Your first attending paycheck will likely be the largest you’ve ever seen. Your new salary could be the first brick in a foundation of financial freedom, but financial planning for physicians starts with the money-management habits you establish from day one.

Financial planning is about freedom, not restriction

The word “budget” can be off-putting. It may conjure feelings of deprivation and rigidity. But physicians who are years ahead of you in their careers suggest you look at financial planning not as a chore or punishment, but as a tool to ensure freedom from regret, freedom to be generous and freedom to practice medicine on your own terms.

At the same time, failure to take financial planning seriously from the start can cause problems that undermine your freedom far down the road.

“If you haven’t got a plan for what to do with that first attending paycheck, it’s very easy to suddenly feel like it’s a fire hose of money and start spending recklessly,” says Stanley Liu, MD, a cardiologist and founder of DocEmpowered. “Before you know it, you’ve adapted to your new income and now you’re living paycheck to paycheck.”

Fear and inexperience, along with cultural pressures in some corners of the academic community, discourage some physicians from learning about money. If you feel unprepared or anxious about it, that’s all the more reason to start asking questions.

“One thing I picked up [during training] was that money is a dirty thing. Money can be a taboo topic, and you learn not to ask questions or talk about it,” says Liu. “But that is such a disservice to the physician community. Money is a tool. It shapes or accentuates the physician you want to be. If you’re able to leverage that tool and you really care about your patients and you care about your community, that will ultimately let you make a much bigger impact.”

Your goals for how you manage your money will be as unique as you are. There’s no one correct approach for physician financial planning. 

Alyssa Cole, DO, MBA, a physical medicine and rehabilitation physician in Charlottesville, Virginia, says the goal at each stage of your career is to “have a written financial plan and timelines for what you are working toward, whether that’s a particular vacation, having your own practice, acquiring real estate or entrepreneurial endeavors.”

Liu adds, “If you want to be able to work part-time and choose your hours, you’ll need a totally different financial plan than somebody who’s going to be working 60 hours a week.”

The point of planning is to be sure you’re progressing toward bigger financial goals and protecting your security. That discipline allows you to be more relaxed about enjoying the fruits of your labor today. 

“Instead of looking at every little thing you’re spending and earning, the idea is to determine ahead of time, ‘How much do I need to set aside for savings?’ Make sure that happens, and everything else will be fine,” Liu says. 

Budgeting 101: Stability and organization 

During postgraduate training, Liu says, it’s common to feel you’re “just trying to tread water. Or you may be drowning in debt.” After starting your first post-training job, you can set your sights on the next stage: stability. “You’re now cash-flow positive. More money’s coming in than going out. Maybe not by much, but at least you can breathe.” 

Adopting a basic budgeting approach from the get-go will help you feel confident you’re saving enough and accounting for your needs. 

Cole recommends a straightforward framework known as the 50/30/20 rule. “Following the 50/30/20 rule will give you a good understanding of your cash flow and your net worth and help make sure you’re saving enough for an emergency fund.”

Under the 50/30/20 rule, 50% is allocated to needs: mandatory monthly expenses like rent or mortgage, minimum loan repayments, utilities, transportation and groceries. Thirty percent is allocated to wants: non-essentials like dining out, hobbies, entertainment and travel. The last 20% is earmarked for savings (for both your emergency fund and other needs) and additional payments to reduce debt.

Emergency fund: Your first savings priority

An emergency fund, also called a rainy-day fund, is money you set aside to cover three to six months of expenses in the event your income is disrupted. 

James Blankenship, MD, an interventional cardiologist with Geisinger in Albuquerque, New Mexico, says, “Make sure you have enough in your rainy-day fund for any kind of short-term need. Invest it into something that’ll bring a rate of return but is still very liquid.” 

For example, you could park your emergency fund in a high-yield savings account at a bank, where it will earn risk-free interest and be accessible whenever you need it.

Juan Estrada, MD, a dermatologist with US Dermatology Partners in Kyle, Texas, agrees. “It’s a great idea to have a three- to six-month emergency fund because life can sometimes throw curves at you. You could get injured on the job or have a car accident, and then you can’t practice.” 

