Financial Strategies to Make the Most of Your High Income as a Physician
As a physician, you have a lot of responsibility—both to your patients and to your own financial situation.
That’s why it’s so important to ensure you’re making the most of your high income. And fortunately, with some careful financial planning, you can set yourself up for success both now and in the future. Here are five strategies to get started.
1. Invest In A Diverse Mix Of Stocks And Bonds.
Diversifying your investments is an important step to creating financial security and building wealth.
Investing in a mix of stocks and bonds can be an effective way to accomplish this. At a high level, stocks provide the potential for strong returns but also involve greater risk than bonds, so it pays to diversify your portfolio. For example, if stocks are down, having bonds may help minimize losses by providing stability. A diverse investment portfolio often means finding the ideal balance between risk and reward and can help optimize overall financial gains and security over time.
2. Consider Saving For Retirement Using Tax Advantage Retirement Accounts.
Consider using a tax-advantaged retirement account if you’re looking for ways to start or amplify your retirement savings.
From a tax perspective, there are two types to consider: pre-tax (Traditional) or after-tax (Roth).
For high-earners, it may be wise to focus on contributing to pre-tax retirement accounts as you will receive a tax deduction today in your high marginal tax bracket. Then, ideally, you can distribute those funds at a lower marginal tax rate during retirement. This tax arbitrage can save you big time over the years when done correctly.
Alternatively, Roth accounts can be a great option as well. These accounts allow you to contribute after-tax funds, locking in your tax rate today. Then, all of your funds can be distributed tax-free during retirement. Generally, if you anticipate being in a higher tax bracket during retirement than you are today, it can make sense to contribute to Roth accounts.
Keep in mind there are no hard and fast rules when deciding which account types to contribute to, so be sure to develop a plan that is uniquely tailored to your needs and preferences.
3. Make Sure You Have Adequate Life And Disability Insurance Coverage In Case Of An Unexpected Death or Disability.
Life and disability insurance are incredibly important aspects of planning your future and making sure you and your family are taken care of in the event of an unexpected death or disability.
Especially for physicians, who have invested so much time and money into getting established in their careers, and have such high earning potential over their careers, it can be critical to be adequately insured
It’s important to work with a reliable and knowledgeable disability or life insurance agent to help you create a policy that meets your specific needs.
Regarding disability insurance, one of the key things to look for is an ‘own-occupation’ policy. This type of policy will kick in if you are disabled to the point that you can no longer do your job. Alternatively, if your disability policy is ‘any occupation,’ it will only go into effect if you are disabled to the point that you can no longer do ‘any job.’
And for life insurance, often a simple term policy with a large enough death benefit to provide for your family now and in the future is best. This is a simple, cheap, and effective way to buy life insurance. That said, there are very specific instances where a permanent life policy may be best, though that is rarely the case.
Everyone’s situation and family responsibilities are different, so it is essential to craft a plan tailored to you. Having the right level of coverage for yourself and your family can provide true peace of mind—ensuring that the ones you love most will be secure, even when faced with unthinkable tragedy.
4. Stay Mindful Of Your Spending Habits And Create A Budget To Live Within Your Means.
Next, establishing a clear budget or “spending plan” is an important step toward creating a healthier financial future.
It’s important to remember that no matter how high your income is, if your expenses exceed it, you will never get ahead.
Keeping track of your spending can help you to stay mindful of where your money is going while living within your means ensures that you balance your income with your expenses. It can also be helpful to set some financial goals for yourself that are reasonable and achievable, such as increasing savings or paying down medical school debt. Allowing yourself to enjoy the things you value within your budget can provide a great sense of control and satisfaction when handling finances.
5. Review Your Debt Situation Regularly And Make Extra Payments On High-Interest Debts.
Lastly, being aware of your debt situation is critical for managing your finances, so it’s a great idea to review your debts regularly.
With an active approach to debt management, you can prioritize payments based on interest rates and put extra money toward high-interest debts when possible. This will help you reduce the overall balance quicker and save you money in the long run.
And when it comes to student loans, it’s also important to make sure that you are taking advantage of any benefits or deals that may apply to your loans, such as public service loan forgiveness (PSLF) or income-driven repayment plans.
Ultimately, taking control of your debt can positively impact many other areas of your financial health and peace of mind, so it’s worth reviewing and understanding all the factors associated with it.
TrueNorth Wealth is here to help.
If you’re interested in working with a fiduciary CFP® professional to help you make the most of your high income as a physician, complete with a custom investment portfolio to deliver your financial goals, then TrueNorth Wealth is here to help.
TrueNorth Wealth is among the top Wealth Management firms in Utah and Idaho, with offices in Salt Lake City, Logan, St. George, and Boise. At TrueNorth Wealth, we focus on helping our clients build long-term wealth while maximizing the enjoyment they receive from their money. We do this by pairing our clients with a dedicated CFP® professional backed by an incredible team.
For our team at TrueNorth, it’s about so much more than money. It’s about serving families all across Utah and helping them achieve freedom and flexibility in their lives. To learn more or schedule a no-cost consultation, visit our website at TrueNorth Wealth or call (801) 316-1875.