Category Archives: Wealthy Behaviors

The Finanicially Organized Doctor

Here’s how to get a jump-start on creating a system to organize your bills, statements, policies, and other financial paperwork.

Financial Organization for Physicians

Financial organization for doctors is a cornerstone of a healthy financial life. At the most basic level, financial organization saves time and money because it aids in paying bills on time, being able to find needed documents during tax season, providing proof of payment, disputing credit cards or billing errors, and avoiding the stress of dealing with piles of unorganized bills and paperwork.

It also set the stage for better financial decisions surrounding investments, budgeting, debt, and financial planning. Financial organization helps your working relationship with your financial advisor, because there will be less time spent looking for paperwork and more clarity around the overall financial situation, leading to more informed decisions about investments and financial plans.

While having a system to organize financial paperwork is important, it is not so important which system is followed but that a system exists. In most cases, a combination of electronic and paper filing systems will do the trick.

Bills, statements, policies, and other documents that are delivered online can be stored and backed up on a computer hard drive or through online banking websites, third party bill pay, and website document storage platforms. Some websites offer budgeting and spending information and advice. Some of these sites — as well as online bank websites – allow you to set alerts for when bills are due and when bills are paid to help ensure timely payment.

For doctor couples, clearly establishing responsibilities for financial matters is an important priority. If one spouse manages the finances, the other spouse should be informed about what is going on financially, where important documents are stored, and the passwords for all online accounts.

What documents to keep and what to toss is another important part of becoming better organized. The IRS recommends retaining tax returns and any documents that support tax returns for seven years. Other documents such as paper bank statements, investment account statements, and credit card statements can be thrown away after a year, especially if they can be accessed online in the future if necessary.

Whatever documents are stored on your computer should be backed up in the event of a computer crash. Some of the online document storage platforms allow organization in a digital filing cabinet, making it easy to find documents on the go. These online systems are also very useful in the event of a natural disaster such as super storm Sandy — many people with flooded homes lost their paper documents.

Financial paperwork generally falls into the following categories: investments, taxes, credit cards and loans, college savings, retirement savings, insurance, and estate planning. Let’s take a look at what documents you need to keep on hand in these areas.

Document Checklist

Investment Planning

While you may not have all of these different kinds of accounts or investments, these are the kinds of accounts that many doctors do have. Having the policies, statements, and other important paperwork of these accounts organized and accessible helps you and your financial advisor plan an investment strategy and properly diversify those assets according to your risk tolerance, time horizon, financial goals, and other objectives. They are a good place to start when organizing your financial records and paperwork.

Stocks & Bonds

  • Checking accounts
  • Savings accounts
  • Money market accounts
  • Certificates of deposit
  • Brokerage accounts
  • Mutual Funds
  • Annuities
  • Life insurance cash value
  • IRAs
  • Retirement plans
  • Employee stock purchase plans
  • Stock options
  • Stocks
  • Bonds
  • Real estate
  • Precious metals and other collectibles
  • Business interests and other investments

Income tax planning

Income tax planning for doctors is a forward-looking process that identifies strategies designed to reduce future income taxes. These may include tax-loss harvesting, investing in tax-advantaged vehicles, identifying tax deductions that may have been overlooked, or creating tax deductions such as setting up a qualified retirement plan. Note that income tax planning is not the same as income tax preparation, which focuses on documents required by the IRS. For income tax preparation, you will need to consult with your tax advisor.

  • A variety of documents are required to prepare taxes and assess your tax situation. Keeping proper tax records is extremely important for IRS, accounting, and investment purposes. Tax documents that should be safely stored and easily accessed include:
  • Income tax returns for the last three years
  • Paycheck stubs or statements showing regular income as well as unusual taxable distributions that may change your tax picture this year
  • Statements or other documentation showing the cost basis and current value of assets owned outside retirement accounts
  • Retirement plan information showing the amount you are eligible to contribute
  • Statements showing major deductions, such as mortgage interest and property taxes
  • Information on charitable contributions

Credit and debt planning

Debt is often a significant part of a physician’s or dentist’s overall financial picture. Statements for loans will help get a handle on your level of debt, interest rate of that debt, and loan terms on these kinds of revolving and installment credit debt. The following documents should be filed and stored for periodic review:

  • Credit cards
  • Mortgages
  • Auto loans
  • Student loans
  • Business loans
  • Personal loans

It’s a good idea to obtain a copy of your credit report, which you can get for free once a year. While credit scores aren’t free, websites such as MyFico occasionally offer promotions that provide access to credit scores in exchange for a credit monitoring service, which can be cancelled before charges are incurred.