Protect income with insurance

An emergency fund and other savings help protect your lifestyle and your family if your income is temporarily disrupted. As your income grows, consider adding insurance to your budget for broader income protection.

Disability insurance pays you if you become unable to practice in your specialty. If your employer offers it, be sure the coverage is sufficient and learn how to add to it. If you’re self-employed, you’ll need to acquire your own insurance from the first dollar.

If you’re still in training, there’s an advantage to buying disability insurance before you exit, says Cole. “Do it while you have the discount advantage of being in residency. The discount can be as much as 15% off, and you lock it in. It’s lifelong.”

Cole says she sought referrals from other physicians and got quotes from multiple companies. “I asked about the riders available. As your salary increases, you’ll want your disability insurance to adjust proportionately. [Because I was still in residency] it felt expensive, but it gave me that peace of mind,” she says. “I think it was my program director who told all of us in residency to lock it in now, because the cost will skyrocket.” 

Also consider adding life insurance to the budget, particularly if you have a family. Most experts recommend term life insurance, which does the straightforward job of replacing income for your loved ones in the event of your death. Whole life is a more complicated hybrid of life insurance and an investment vehicle that carries costlier premiums.

Professional tax help 

Even as a new physician, your taxes could be complex. Mid-year job changes, moonlighting, productivity pay, signing bonuses and side hustles are among the common situations that can cause a balance due at tax time. That’s why it’s worth considering hiring a CPA at the start of your career, even if you’re a W-2 employee with tax withholding from every check. 

Estrada says, “There’s a big difference [in tax planning] between a W-2 employee and a 1099 contractor. But that’s not to say that those of us in the W-2 category don’t end up owing taxes. I ended up owing quite a bit of money last year just because I had changed jobs.” 

A CPA can help you prepare by calculating an adjustment to your withholding or amount of savings to set aside for taxes if you’re switching jobs. A CPA can also help you with quarterly filings to head off unpleasant tax surprises if you have 1099 pay, side-business income or income from a practice you own. 

“I have a side business,” Estrada says. “You have to be on top of your quarterly taxes with a business on the side. Otherwise, it can be pretty surprising at the end of the year if you haven’t filed and paid your quarterly taxes.” 

The cost of having a CPA handle your tax filing and planning is usually modest, and the savings in avoiding borrowing to pay an unexpected tax bill (or worse, penalties) could easily offset it. The peace of mind is invaluable.

“I could do it myself,” Estrada says. “But I just don’t want to risk it. I want the professional to take care of it. I’ll spend the four or five hundred dollars on a good CPA.”

Estrada notes that building this relationship will also help you prepare for the future, when special situations like property ownership and private investments could make your taxes much more complicated.

“I did my own taxes until I was about 65, and then I sold some mutual funds and screwed it up, and it was a real mess,” Blankenship says. “At that point, I started giving it to an accountant. I was surprised at how economical it is. It sure beats spending a couple of days going through the forms. In retrospect, one thing I wish I’d done differently is to get an accountant at an earlier stage in my career.”

Your financial planning timeline is unique

Just as every physician will have their own reasons for planning and saving, each physician starts their career in a different place financially. If you have student loans, your priorities change considerably. You may find you’re focused on the goal of budget stability for longer.

Cole notes one upside of living more frugally in the early years of an attending career is being able to pay off student loans faster, potentially saving thousands in interest. “It can work really well for at least some individuals,” she says. “But for others, [early loan payoff] might not be as feasible.” 

Factors you’ll need to weigh in your student loan repayment planning include the possibility of forgiveness, interest rates on each loan and your expectations of additional income in the future to increase your payments. You may find it helpful to hire an expert to help with the analysis.

“For the subset of physicians with significant student loans, you should have at least some idea of when you’re planning to be debt-free,” says Liu. “But it’s super complicated, which is why [for planning and budgeting purposes] it’s both 101 and really, really advanced at the same time.”

