Getting Your Financial Health in Order

Pathologists entering the workforce typically await their first "real paycheck" with great anticipation. After decades of accruing debt, the promise of a positive personal balance sheet is enticing! However, we don't always know how to best apportion that paycheck to get our finances out of the red and on the right track. If you're like me, your undergraduate education was heavy on science and light on economics. The intensive medical school years that followed left little time to think about money management, and when thoughts of growing student debt and paltry savings did surface they were too depressing to linger over! However, gluing our eyes to the microscope only to ignore our financial woes doesn't help money matters. Fortunately, there are some simple steps we can take early in our careers that have a huge positive impact on our long-term financial stability. I recently worked with Dr. Anne Champeaux, Chair of the Department of Pathology at the University of South Florida, to compile some of these recommendations in an article published in Archives of Pathology & Laboratory Medicine entitled Financial Health for the Pathology Trainee: Fiscal Prevention, Diagnosis, and Targeted Therapy for Young Physicians."¹

We discuss moves that you can make during training and early in practice that can set you up for success. Here are some of the points we cover:

Choose Financial Professionals with Care

I can't tell you how many times I've been approached by financial folks who "specialize in helping physicians." It's common to feel that these individuals somehow merit our trust because they're focused on issues specific to doctors, but be wary: physicians are often preyed upon by financial salesmen who capitalize on our relative financial ignorance. Before throwing in your lot with any financial advisor, make sure that they are officially labeled as a "fiduciary." This makes them legally obligated to act in your best interest. Dishearteningly, many "financial advisors" are not. Also get some details about how they get paid, and be skeptical of anyone who earns their income on commission, rather than on the performance of your portfolio. You want an advisor who succeeds when you succeed, not when you fork over money for a financial product that might not benefit you.

It's also worth emphasizing that the big steps you need to take to get started on financial stability (setting up retirement savings, paying off debt, budgeting, securing insurance coverage, opening college savings plans) can be done without a financial advisor, so you shouldn't feel pressured to surrender control of your finances the moment you leave training. Instead, invest a little energy in educating yourself so that you can evaluate the professionals critically when you do need their assistance. I found the book The White Coat Investor: A Doctor's Guide to Personal Finance and Investing, by James M. Dahle, to be a great place to start, and continue to derive a lot of practical advice from the blog that accompanies it, www.whitecoatinvestor.com.

Maximize Retirement Contributions on Day One

The biggest financial mistake I've made was failing to maximize my retirement contributions for the first year of my employment as an attending. We had a family emergency come up around the time when I was getting our benefits in order, and in my distraction I made the mistake of glossing over my 401K allotments and checking a box that meant a minimal amount was contributed monthly. Big mistake! Failing to contribute the maximum annual amount—$18,500/year as of 2018—means I will miss out on exponentially more in lost interest at the time of retirement. One of the most important things you can do in the first days of your employment is ensure that you're taking full advantage of any employer-sponsored tax plan, whether it be a 401K, 403b, or 457b plan. These are pre-tax plans that allow you to maximize your tax efficiency today by lowering your taxable income for that year; just be aware that you will have to pay taxes on the money when you take it out at retirement. If your employer doesn’t offer one of these plans, don't worry: you can set up a traditional individual retirement account (IRA) that serves the same purpose.

If you're reading this as a trainee, you likely have the option to set up a Roth IRA, which is a post-tax plan available to individuals making <$135,000/year or families making <$189,000/year. These unique plans allow you to pay taxes on your contributions today, while removing the money and its growth tax-free in retirement. Roth IRAs are also a solid option for trainees because they can remove up to $10,000 in contributions penalty-free for a home purchase or for medical expenses, making them a great incubator for either a down payment or an emergency medical fund. Setting up a Roth IRA and maximizing my annual contributions throughout my residency training ($5,500/year) was one financial thing I did right!

A final point of emphasis on retirement savings: often you'll hear the advice that you should save 20% of your income for retirement. Remember, that number really applies to people who have been earning since they finished college. The percentage saved should be considerably higher for those of us who didn't kick off our careers until our thirties, unless we want to see our quality of life drop considerably during retirement! You'll also notice that the annual contribution limit to an employer-sponsored savings plan is considerably less than even 20% of most physicians' salaries, which means that once you’ve gotten those plans set up you'll ultimately want to set up additional investment vehicles on your own.

