How To Write A Comprehensive Financial Plan for Physicians

I wrote a post titled How to Write a Financial Plan about two years ago.  Since then, it has remained on my homepage because I genuinely see it as one of the most important parts of building a solid financial foundation as a doctor.  Writing a comprehensive financial plan that reflects your values is important.  As we continue our content series Doctor Money: A Personal Finance Guide for Physicians, dedicating a chapter to creating a well-written and comprehensive financial plan is essential. 

This week, we publish Chapter 4: How to Write a Financial Plan.  However, since this is our weekly post that happens to be the bones of a book chapter, I have titled it ‘How To Write A Comprehensive Financial Plan for Physicians.’  Enjoy.

Doctor Money: A Personal Finance Guide for Physicians

Previous Chapter:

Chapter 3: How to Build a Budget

Chapter 4: How To Write A Comprehensive Financial Plan for Physicians

What is a Financial Plan?

Every individual, family, or business needs a financial plan.  A financial plan is a roadmap of sorts.  It is a written statement created specifically for you (personal, family, or business) that helps define how money will be spent.  It further helps define how your expenditures will be prioritized.  These financial plans are often created when a working relationship with a financial advisor is established.  It is important to anyone who will help you manage your finances. 

Without a concrete plan, money can get spent without an endgame in mind.  Even for individuals who have built a working budget, if your money is not approached with a long-term, goal-oriented mentality, then it becomes easy to deviate from your path toward financial freedom.  It is of immense importance to write down both your short- and long-term financial goals and list them by order of importance.  A well-written financial plan (much like a budget) is a living and breathing document that is meant to be revisited periodically as you progress towards your goals. 

The purpose of this chapter is to provide you with all the information you will need to create a financial plan of your own!  Following our address of the most important aspects of a financial plan for physicians, I will use my financial plan as an example.  My wife and I keep our financial plan as a shared document.  We return to it once or twice a year to make sure we are tackling our goals in priority.  It has helped alleviate financial anxiety and provided a sense of direction.  It always keeps us highly motivated. 

Take my financial plan and do with it what you wish!  Use it, modify it, and make it your own.  But first, lets talk about aspects of a financial plan that should take priority. 

What Factors into a Financial Plan?

If you take the time to sit down and methodically think through all the aspects of sound finances, you may never finish writing a financial plan!  However, the purpose of a well-written financial plan is to create a concise document that simultaneously reflects intelligent financial choices alongside your personal goals.  We can best achieve this by recognizing that there are several critical aspects of personal and physician finance that should be included.  What follows is not an exhaustive list, but I do believe it covers the necessities.  If your financial plan incorporates the following categories, then you will absolutely have your bases covered.  Anything you choose to add will be icing on the cake.  Ok, let’s dive in. 

Personal Goals

To create a financial plan that represents you, it must reflect your personal goals.  A financial plan is only effective if it is a genuine representation of your dreams, within reason.  Do you wish to live in a bigger home?  Do you wish to retire early?  Are there plans to have a large family?  Would paying for a family vacation bring you joy? 

You work incredibly hard for your income; it stands to reason that as you live below your means and use your high income to achieve certain goals, you also work toward a greater reward.  For some, that reward is an inflated quality of life; for others, that is a larger home or more financial cushion.  These are all reasonable rewards that come with a structured financial plan, patience, and grit. 

As you begin to create your financial plan, make sure to keep endgame in mind.  You may not ever have a third home, or a multi-million-dollar yacht, but you are likely to build significant wealth and have the option to make money less of a worry for your future self.

Budgeting Strategy

I have likely beat the budgeting topic to the ground by this point.  For those who have been following the current content series, our previous chapter was all about budgeting.  However, the budgeting doesn’t stop when the chapter is over.  Budgeting, like everything thing else covered in this book, is vital to success.  Further, budgeting should reach into all aspects of your financial life.  Because of this, it is also important to incorporate your budgeting strategy into your financial plan.  Much like we discussed, whether you use a budgeting app, a spreadsheet, or use old-fashioned pen and paper, making sure you and your household stick to a budget is crucial. 

Emergency Fund

Emergency funds and their importance are one of my favorite topics to discuss.  I cannot over-emphasize how vital they have been in my own life, and I preach endlessly about their utility in sound financial practice.

The purpose of an emergency fund is to insure against financial catastrophe.  We need to be prepared for the unexpected.  Needing a new roof, a new air-conditioner, a new car, unexpected (or expected) unemployment… all these scenarios are unfortunate realities.  To set ourselves up for success we need to build a fund of money that is easily accessible at a moments notice. 

