Avoid These Common Financial Pitfalls: A Guide for Doctors, APPs, and Nurses

/ Fiduciary Financial Advisors/

Navigating the financial landscape can be challenging, especially for medical professionals who have spent years focused on their education and training. Whether you're a doctor, advanced practice provider (APP), or nurse, understanding common money mistakes and how to avoid them is crucial for building a secure financial future. In this blog post, we'll explore some of the most frequent financial pitfalls encountered by healthcare professionals and offer practical tips to help you steer clear of them.

Common Financial Mistakes

Overlooking Student Loan Management

Student loans can be a significant burden for medical professionals. Review all your loans to understand which are public vs. private, the interest rates, and the repayment terms. This knowledge could save you tens of thousands of dollars in the future.

If your loans are public, evaluate which loan repayment option is best for you. Many healthcare employees work for non-profit hospitals. If you plan to work for a qualified non-profit for ten years, Public Service Loan Forgiveness (PSLF) will likely be the best option. You will want to make sure your student loans are direct federal student loans and not Federal Family Education Loans if you plan to pursue PSLF.

If you do not work for a qualified non-profit or have private student loans, evaluate which repayment option suits you best and determine how quickly you want to pay off the loans. I have had good experience with GradFin which offers free initial consults to help review your loan repayment options.

Increasing Lifestyle Expenses Too Quickly

Transitioning from a student budget to a professional income can be tricky. Many healthcare professionals fall into the trap of increasing their living expenses too quickly once they start earning a full-time salary.

The White Coat Investor encourages doctors to “continue to live like a resident” for a few more years before increasing their lifestyle. This advice applies to APPs and nurses as well. Doing so can free up money to pay down debt, jump-start retirement savings, and allow more thoughtful financial decisions about your lifestyle.

Delaying Retirement Savings

It might be tempting to delay retirement savings, especially if you're still paying off student loans or adjusting to a new salary. However, the benefits of early and consistent retirement contributions are tremendous.

Take advantage of employer 403(b) or 401(k) matches, HSA contributions, and backdoor Roth IRA contributions if possible. Starting now can be a significant step toward financial independence. Most people do not regret saving sooner for retirement, but many regret waiting too long.

Ignoring Insurance Needs

Insurance is a critical component of financial planning that often gets overlooked. Disability insurance, life insurance, and malpractice insurance are essential for protecting yourself and your family against unforeseen events. Understand the types of coverage available and choose policies that fit your specific needs and circumstances. Proper insurance coverage provides peace of mind and financial security.

I recommend avoiding whole life/permanent life insurance for most healthcare providers due to high expenses and fees limiting potential upside. If someone tries to sell you permanent life insurance, fully understand how it would be beneficial to you and what the costs will be. Consider getting a second opinion and exploring term life insurance instead, investing the difference.

Actionable Financial Tips

Building an Emergency Fund

One of the most important steps in financial planning is establishing an emergency fund. Aim to set aside 3-6 months of living expenses in a high-interest savings account or money market fund. This fund acts as a safety net in case of unexpected expenses or income loss.

Start small if needed, and gradually build up your fund over time. The peace of mind an emergency fund provides is invaluable. If you are single with no kids, 3 months may be enough. If you have kids and/or are married, consider aiming closer to the 6-month mark.

Investing Wisely

Investing is a powerful tool for growing your wealth, but it's essential to approach it wisely. Educate yourself on the basics of investing in the stock market and consider low-cost mutual funds and index funds. Diversifying your investment portfolio can help manage risk and improve your chances of long-term success. Learning about expense ratios and the fees associated with investing is also critical.

Evaluate your risk tolerance and risk capacity when investing. Everyone is happy during the years when the market goes up, but some people let their anxiety get the best of them during the years when the market drops. Having your investments set up based on your individual risk level is crucial to avoid making emotional decisions during periods of market volatility.

Seeking Professional Financial Advice

Working with a financial advisor can provide significant benefits, especially if you're navigating complex financial decisions. A good financial advisor can help you create a comprehensive financial plan tailored to your goals, manage your investments, and provide guidance on tax strategies and retirement planning.

If you decide to work with a financial advisor, I recommend:

  • Looking for one who is a fiduciary, meaning they must look out for your best interest.

  • Finding one that is fee-only, which means they do not get commissions.

  • Clearly understanding what fees they are charging and what services they provide.

Don’t Wait, Start Today

Avoiding common financial mistakes and implementing smart money strategies is crucial for medical professionals aiming for long-term financial health. By managing your student loans, budgeting wisely, prioritizing retirement savings, securing appropriate insurance, building an emergency fund, investing prudently, and seeking professional advice, you can set yourself up for a secure and prosperous future. Remember, taking proactive steps today can make a significant difference in your financial well-being tomorrow.

If you need more personalized advice or have specific financial questions, don't hesitate to reach out. Your financial health is just as important as your physical health, and taking care of it now will pay off in the years to come.

Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.