Take on Your Debt

Debt is daunting. In the Archives article we joke that most pathologists would rather gross a stack of unfixed placentas than face the realities of their loan burden. But hiding from debt doesn't make it go away; it only makes it continue to grow. And boy, does it grow: A federal loan of $180,000 becomes nearly half a million when paid off over a 25 year period! When my husband and I faced the reality of our $200,000 in medical school debt, we decided that we would be most comfortable tackling it head-on as soon as we finished training. Thus, when we became attendings, rather than changing our lifestyle to suit our new income we continued to live as trainees and shunted a large proportion of our salaries towards these loans. Eighteen months later, we were student debt-free, and the process was virtually painless because nothing changed about our day-to-day life: it’s hard to miss a salary you've yet to enjoy!

Of course tackling debt head-on like this isn't desirable or practical for everyone, and in our case we had many factors working in our favor to make it possible (less combined debt than many two-physician families, reasonably affordable hospital-sponsored daycare for our children, no personal emergencies or extended family needing our financial assistance, the health/ability to work full-time, a tolerance for living relatively modestly—and recognition of the fact that this lifestyle still put us far above most Americans). Furthermore, some would argue that our money would have been better spent on investments, where the return would (hopefully) exceed the interest on our loans. However, our personal degree of risk-aversion is such that we were most comfortable with the "guaranteed return" of a paid-off loan. Take some time to consider how tolerant you are with debt and come up with a plan to tackle it accordingly. There is no one-size-fits-all model for this, but in order to develop your personal approach you need to know exactly what you're in for: before you settle into that 25-year payment plan, do the math and decide if you can stomach it! And come up with your plan for managing debt before you sign on for lifestyle expansions that will make aggressive repayments impossible.

Don't Try to Keep Up with the Joneses

Speaking of expanding expenses: lifestyle creep is real! If you don't make a clear plan for how you're going to allocate that first paycheck, you'll be shocked at how quickly it can disappear, and how little of lasting value you might have to show for it. This is especially true for those of us in the medical field because there are significant societal expectations and pressures surrounding the "physician lifestyle." We are surrounded by colleagues who drive fancy cars, live in enviable homes, dine out regularly, and take extravagant vacations, so it's easy to assume that we're positioned to do the same, right? It's critical to remember that 1) their financial situation may be very different from yours and 2) they may be making terrible decisions! Remember what I said about doctors being ignorant about finances? That may well apply to the young surgeon parking his Porsche next to you! Instead of coveting your neighbor's Porsche, focus on cultivating gratitude for the trusty car that got your kids safely to school this morning, for your own health and capacity to drive that car, and for the privilege of caring for patients who may struggle to make it to and from the hospital because of their own financial struggles. Gratitude has been shown to be a powerful antidote to burnout and can also help re-center our identities as compassionate physicians.

All this isn't to say that you can never have that Porsche or whatever other indulgence you crave; rather, it's to emphasize the importance of delayed gratification when considering these expenses. Many financially savvy doctors attest that living like a trainee for 2-5 years after residency/fellowship was critical to their long-term fiscal success. Your first years in practice aren't a time for splurging on every luxury you feel you've been denied during your protracted years of schooling and training; they're a time to get your financial health in order so you can afford those things responsibly down the line, without compromising you or your family's long-term stability. That means not only developing a plan for retirement savings and debt management, as we've discussed here, but also shoring up your insurance coverage, developing a budget, and setting up college savings plans for your kids, all of which are discussed in further detail in our Archivespiece. As we emphasize in the conclusion of that article, as pathologists we are excellent at taking an informed, deliberate approach to our diagnoses. We should let that careful and conscientious attitude permeate our financial philosophy too!

1. Adapted from "Financial Health for the Pathology Trainee: Fiscal Prevention, Diagnosis, and Targeted Therapy for Young Physicians." This article is posted on the Archives of Pathology & Laboratory Medicine web site as an early online release.

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