As you will see in my own financial plan below, my expectations of this emergency fund are based on current living expenses (which is why budget creation is so important).  I recommend keeping approximately three month’s living expenses in my emergency fund at any time.  Following the COVID-19 pandemic and spikes in unemployment, some physicians considered three months of living expenses as too conservative and increased their emergency funds to six months.  This is all based on your risk aversion.  The goal is to house an amount of money that can cover you for months. 

Strengthen your financial plan by prioritizing an emergency fund, that way you have a strategy should financial disaster strike. 

Asset Protection

Insurance.  Asset protection is the fancy way of saying you need to insure your high income, your health, and your life, and against disability and malpractice, you get it… 

Asset protection is an absolute must when it comes to a well-written financial plan.  Though there are many ways to insure against the unexpected (totally separate from an emergency fund), here are the insurances that I consider to be an essential part of any doctor’s financial plan: 

• Health insurance (preferably a high deductible health plan that offers an HSA)
• Automobile insurance
• Homeowners insurance
• Term life insurance (here is who I recommend)
• Own-occupation long-term disability insurance (here is who I recommend)
• Malpractice insurance
• Umbrella insurance
• Living Will

A lot of the recommended forms of insurance above are relatively self-explanatory.  You should always have health insurance, and if you live in the United States, this is generally provided through your employer, but recognize gaps can arise if you transition jobs, careers, etc.  Plan accordingly. 

Insurance for your home and automobiles is also critical.  Understand that homeowner’s insurance is likely to get more expensive as climate change marches on and there continue to be more warm weather related events happening on the coast and in tornado and flood prone areas.  Shop around, but make sure you always are covered.

Disability and term life insurance are also a must.  However, I always recommend getting these forms of insurance before you complete your residency training.  You will never be as young or as healthy as you are during medical school and residency.  Once you know your specialty or subspecialty (hence an own-occupation policy), get a policy that reflects your expected worth.  I have partnered with incredible insurance agencies that I can genuinely recommend here if you are looking to get covered. 

Malpractice insurance is another no brainer.  Again, often your employer will cover this expense, but if you are self-employed, or if you wish to have more coverage than you employer offers, you can shop around. 

Umbrella insurance policies are important as they tend to cover ‘everything else.’  I previously wrote an article on why every physician needs an umbrella insurance policy, but the moral of the story is that they cover civil cases or liability over what malpractice may cover in the event you are the victim of litigation. 

Lastly, everyone needs a living will.  It can be challenging to sit down and think about how you would like your assets to be handled in the event of your untimely demise, but I promise you will save your family time and emotion if you have your wishes well documented beforehand. 

Retirement Savings

The next part of your financial plan should spell out your retirement expectations.  From how much you plan to contribute to your retirement savings to maxing out your contribution to backdoor Roth IRAs and beyond, it should be spelled out here (in your financial plan). 

For starters, all of us (if we are lucky) will reach retirement age.  In accordance with your personal goals, how much you save or invest should reflect your expected retirement age.  If you are pursuing Financial Independence, Retire Early (FIRE), then this is likely a section of your financial plan that should get a lot of TLC.

However, for the majority of us looking to retire near normal retirement age, it is recommended that you at least save 20% of your gross income out of the gate.  Overwhelmingly, this means you should at least be maxing out your employer retirement plan.  This will also afford you the employer match.  Making sure you at least get your employer match is a must.  If not, then you are leaving money on the table.  Free money…

Following addressing your plan for employer retirement savings.  This section of your financial plan can also house your ancillary forms of retirement savings.  This can be where you potentially discuss using your Health Savings Plan (HSA) as a Stealth IRA.  Or perhaps you make sure to perform a backdoor Roth IRA for you and your spouse.  No matter how you proceed, prioritizing retirement savings is essential.

Debt Elimination Plan

Another pillar of well build financial plan is a debt elimination strategy.  Given that my audience is primarily physicians, I think it is important to stress Public Service Loan Forgiveness (PSLF) first and foremost.  I am in no way a PSLF evangelical, however, I do believe that all physicians who carry medical education debt should consider all PSLF options before they decide to pursue loan refinancing or other avenues of debt elimination.

If you are one of the many individuals pursuing PSLF, then make sure to map out your plan and contributions.  Make sure part of your plan addresses being enrolled in an accredited program, and that you make certified/qualifying payments each month.  This will ensure that you are making the minimum payment necessary to satisfy the government’s metrics and afford you a smooth path toward loan forgiveness.

If you are otherwise pursuing loan refinancing, then make sure you determine how aggressive you wish to be regarding debt elimination.  I agree with the common recommendation to pay it down aggressively and rid yourself of educational debt within five (5) years of training completion. 

This section should also address any other forms of debt, like credit card debt or if you are financing a vehicle.  If you carry any interest rates >6% (think credit card debt) then make sure tackling these high-interest debts takes top priority. 

