5 Personal Finance Tips for Doctors

From the outside looking in, the assumption is that doctors have it made. People think that since doctors make significantly larger salaries than the average person, they’re set for life. But truth be told, many physicians make mistakes with their money that hold them back from being successful. The good news is that you don’t have to.

5 Smart Personal Finance Tips and Habits for MDs

As a doctor, you make several times the average salary for a working professional. The question is, does your net worth and financial security reflect this healthy income? Here are a few tips to ensure it does: 


  • Establish a Budget


The notion of a doctor on a budget might sound constricting, but it’s the exact opposite. In reality, being on a budget is freeing. It gives you a clear snapshot of your income and expenses so that you understand how much you have to spend, save, and invest each month. A budget helps you set aside the proper amount for saving and investing, which subsequently frees you up to enjoy more of your money.

Let’s say, for example, that you bring home $20,000 per month after taxes. With an itemized budget, you may discover that you can reasonably spend another $2,000 per month on discretionary expenses, or that you have room to trade in your car and get this year’s model. You might even find that you have a few hundred bucks that you can give to a local charity or use to support a friend in need. Clarity provides freedom!


  • Create an Emergency Fund


It’s common for doctors and physicians to fall into the trap of assuming they can cash flow everything with a high income. But your high salary doesn’t excuse you from the need to have cash on hand. More specifically, you need an emergency fund. 

As a doctor with a good income and a fairly stable career, you might only need three or four months of cash set aside. But if you want to be extra conservative, six to nine months is a good mark to strive for. 


  • Use Debt Strategically


There are people who will tell you that all debt is bad. Then there are other people who will encourage you to be free and easy with debt, using other people’s money to pay for everything from fancy dinners to lake houses. And as with most polarizing issues in life, the truth lies somewhere in the middle.

Debt is not evil and it’s not your savior. As a doctor, learning how to use physician loans to refinance student loan debt, buy a house, or finance your practice can prove to be extremely helpful. On the other hand, you should probably stay away from credit card debt and excessive auto loans. 


  • Moderate Lifestyle Inflation


As a doctor, you’ll likely see your income rise significantly over your career. And while it’s certainly okay to increase your lifestyle along with your growing income, there has to be some moderation. One common practice is something financial experts call the “10 Percent Rule.”

“In a nutshell, take 10 percent of that increase in take home pay, and spend it on whatever your heart desires,” The Physician Philosopher advises. “In other words, if your take home pay goes up $10,000 – then take $1,000 and spend it on whatever your heart desires each month. This is your allowed lifestyle inflation after training.”

The other 90 percent goes to paying down debt, saving, investing, and generosity. If you follow this approach, you’ll start seeing zeros added to your net worth in no time. 


  • Work With a Financial Advisor


According to a study of physicians, just 10 percent of doctors who are planning to retire consider themselves “ahead of schedule” in their financial plans. Part of this has to do with the fact that most physicians are trying to plan for retirement on their own. 

If you want to move toward retirement with purpose, you need to work with a qualified financial advisor who can help you formulate a strategic plan for saving, investing, and creating income in your retirement years. (If you have an exceptionally high net worth, you may even consider working with two advisors and splitting your assets among them.)

Put Your High Salary to Work

It doesn’t matter how much money you make – if you don’t master the psychology of money, it’ll fade as quickly as it came. By understanding and implementing these personal finance tips and strategies, you can finally leverage your high salary to build genuine wealth. It might take a couple of years of sacrifice, but you’ll be better for it in the end.