“Money makes the world go round” – and it can make you go round in circles too, if you make financial mistakes. This is one part of our existence, where even age and experience are no guarantee for not making mistakes. Having said that, youth and inexperience create more chances for making financial blunders than the old and wise. Young physicians too are equally susceptible to making financial mistakes and need to be extra careful when dealing with those typical physician-specific traps. Given below are three common mistakes that young doctors have been found to make in their initial years of practice.
Taking whatever terms are offered
The lure of making big money and the fear of not getting another offer makes young physicians agree to whatever terms the potential employer offers, without realizing the long term implications of such an offer. What is important to you – money, work schedule, time for family – you need to prioritize your requirements. Check whether the terms offered match your priorities before you accept the job. However, you need to be clear about your “wants” versus your “needs” and understand the difference between the two. While your needs require fulfillment immediately, your wants can be fulfilled in the long term. Depending on your needs and priorities, negotiate firmly but respectfully to ensure that you get what you deserve.
A lot of young physician’s who made the mistake of not negotiating or not setting their priorities early in their career, now rue the chance they lost. While some of them are trying to reorganize their careers or look for a different job; some have resigned themselves to what they have. Thus, it is important to be confident and negotiate terms that will support your priorities – this will make your career a rewarding and happy one.
Spending more than you earn
Most young physicians are already in debt by the time they graduate. Covering the cost of tuitions and boarding, this debt could be as high as $200,000 for most. The salary as a resident doctor (while completing your training) may not be enough to service the interest on the debt. By the time you are starting out on your career, you are already neck deep in debt. This is the worst time to spend money on your wants – be it a car or a house of your own. While there is no doubt that you will be earning from now on; the last thing you want to add to an already existing debt is additional mortgage payments. This is the time to ensure that your needs are fulfilled – your wants can wait for a few more years.
The first priority for young physicians should be to pay off their student loan debt. That would mean living the lifestyle of a resident for a few years more. This would also allow them to increase their savings rather than getting further into debt. While it is tempting to spend money on your wants, it adds to the pressure of making ends meet which will eventually start telling on your personal and professional life.
Investing without understanding
Money kept idle and not invested, will eventually shrink in value. However, money invested without understanding and knowledge will definitely shrink in value. Just because you have become a doctor does not automatically qualify you to become a knowledgeable investor too. There are many young doctors who have made this mistake and paid heavily for it. You are earning good money and you wish to make it better – get yourself a professional investment advisor. However, do not blindly follow the advice; instead do your own research on his advice and educate yourself on the intricacies of financial investment.
Remember, there are no free lunches – what may be attractive as a “tax free” investment would not necessarily be “cost free”. Cost of investment plays a major part in average and good returns – not everything that is tax free is necessarily good investment. A good investment portfolio is a mixed bag on tax deferred products, tax free products and taxable products. This translates to products such as 401(k) or 403(b), stocks and mutual funds.
Remember, investing wisely and keeping a leash on your spending will ensure that you are financially stress free throughout your career.