Housing Planning

Discussion of housing seems to strike a particular nerve in today’s economy.  With interest rates being at heights not seen for decades, home prices rising, and inventory low, we are currently in an incredibly difficult housing market.  As such, objectivity is important when determining what your housing plans are.  This is an incredibly broad topic that will be addressed in a later chapter, but here are the rules I live by:

• Make sure you save up enough of a downpayment to avoid Private Mortgage Insurance (PMI); this is generally at least 10-20%
• Never spend more than 3-4 times your gross income on a home.  If your household makes $250,000 annually, then I would avoid spending more than $750,000-$1,000,000 on a home, especially with current interest rates
• Your monthly mortgage payment should not be more than 30-40% of your monthly budgeted income

The above recommendations may sound extreme in today’s market, but if you are willing to compromise on a few things, then you will hopefully find a home that fits your budget, and allows you to better optimize your expenses and plan for a potential upgrade in the future… while still adhering to the above rules no matter the home. 

Also, remember you can always rent!  Though rent prices are also inflating to record highs, do not view this as lost income.  If renting allows you to adhere to a healthy budget until the current market improves, that is a perfectly fine strategy.

Investment Strategy

As you continue to build your personal financial education, much of what will be discussed will be your investment strategy.  Largely, this is a way of saying, ‘How will you make your money work for you and not just keep it tucked away somewhere not generating more income?’ 

As a busy medical professional married to another busy medical professional, our household does not have the time to dwell on our diversification too much.  Simple is the name of the game for doctors.  If you are already juggling a busy clinical schedule, prioritizing your marriage and child-rearing while still making ‘you’ time, then by and large you do not have the mental bandwidth to think about your investments with much regularity.  Keep it simple. 

Overwhelmingly, I recommend at least starting out with an easy method largely influenced by The Boglehead’s Guide to the Three Fund Portfolio.  For me, both my retirement savings as well as my personal investment portfolio are invested through Vanguard (Fidelity is another great Platform) into index funds.  Based on my risk tolerance, I have the largest portion in Vanguard Total Stock Market Index funds, then a smaller portion in Vanguard Total Bond Market Index funds and Vanguard International Stock Market Index funds. 

For those who are bullish, perhaps you have 60% or more in total U.S. stock market index funds, with 20% in bonds and 20% in international stocks.  For older individuals who can tolerate less risk as they inch towards retirement, perhaps a significantly larger portion is allocated to bonds.  Your investment philosophy and risk tolerance can influence how you allocate your investments, but beginning with a three-fund portfolio is a great starting point.  From here, you can always grow, add real estate, or do whatever!  The world is your oyster.  But start simple… please. 

Childcare Expenses

Having children, though life-affirming, has its own challenges.  Finances are no exception.  Children are costly, and prioritizing their education, though important, is also expensive and only going to get worse.  Make sure you factor in savings for your children’s education early.  This will allow you to make small and steady contributions throughout the course of your career.  Even better, this allows your savings to accrue interest and work in your favor as the cost of public and private education continues to rise.

Here is an excerpt from Chapter 1: The Doctors Dilemma highlighting the most recent college education data regarding four-year college costs.  This information is taken from the Education Data Initiative, which gets its data from the National Center for Education Statistics (NCES) for 2023:

• The average cost of college has more than doubled in the 21st century, with an annual growth rate of 2% over the past ten years 
• Average in-state tuition for a four-year college education is $26,027 per year
• Average private, non-profit university student spends nearly $55,840 per academic year living on campus, $38,768 in tuition and fees alone.
• Considering student loan interest and loss of income during those years, the ultimate cost of a bachelor’s degree can exceed $500,000!

Here is the takeaway: the average four-year in-state college tuition costs over $100,000… per child. Remember that high income and time are your two most valuable assets when it comes to preparing for your children’s education.  Include college savings as part of your financial plan.  If you start saving early, it will spare you future anxiety and potentially spare your child(ren) years (if not decades) of debt repayment. 

Vacation Planning

Lastly, the frequency that individuals take vacation is highly variable.  Some travel locally, some like two international trips a year!  However, no matter who you are, a staycationer or experienced globetrotter, saving for these expenses will help prioritize your travels while sparing you the cost anxiety that comes with vacationing.

Depending on the frequency, distance, and accommodations, plan accordingly.  Though this may also blur the lines with budgetary expenses, saving for vacation is also therapeutic.  As such, I do believe it has earned a spot on your financial plan.  Start small, and as your income grows and debt dwindles, perhaps vacation expenses can grow some, too. 

My Financial Plan

What better way to close out this chapter than to pull back the curtain on my own life and share with you my household’s original financial plan?  Perhaps by reading and reviewing our plan, you, too, can better understand what a working financial plan looks like, reads like, and represents.  

