Top 5 Financial Mistakes New Attendings Make

Here is a list of the top 5 financial mistakes that new attendings make after completion of their training

As we come into higher incomes as attending physicians, our salary can increase fourfold or more!  We often feel we have delayed gratification long enough.  It is time to expand our lifestyle and ‘get what we deserve.’  Sometimes that mentality rings ‘all-too-true.’  If we are not smart with our finances, we can set ourselves up for failure long term.  Here is a list of the top 5 financial mistakes new attendings make…and how to avoid them.

1. Not building an emergency fund

I wrote an article about why building an emergency fund should be your first financial goal.  I stand by that.  Building an emergency fund helps mitigate the risk of financial catastrophe.  An emergency fund is a liquid amount of money you save for emergency purposes only. 

Financial emergencies, as I define them, are any unexpected expense that must be addressed in a timely fashion and whose monetary cost would place one’s budget in jeopardy. 

As with insuring against long term disability, no one expects illness to befall them.  However, as we know all-to-well in our profession… it does.  An emergency fund can offer a financial buffer when unexpected expenses arise.  Does your house need a new roof?  Did your air conditioning unit go out?  Do you need a new vehicle unexpectedly?  Are you out of a job?  An emergency fund is here to help alleviate the anxiety that comes with large unexpected costs. 

I recommend an emergency fund cover approximately 6 months’ worth of living expenses.  If you have not built a fund like this prior to becoming an attending, do not be discouraged.  You are not alone.  It can seem daunting to save that amount of money.  Start by putting aside one month’s worth of living expenses.  Once you have achieved this, then increase it to 3 months’ worth.  Continue this trend until you reach 6 months’ worth.

An emergency fund is something that you hopefully never have to use, but it should be ready for such an occasion.  For more information on emergency funds, check out our post on why an emergency fund should be your first financial goal!

2. Too much lifestyle inflation

As if we were not hearing about inflation enough over this past year.  Lifestyle inflation is the overall expanding of finances in all portions of your life.  It can be common to buy all the ‘wants’ you have postponed until you were making ‘real doctor’ money.  However, this spending mentality can lead to financial disaster if not tailored significantly. 

When our salary increases, either from transitioning into the attending position or receiving a pay raise, there is a tendency to expand your lifestyle to fit your expanded income.  Avoid this at all costs.  We can feel compelled to compare ourselves to those around us.  Now that we have the salary associated with ‘being a doctor’ there becomes a need for external validation.  See our previous post on avoiding comparison while eliminating your debt.

The White Coat Investor wrote a great article on lifestyle inflation.  To summarize, he says that you should celebrate in your financial achievement.  Expand your lifestyle by 10% of what your new income is.  For a new attending salary this can be on the order of $10,000-$20,000 annually (or more depending on your specialty).  Use this portion of money as you see fit…and save the rest. 

Significant lifestyle inflation is the reason so many high-income earners live paycheck to paycheck.  Avoid this as you set out as an attending and you will be able to reap the benefits of financial independence earlier in life! 

3. Not buying ‘own-occupation’ long term disability insurance

There are countless articles out there regarding recommended insurance policies.  To be clear, there are multiple types of insurance I recommend to all new attendings.  These include malpractice insurance (if your employer does not provide it), term life insurance (but get while you are in residency), and an umbrella insurance policy (for everything else).  However, I am not here to talk about those.  What I am here to discuss is long-term disability insurance.

Long-term disability insurance helps ensure your income should you sustain an injury that no longer allows you to perform in your profession.  It is always surprising to me how physicians are surrounded by disease and death with regularity, but feel they themselves are invincible.  You are not.  Protect your income.

Long-term disability insurance should also be ‘own-occupation.’  This means that the insurance coverage is specific to your chosen specialty.  This often helps define what your professional obligations are as well as determine an appropriate compensation (representative of your profession) should you become disabled in the eyes of the policy.

Look, none of us think about a scenario where we are disabled or cannot provide for ourselves or our families.  It would be an avoidable tragedy if you were to become injured or ill and not be able to maintain some semblance of your current financial quality of life.  Find a reputable long-term disability insurance policy vendor.  Make sure that you are purchasing ‘own-occupation’…and buy it. 

There are varying views on short-term disability.  As I discussed above, much of the anxiety behind short term disability can be mitigated if you have an emergency fund. 

4. Not maxing out your retirement contributions

This mistake is easily avoidable, yet incredibly common amongst my colleagues.  I understand the difficulties of maxing out a retirement account as a resident or fellow.  While in training, having the ability to funnel a large portion of your trainee income towards retirement can be difficult.  This can be made worse if you are the sole income provider for a family. 

However, when you begin receiving your physician salary, you should seriously be working to max out your retirement accounts.  At least be contributing enough to receive the employer match if that is an option for you.  Never leave money on the table. 

The top reason I see peers of mine skimp on retirement contributions is driven by mistake #1…lifestyle inflation.  If you are intelligent with your money and avoiding significant lifestyle creep, then you should be able to contribute plenty to your retirement.  Here are some of the most recent contribution limits for 2022:

• 401(k) – $20500 if less than age 50, $27,000 if older than age 50
• 457 – $20500 if less than age 50, $27,000 if older than age 50
• 403(b) – $20500 if less than age 50, $27,000 if older than age 50
• Roth IRA – $6,000 if less than age 50, $7000 if older than age 50
• Traditional IRA – $6,000 if less than age 50, $7000 if older than age 50

Based on the Medscape Physician Compensation Report from 2021, the average PCP earns approximately $242,000 while the average specialist earns $344,000.  These are averages from across the United States, but you get the gist.  If you are going from making an average resident/fellow salary of between $50,000-$70,000 to $200,000-$400,000, and you avoid lifestyle creep, then you can afford to max out your retirement contributions annually. 

5. Getting divorced

Last, but certainly not least is the topic of divorce.

I want to lead in with a disclaimer.  I understand that there is a time and a place for divorce.  Sometimes divorce is necessary for an individual’s or couple’s happiness.  To that end I do not claim to speak for all scenarios.  However, divorce, regardless of the etiology, generally leads to financial struggle. 

Divorce is dirty, emotional, and expensive.  Certain studies quote lawyer fees as high as $250-$500 an hour.  Further, if children are involved, when all is said and done divorce can cost anywhere from $20,000 to $100,000. Don’t forget about the division of your assets, alimony, and child support.  These are costs that can hamper your ability to achieve financial freedom for years if not decades. 

I do not wish divorce on my worst enemy.  For those in a relationship or married, heed my advice.  Invest in your relationship.  Invest the time…and the money for that matter.  Take the time to go on date night.  Take the time to prioritize your significant others interests and needs.  As we do in our family, include a portion of the budget for date night once or twice a month.  This can help garner an environment of love and trust with each passing year.

Take home points

There you have it.  These are my top 5 mistakes that I see new attending physicians make.  Completing your training is a huge milestone in a doctor’s career.  As you come into your high-income salary, start off on the right foot and avoid the mistakes mentioned above.  Make sure you save for an emergency fund. We have a great article on why this should be your first financial goal. Avoid lifestyle creep. Insure against long term disability. Contribute to your employer retirement accounts. And most importantly, prioritize your relationships. Do these things and your quality of life as well as your wallet will reap the rewards. As always…

Stay motivated!

The Motivated M.D.

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