Physicians dedicate their lives to providing excellent care for their patients. However, amidst their demanding jobs, it is crucial for them to take the time to understand and manage their own finances. Financial literacy is generally overlooked in medical training, but it is an essential skill that impacts both the personal and professional aspects of an MD’s life. According to Environics Research 2019 MD Physician Literacy Study, 56% of younger physicians said that they did not receive financial education before starting their careers. The same survey showed that practicing MDs scored just 55% on a test of basic finance (although that is better than the 53% attained by residents).
In this post, we will delve into why it is vital for physicians to understand their own financial situation.
Financial security: By having a solid understanding of personal finance, MDs can manage debt, create realistic budgets, build an appropriate emergency fund, and establish a retirement plan. Without knowing their current debts, income, investments, and spending rates, these would all just be guesses.
Work-life balance: Physicians often work long hours, leading to stress and potential burnout. Having a handle on their finances can help them achieve a better work-life balance by determining the appropriate amount of work required to meet their needs. Achieving financial independence allows MDs to prioritize personal well-being, leading to better mental and physical health. If one knows exactly when they can afford to walk away, it provides the option to retire if burnout strikes.
Debt management: A Statistics Canada survey in 2019 suggested that the average Canadian undergraduate student finishes with $28,000 in debt. Add to that the medical school graduate completing their degree with a median $90,000 in debt (Source: The Association of Faculties of Medicine in Canada), and it’s a significant figure. By being aware of repayment options and refinancing opportunities, physicians can save thousands of dollars in interest over time. They may also be able to decide which side of the debate between debt repayment vs. early investment works best for them. Taking control of debt allows focusing on professional growth without undue financial stress.
Professional growth: A solid financial background is invaluable in evaluating opportunities such as buying into a practice or license, or considering the financial implications of non-clinical careers. Understanding basic finance principles enables physicians to negotiate fair compensation packages, or assess the potential profitability of business ventures inside and outside of the medical realm.
Future financial independence: Physicians have the potential to earn substantial incomes; however, high income does not automatically guarantee financial independence. Undereducated MDs have been known to fall into common traps like overspending, failing to save enough, or making poor investment decisions. I have always told learners that physicians make the ideal client for the financial industry: high income, low knowledge, and high loyalty. Having some financial acumen can reduce the risks of blindly trusting advisors, such as investing in instruments that are unnecessarily high risk or ultra-conservative (limiting potential gains).
Tax planning and wealth preservation: MDs face unique tax challenges. In the Environics Research 2019 MD Physician Literacy Study, Canadian physicians with at least 6 years of experience said that tax planning was their #1 financial concern (at about 50%). Understanding their finances allows them to maximize deductions, use tax-advantages accounts, and explore tax-efficient investment choices. Minimizing tax liabilities will preserve more of their hard-earned income, which may allow MDs to hit their financial targets earlier or with a lesser workload. Proper financial management can equip physicians to create a lasting legacy that supports their family’s security, educational opportunities, and philanthropic endeavours.
In an increasingly complex financial landscape, it is critical for MDs to prioritize understanding their own situation. By doing so, physicians can achieve financial security, effectively manage debt, strike a solid work-life balance, and plan for a comfortable retirement. Taking control of their finances can also reduce stress and lead to a greater sense of overall well-being personally and professionally.
Author: Dr. Krishna Sharma, Chief Medical Officer, Specialty Medical Partners
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