The Motivated M.D.;s Financial Plan

1. Build and maintain a shared budget that is updated daily.  This budget should be all encompassing to help clarify where all our expenses are going.  Reevaluate, update, and recategorize this budget with regularity. 
2. Purchase term life insurance and own-occupation disability insurance policies prior to residency graduation.  Purchase and maintain health, auto, homeowners, umbrella policies always.  Make sure malpractice insurance is covered by all employers, purchase more if necessary.  Review disability coverage with each increase in salary and increase coverage accordingly. 
3. Create an emergency fund that covers approximately three months of living expenses for the entire family, and have the account in a Vanguard Money Market Fund or Capital One 360 account (anything easily liquid).  Work to increase this amount to six months of living expenses following completion of Fellowship training (within first 12 months).
4. Max out retirement accounts; if you are eligible to receive an employer match (i.e., 401k, 403b, etc.), then contribute at least up to the amount to receive the full employer match.  If receiving a 457b, discuss the reality of maxing out contributions individually based on current finances.
5. Contribute maximum per spouse limit into a Back-door Roth IRA (provided all current retirement accounts are making contributions that are post-tax in accordance with the Pro-Rata Law) annually by placing the annual contribution limit into a traditional Roth IRA and then immediately (the following day before any interest is accrued) transition this account into a Roth IRA.  Do this for each spouse annually. 
6. Pay off any High-interest debt (>6%), including credit card debt, car loan debt, expensive private student loan debt, etc.  This is a guaranteed investment return to decrease rapid interest accumulation.
7. Fund a Health Savings Account (HSA) if eligible, can utilize for health care spending, or further provide the maximum contribution and withdrawal later and treat as a Stealth IRA.
8. Pay off Low to moderate-interest debt (<6%), including student loans (now in this category following refinancing to a rate of 3.6%).  Pay off each individual’s debt within five (5) years of training completion.  Mrs. Motivated M.D. by 2024, Mr. Motivated M.D. by 2027.  Refinance as often as a lower interest rate presents itself.  Negotiate for loan reimbursement if available contractually. 
9. Save the down payment for a house using a Vanguard Account Short-term Investment fund, and discuss the pros and cons of using a physician mortgage.  Save at least 20% downpayment on a home that is no more than three times our gross annual income (preferably only three times).
10. Invest $500 into our taxable Vanguard portfolio account each month (portfolio based on risk tolerance)
11. Fund a 529 college savings fund with at least $150,000 per child before they are 18 years of age. 
12. Save $10,000 annually to cover vacation costs, prioritizing one domestic ski trip and one domestic/international trip every 1-2 years. 
13. Save approximately 20% of our gross income annually

Rules of Adherence for our Financial Plan

• Update the shared budget daily, always be honest in re-evaluating, and adhere as closely as possible
• Pay cashback credit card balance off in full prior to monthly statements
• Avoid actively managed funds, too much capital lost with maintenance fees and high expense ratios… they do not beat the market
• If a financial advisor is hired, make them sign the fiduciary standard and be fee basis, preferably use for one session to help augment our financial plan.
• Always live below your means
• Celebrate your achievements (big and small)

Make It Your Own

There you have it!  A comprehensive introduction to writing your own personal financial statement followed by my original financial plan that is updated and still in use to this day.  Though it may seem like a daunting task, as you can see, the finalized document is relatively short.  It should be this way!  This document is not meant to be a novel; it is meant to be a quick reference.  A financial plan is meant to be returned to with regularity to make sure you are staying on track and tackling your financial goals in stride. 

I hope you have found this chapter helpful.  Feel free to take my financial plan, modify it, mark it up and down, and make it your own!  It is in no way perfect, but it addresses the key aspects of a well-written financial plan for physicians.  Below are a few additional resources you may find helpful as you go about this process yourself.  As always…

Stay motivated!

The Motivated M.D.

Additional Resources

Create Your Own Comprehensive Financial Plan (Physician on FIRE)

Still Need a Written Personal Financial Plan? Here…Use Mine! (Prudent Plastic Surgeon)

The 30/30/3 Home-Buying Rule To Follow (Financial Samurai)

Is Renting Better Than Buying? Why We’re Financially Independent and Renting (White Coat Investor)

Next Chapter:

Chapter 5: The Emergency Fund

Disclaimer and Limit of Liability

This post (and hopefully its eventual publication) is designed strictly to inform and entertain. I am in no way, shape, or form a financial professional, nor does this site provide formalized financial advice. I do not provide nor engage in rendering legal, accounting, or other professional services. If legal advice or other professional/expert assistance is required, then the services of an accredited professional should be sought. I am not liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Further, no part of this series, post, or any post on this website may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under the 1976 United States Copyright Act, without the prior written permission of the author.

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