% of your monthly budget
- Save enough for retirement to not alter your lifestyle upon retiring
As you can see, none of these are revolutionary or original in their own right. If you navigate to any of the many physician finance blogs, you will find a similar list in some form or fashion. However, the overall idea remains the same. Build an emergency fund, guard against disaster, eliminate your debts as quickly as possible, save on priorities, and plan for expected retirement. If you plan on buying a house, ensure you have realistic expectations on what you can afford and how it will affect your budget.
Again, I make no groundbreaking claims, but there is a reason the above recommendations are time-tested. They remain critical to maintaining a healthy financial home.
Make It Your Own
The above ‘Copy and Paste’ financial goals are just that… made for every doctor, generic. However, this chapter aims to help you set realistic goals. That is why you should take the outline above and make it your own.
If you are profoundly debt averse, perhaps you work to pay your debts off faster. If economic concerns weigh heavy on your mind, perhaps you build a larger emergency fund? Maybe you are interested in pursuing the Financial Independence Retire Early (FIRE) movement and want to retire by 50? This would lead you to strategize ways to live substantially below your means and save 50% or more of your income! Do you see where I am going?
The whole purpose of your financial journey is to make it yours! There are many critical financial milestones to meet, many of which I have outlined (briefly) above. As we continue in this book we will address most of these milestones. It will be your responsibility to digest this information, create a financial plan that appropriately addresses and prioritizes these goals based on your preferences.
The hope is that by understanding your short—and long-term goals and incorporating them into your critical financial priorities and milestones, you will be making daily progress toward future financial prosperity simply by living your life and executing your plan.
Eventually, Time Will Be Your Most Precious Resource
There is one last aspect to address when creating and executing healthy financial goals. I specifically started this post by describing your nearly guaranteed financial future. You will not be filthy rich, but you will be far from poor. A physician’s high income affords them many luxuries in life. Even better, it allows them to reach their earning potential far later in life, recovery from financial mishaps, and still catch up and surpass their peers regarding wealth accumulation.
Physicians are still well compensated (comparatively), which remains our financial superpower. However, if you follow this book and successfully navigate your financial journey, there will come a time when money is no longer your most valuable resource. Eventually, your children will have grown, your home will be paid off, your nest egg will be fully funded, and time will become a far more precious commodity. For some, unfortunately, perhaps this realization arrives sooner than expected.
It is believed Mark Twain said, “Do not complain about growing old. It is a privilege denied to many.” As you navigate your financial goals, keep at that forefront of your mind that none of us truly know how much time we are given. Yes, money and its intelligent application are necessary to help you achieve much in life. I am writing a book about it after all!
However, it should always be grounded in the understanding that life should also be enjoyed. It is ok to delay some financial goals if their rapid pursuit causes overwhelming pressure on your quality of life. As long as you act within reason and budget, there is always room to adjust your journey.
Ok, that is enough existential rambling. Let me leave you with a few important final points here.
Slow and Steady Wins the Race
Remember, achieving your goals is a marathon, not a sprint. True, it is important to have both short- and long-term goals. That way we can have regular achievements that motivate us toward our longer-term goals. However, it is important to realize none of your largest financial goals will be achieved overnight. The execution of healthy financial habits on a month-by-month, year-by-year basis will lay the groundwork for your ultimate success.
So please find a way to enjoy the ride if you can. I understand how cliché that sounds. It is not meant to. As healthcare professionals, we are all so jaded by our careers. We see patients’ lives change course daily and become numb to it. We have to. Hopefully, we can retain a tincture of that humanity in our lives.
Stop and smell the roses from time to time. The journey is the destination… something like that.
Celebrate Your Victories
Finally, make sure to celebrate your freaking wins! Seriously, you deserve it. It will be difficult to live below your means and funnel money away towards various targeted goals without ever spending on yourself. This is why convincing the general public to save for retirement is challenging. It is incredibly difficult to prioritize and celebrate something that seems so far off. But I hate to break it to you; one day, you will wake up and be retirement age (if you’re lucky). For those who have prepared and prioritized retirement, it will genuinely be a reason to celebrate and welcome the next chapter of life. For those who have not prepared, it can generate massive amounts of anxiety.
So please make sure to celebrate yourself. You are not only celebrating a win; you are also celebrating the effort and perseverance it takes to plan for something far off in the distance. However, the day will come when all this hard work will pay off, and you will be able to reap the fruits of your labor.
How Doctors Can Set Realistic Financial Goals
So, how can doctors set realistic financial goals? For starters, they need to understand the fortune of their hard work. Physicians’ chosen careers will allow them many luxuries in life. They will (likely) not be filthy rich, but they will live far better than the overwhelming majority of the world. This will allow them to secure a sound financial future for themselves and substantially help their children get a leg up early in life.
Doctors can set realistic goals by knowing there is a wealth of information in this book and all across the internet that can guide them on what time-tested financial goals should look like. We outlined them above, but physicians should take those and adjust them to fit their timeline. Make adjustments where financial pressure points exist in your life. This will better set you up for success when you ultimately create your financial plan.
Lastly, doctors can set realistic financial goals by understanding that time, like money, is a valuable resource. Ultimately, time may become far more valuable as it passes. It is important to keep an understanding of mortality as you create your goals. Celebrating your wins and finding happiness in the process of pursuing your financial goals is where doctors will find the greatest fulfillment.
Join us next week for Doctor Money: A Personal Finance Guide for Physicians. We will tackle Chapter 3: Building a Budget. As always, thank you for visiting the site, and I look forward to seeing you next week! As always…
The Motivated M.D.
Additional Resources
The Ten Commandments of The White Coat Investor
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