The Biggest Financial Mistakes I See Physicians Just Out of Residency Make
By Jared Andreoli, CFP®, CSLP®
As a new physician, navigating your new financial realities can be a daunting task, especially just out of residency. Yes, you finally have reached your goal of becoming a physician and are finally being compensated for your skills, training, and experience. Yet just because you have a higher income doesn’t mean that life and your financial situation becomes easier. Making a great income is a piece of the puzzle—but it’s only one piece.
Unfortunately, all too often I speak with physicians who are making great money but have made a number of mistakes, especially as it relates to their finances. Whether you are just starting out or have been in practice for a few years, here are 5 costly mistakes to avoid on your own journey.
1. Falling for Lifestyle Creep
One of the biggest financial pitfalls for newly graduated physicians is falling into the trap of lifestyle creep. This occurs when an individual’s spending increases as their income rises, and they become accustomed to a higher standard of living. For physicians just out of residency, this can be especially dangerous as they may be experiencing a significant increase in income for the first time.
It can be tempting to upgrade your lifestyle by buying a bigger house, a nicer car, or taking more expensive vacations. However, this can lead to overspending and an inability to save and invest for the future. While I want you to enjoy the fruits of your labor, these increased expenses need to be made in the context of your overall financial plan, so that you are taking care of your short-term, medium-term, and long-term needs. Simply focusing on the present hinders your ability to build long-term wealth.
2. Not Reviewing and Increasing Insurance Needs
Your insurance needs will vary depending on your stage of life, income, and your family. Yet everyone should at least consider what their needs are. With your increase in income, a few questions come to mind:
Do you have a disability policy that will protect you in case you can’t work?
Does that policy cover you not being able to work specifically as a physician (known as own occupation)?
Lastly, have you adjusted your policy from residency to reflect your new, higher income?
If you don’t have a disability policy, or it’s outdated, make that an urgent priority.
Other insurance needs to review are life insurance, especially if you have a family or people that depend on you financially. I typically recommend term life insurance as you get the best bang for your buck in terms of the death benefit and the premium.
And don’t forget about umbrella insurance that can cover you in the case of injuries, property damage, lawsuits, and personal liability situations.
3. Lack of a Student Loan Plan
If you’re like most physicians, you took out a significant amount of student loans in order to become a physician. Now you find yourself with a high income but also a high amount of debt. While it can be worrisome to owe so much money, I find that after I’m able to put together a student loan plan for my clients, they become much more relaxed and much more confident that they can handle it.
The first thing we need to do is understand what types of loans you have, if they’re eligible for any type of forgiveness, what the interest rates are, and all those pertinent details. Then, when considering your other financial and retirement goals, we can discuss the best options to pay off your loans while also making sure we aren’t sacrificing other areas of your financial life.
4. Not Taking Advantage of Retirement Accounts
Keeping on that same point, I find it a mistake to focus solely on student loans if it eliminates your ability to take care of other important goals, like saving for retirement. If you miss out on contributing to your retirement accounts in 2023, it’s not like you can make up the difference in 2024; that opportunity is gone, and you won’t be able to make up that missed year of savings.
Additionally, retirement accounts offer the opportunity to save money on your tax bill, which is one of the biggest pain points you will likely encounter with your new, higher income.
If you contribute the right amount to the right types of accounts, you can not only get closer to your retirement goals, but also lower your taxes in the process.
5. Working With an Advisor Who Doesn’t Understand Physicians
While there are a lot of good advisors out there, you don’t want to work with just anyone. To start, you should work with an independent, fiduciary advisor who isn’t beholden to sell you any products, and will only give you advice that is in your best interest.
But even that isn’t enough. Physicians have unique challenges and issues they will encounter in their careers, and the typical financial advisor simply doesn’t have experience with those issues. If you’re going to work with an advisor, work with someone who is an expert in your field, in the issues you face, and can help you make the best decisions with everything you’re dealing with.
I’ve tailored my firm to specialize in understanding and navigating the unique challenges young physicians face in their careers and their financial lives. If you’d like to learn more and see if we’d be a good fit to help, you can get started by scheduling a free consultation, or reach out to us by emailing jared.andreoli@simplicityfinancialllc.com or calling 414-207-6473.
About Jared
Jared Andreoli, CFP®, CSLP®, is president and financial planner at Simplicity Financial, a fee-only RIA dedicated to helping early-career physicians conceptualize their financial picture and achieve their financial goals. Jared specializes in devising individualized financial road maps for clients, and he loves nothing more than a full day meeting with clients who value his partnership to solve problems—big and small.
After college, Jared spent six years working as a mutual fund administrator for a large company. While he learned an immense amount about the financial world, he was missing the personal connection of working with individual clients. Combining his passion for finance and personal connection, he established Simplicity Financial in 2017.
Jared has a degree in finance with a concentration in financial planning from Western Kentucky University, along with the CERTIFIED FINANCIAL PLANNER™ (CFP®) and a Certified Student Loan Planner (CSLP®) certifications. Outside of work Jared enjoys cooking and traveling. He played baseball in college and still coaches occasionally. He and his wife recently welcomed a daughter, who occupies most of their time. To learn more about Jared, connect with him on LinkedIn.