Common Financial Mistakes Physicians Should Avoid
August 18, 2015
With years of schooling, student debt, liability risks and complex personal and professional finances; physicians face unique financial challenges and the idea of wealth management can be overwhelming. How do you overcome these challenges? Work with a team of professionals who understand your practice, your goals and your personal circumstances, and avoid these common financial mistakes:
Taking questionable financial advice
As a physician, you have a range of investment opportunities available to you. Unfortunately, this also means you can find yourself the target of questionable investment schemes and unqualified financial advice. To avoid this trap, seek out professionals who have a proven track record managing a similar client base. For an additional layer of protection, have your advisors sign a Fiduciary Oath. This oath ensures that their actions are aligned with yours and that they will prioritize your interests and goals ahead of their own.
Failing to integrate advisors
Physicians typically have a team of professionals to help them manage their finances. This team can include financial advisors, brokers, accountants, estate planning attorneys, insurance agents and tax planning attorneys. Each professional is responsible for a specific aspect of your personal or professional finances. While it’s great to have all of these people on your team, it is even more important that each advisor works together to provide cohesive support. If the parties are not integrated and working towards the same, clearly defined goals, their advice can destroy your wealth instead of build it.
Not creating a budget or comprehensive financial strategy
One of the biggest mistakes a physician can make is failing to create a long-term strategy for controlling their spending and growing their wealth. You spend years in school to have a bright and successful future, so it’s understandable that you would want to enjoy the fruits of your labor. Failing to plan for important financial expenses can lead to financial hardships. Determine your goals, project future cash flows and create a budget. Regularly revisit your plan and adjust as circumstances change, even if it means sacrificing in the short term. You will be happy you had a plan when it comes time to retire.
Ignoring risks of liability and asset protection
Studies show that many doctors are either underinsured or overpaying for coverage. Liability insurance is intended to protect your personal and professional assets from malpractice claims, but there isn’t a one-size-fits-all asset protection plan for doctors. Work with a professional to create a plan that will protect your practice and your family from costly litigation. Some options include umbrella insurance, trusts and other ownership strategies, risk management techniques and diverse investments. With many layers of protection, you will be able to protect your assets and build a prosperous future for your practice and your family. For more information about asset protection click here
Failing to educate family
According to the Family Business Institute, 60 percent of wealth is destroyed in two generations and 90 percent is destroyed in three generations. It is important to educate your children about wealth management. Start small with conversations about your family’s values, goals and choices about money. As your children get older, explain the role of your advisors and their strategies and the importance of capital budgeting, saving and investing. Your children will receive the best advice about preserving their inheritance directly from you so make sure they are engaged in the conversation.
Physicians operate in a complicated and ever changing financial world. To avoid common financial mistakes, ensure your advisors have a proven track record and are working together to provide cohesive advice. Create a long-term strategy, including proper liability coverage and teach your children about the importance of wealth management. With the right team and the right plan, you can grow your practice and your wealth.