Maximize tax-advantaged investing

There’s one part of beyond-basics financial planning on which virtually everyone agrees: the importance of retirement savings. That’s not just because you’ll value having a nice nest egg when you get older. It’s also because you’ll get substantial assistance from the government, and probably even your employer, to multiply your savings.

Your employer’s 401(k) or 403(b) (for nonprofit and academic hospitals) plan, for example, allows you to save and invest money pre-tax. It will grow until you reach retirement and your savings won’t be taxed until you start withdrawing—when you’ll probably be in a much lower tax bracket.

The other major advantage of an employer sponsored retirement plan is your employer will usually match at least some portion of your contribution to the plan. That’s free money for retirement you don’t have to earn.

The sooner you start contributing, the better, says Estrada. “There’s no excuse for not contributing the max to your employer’s [retirement] plan because that’s money that doesn’t get taxed. Just put it in there and let it grow and compound,” he says. 

If your employer’s health plan offers a health savings account (HSA), that’s another avenue for pre-tax savings. You’re able to make pre-tax contributions to the account and use those funds to pay for out-of-pocket medical expenses, such as copays and deductibles. Even better, unused funds you accumulate can be withdrawn for any purpose after age 65.

In the unlikely case that your employer doesn’t offer any tax-advantaged retirement plan, you can (and should) set up your own IRA, contribute to it annually and deduct that contribution on your tax returns to lower your income taxes.

If you have or plan to have children, a 529 plan is another tax-advantaged form of savings you may want to add to your budget. While the contributions are made with after-tax dollars, you won’t be taxed on the growth of the investment. Many states also offer state-tax deductions or credits for 529 savings.

Long-term savings

When your needs and wants are covered and you’ve maxed out your retirement accounts, you’ll have more discretionary funds to put toward future goals. For simplicity and choice, most investors turn to stocks and bonds when they’re ready to take on calculated risk to generate higher potential returns.

When choosing how to play the market, experts agree that buying individual stocks usually increases risk compared to funds that combine a variety of stocks in a single investment. Even if one stock in a fund declines significantly, others may rise, helping to support the value of the fund. This is known as the protective effect of diversification, and it’s one reason many experts recommend holding index funds that track broad swaths of the market (e.g., the S&P 500, international stocks, bond funds, etc.) instead of choosing individual stocks.

“You could buy some broad-based index funds and not touch them, and you’re probably going to beat 90% of active managers,” says Liu, echoing advice from financial luminaries like Warren Buffett, one of the most successful investors in history.

If you’re interested in public market investing, Estrada says, there are many resources to help you learn, even if you’re a complete novice. Brokerages like Fidelity, eTrade and Schwab offer lots of educational content, much of it free, even if you are not an account holder on their platform.

“Investment platforms offer numerous teaching lessons, and they’re usually free, especially if you invest with them. But most of what I’ve learned is through reading,” he says.

Estrada adds that if you want to try individual stock picking at some point, learning more about brands you already know and love as a consumer is a good place to start.

“If you drive a Toyota, you could invest in Toyota stock. Or maybe you like Lululemon products, so you invest in Lululemon if you see a big future in them. That’s how I pick individual stocks and watch their performance.”

That said, Estrada cautions that before buying any investment, it’s crucial to understand the riskiness of it and your own risk tolerance.

“Invest at a level that helps you sleep at night. If you’re staying up all night because you’ve lost $30,000 or $100,000 on one market swing, then you’re probably over-invested,” he says.

Should your budget include an advisor?

As your financial plan gets more detailed and your investment portfolio expands, you may wish to hire professional investment and money-management advice. 

Of course, whether you “should” work with an advisor is a completely personal decision. Some physicians enjoy learning about and managing money themselves; others prefer to delegate more or have the help of an expert as they learn the ropes.

Liu says when shopping for a financial advisor, the first step should be to know what type of advice you’re looking for. 

“I ask [physicians], which of these two sentences is more true for you? ‘I would gladly pay money to delegate management of my finances to a professional I trust so I don’t have to deal with it myself.’ Or, ‘I would gladly pay money for a professional I trust to teach me what I need to know so I can confidently manage finances on my own.’”

“Some physicians feel like they can be autonomous with their financial planning. Others might do their own research but still want some additional advice,” says Cole. “That’s where a fee-only consultation can be beneficial. If you get confused or stuck, a financial advisor can be really helpful.”

Cole adds one benefit of being a physician is financial advice from experts is often available for free, which may open the door to an advisor relationship that works for you.

“An interesting thing about being a physician is that we actually get exposure to a lot of seminars about financial planning for free, sometimes with dinner included,” she says. “You get a bit of complimentary financial advice as you’re starting that process. Then, if you have a good rapport with one of those financial advisors, you might end up doing a [fee-only] consultation session.” 

Cole adds a single, flat-fee consultation might be enough to get your questions answered, or you could set up an ongoing relationship if the advisor feels like a good fit.

Knowing an advisor earns money only through client fees also helps ensure recommendations are based on their genuine opinions, not the opportunity to earn a commission by selling you a particular financial product. 

Blankenship says he didn’t hire an advisor early in his career but now thinks it might have been helpful. “I was never quite sure where I stood and perhaps a little anxious about whether I was saving enough,” he says. Working with an advisor early on might help avoid anxiety about the course you’re on financially.  

If you do decide to hire an advisor, it’s important to stay actively involved, Liu says. “If you are delegating, you should still be the CEO, even if you now have a CFO.”

Putting technology to work

Whether you hire an advisor or handle your money yourself, technology can be a timesaver.

“One of the biggest challenges in getting started in financial planning is making sense of your current situation,” Liu says. “Financial apps can help you get organized and create a snapshot of your finances and investments.”

Some of the best tech tricks for financial planning are also some of the simplest. For example, automatic transfers from your checking account to savings ensure you earn interest on your cash-on-hand. Calendar reminders can alert you when estimated taxes are coming due, to review your 401(k) contribution amount or to make a tax-deductible charitable donation before year-end. 

“Automation is one of the best things, especially for busy physicians who are worried about others and more pressing needs. I believe automation trumps willpower almost all the time,” says Liu.

Find fun and meaning in managing money

Managing money can become stressful if it seems only to involve unpleasant trade-offs, rules or dry analysis. It becomes easier and more enjoyable when you find ways to make it fun.

“My friends and I are always searching for the next fun app to help save money,” Cole says. “For example, there’s one called Too Good to Go that’s also environmentally friendly. If food is expiring in stores like Whole Foods, you can pay a small amount and get a bag full of items they’re getting rid of. You don’t know what’s in it. Maybe you’ll come home with two loaves of sourdough and a bouquet of flowers. It’s just a fun little thing where you’ve helped prevent food waste, saved some money and gotten a little surprise.”

Cole adds that shopping for deals can be fun, too. For example, scouting out the best mileage credit card adds a game-like element to maximizing the value of the money you spend. 

In a nutshell, Cole looks for ways to make personal finance engaging rather than stressful, finding enjoyment in research and celebrating small wins. “A dollar is a dollar,” she says, especially when it’s a dollar you’ve earned.

“Money itself should never be the end goal, but it should never be ignored as part of a mission,” Liu says. “For a given mission, there may be a much more optimal path.” The reward of managing money effectively, in other words, is a smoother path to your life goals. 

Blankenship wants to reassure new physicians who may be worrying unduly about bad outcomes that will never happen—and missing out on important opportunities as a result. Looking back on his career, he says that his biggest money regret had nothing to do with not being disciplined or saving enough. 

“As I reflect on my life, there were times when we’ve given out significant chunks of money, and you always say, ‘Is that going to come around and hurt me? Am I not going to have enough for my next mortgage payment or whatever?’ And the amazing thing is I’ve never, in all my life, had a reason to regret donating to somebody or some deserving organization. I have had a reason to regret not making one, but I’ve never had a reason to regret being generous with our money.”

Liu adds, “I don’t want you to haggle about, ‘Do you really need that latte?’ Because, who cares? If you have your plan set, the important things covered, go ahead. Buy a venti. Live your life. Spend your money on whatever makes you happy, as long as you’ve taken care of the important stuff.” •