College planning

College planning is vital for parents. It is also something that many grandparents wish to assist with. There are many types of college savings vehicles, so be sure to keep track of all the account with funds saved by parents, grandparents, aunts, uncles, and other relatives. To stay on top of balances and track savings progress, these statements and records are useful:

  • Statements of accounts earmarked for college\ (529 plans, Coverdell accounts, UGMA/UTMA accounts, accounts in parents’ names earmarked for college)
  • Completed FAFSA (Free Application for Federal Student Aid) for students already enrolled or preparing to enroll in college
  • Other documentation relating to student loans

Retirement planning

Retirement is the largest financial goal for most doctors. As such, it’s very important to keep track of all retirement accounts, including 401(k)s from current and previous jobs, traditional and Roth IRAs, and other accounts such as 457 plans. These documents are vital for staying on top of savings and investment goals:

  • Account statements and summary plan descriptions for all employer-sponsored retirement plans
  • IRA account statements
  • Social Security Personal Earnings and Benefits Estimate Statement (PEBES)
  • Account statements for all assets (see list under Investment Planning)
  • A budget showing expected living expenses in retirement
  • Employee benefits information on health and retirement benefits
  • Veteran’s administration record

Insurance planning

Risk management is another vital aspect of your financial life. This includes life, auto, disability, health, and other coverage you may need as well as current or future Social Security benefits. To manage and periodically re-evaluate coverage levels, deductibles, and premiums, retain these documents:

  • Insurance policies and current policy statements for the following (including employer-sponsored insurance):
  • Life insurance
  • Disability insurance
  • Health insurance
  • Homeowner’s or renter’s insurance
  • Automobile insurance
  • General liability (umbrella policy)
  • Professional liability
  • Long-term care
  • Social Security Personal Earnings and Benefits Estimate Statement (PEBES) showing survivor and disability benefits

Estate planning

There are two key aspects to estate planning for doctors: wealth transfer (ensuring that assets are transferred to the right people) and estate tax savings. Planning for and monitoring your estate requires maintaining these records, including:

Trust documents

  • A copy of your latest will and letter of instructions
  • Index of all assets (see list under Investment Planning, but also includes real estate,
  • collectibles, business interests, etc.)
  • Trust documents
  • Advance directives
  • Power of attorney for health care
  • Power of attorney for financial matters
  • Beneficiary designations for IRAs, life insurance, annuities, employer-sponsored retirement plans
  • Prenuptial agreements
  • Statements or deeds of trust showing how assets are titled
  • Pet care

Miscellaneous documents

There are also many other important documents that fall into a catch-all miscellaneous documents category. These include everything from a Social Security card to military service records to adoption and divorce paperwork. Keep the list current by adding new documents as appropriate.

Divorce papers

  • Birth, death, and marriage certificates
  • Social Security card
  • Passport
  • Vaccination records
  • Military service records
  • Deeds and titles to all real estate, autos, and other hard assets
  • Adoption papers
  • Divorce papers
  • Prenuptial agreement
  • Religious ceremonies such as baptism, confirmation, ordination, marriage, annulment paperwork
  • Jewelry appraisal list for all items valued at more than $500

Make an “Account List”

From employers to banks to insurance, most doctors have a large and constantly changing list of financial accounts. It’s important to update this at least once a year as this information usually changes frequently. In the event of an emergency or bereavement, family members need to know who to contact for important information about insurance policies, account balances, etc.

Key Passwords/PINs

Online accounts are becoming a perplexing legacy issue for family members and financial advisors. Many bereaved family members are struggling with gaining access to online accounts, especially as many brokerage, checking accounts and retirement accounts have converted to online access. Without passwords, family members can’t access statements and account numbers and may have trouble obtaining this information. Make a list of all the password and personal identification numbers (PINs) that are important to your financial affairs. Keep it with your important financial documents and update it once a year.

A final word

Financial organization is an important part of the financial planning process. A solid filing and organizational system will save hours of time that would be otherwise spent hunting for statements, bills, or policies. By setting aside time on a regular basis to maintain an online and paper-based organizational system, you’ll be better informed about your finances and be in a better position to act as a partner with your financial advisor.

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Copyright © 2013 by Horsesmouth, LLC. All Rights Reserved.

Developing Sound Wealth Management Habits

Whether a saver or a spender, it is important to develop sound financial habits in order to better manage your monthly cash flow. Larson Financial Group believes that no matter the financial phase, every physician should practice these four financial habits.

Financial Habits for Cash Flow Management:

  • Habit #1: Maintain Emergency/Opportunity Reserves
  • Habit #2: Categorize Your Life—Build a Budget
  • Habit #3: Give to Causes Greater than Yourself
  • Habit #4: Begin on the Final Page

Habit #1: Maintain Emergency/Opportunity Reserves

Life changes quickly, and the unexpected frequently occurs. Financial planning textbooks often suggest that you should set aside cash equal to six months worth of your income.(1) The reality is that many doctors and dentists do not keep that much in reserves. Rather, most of our physicians maintain about two to three months worth of monthly living expenses in a checking account or money market fund. For additional emergency reserves, they rely on a home equity line of credit, four-day access to their investment funds, and/or an unsecured line of credit.

Habit #2: Categorize Your Life – Build a Budget

Budgeting for DoctorsIn addition to building adequate emergency reserves, we also recommend doctors separate their financial responsibilities into five main categories in order to help build a basic budget for their financial lives:

  1. Giving
  2. Saving
  3. Living
  4. Debt Reduction
  5. Taxes

Each category should be assigned a percentage of the total income. Provided that the percentages are properly balanced, this can make life much easier.

Doctors and dentists often wonder how they should go about establishing the above percentages. Every situation is different, but we offer the reader some basic guidelines in Habit #3 and Habit #4.

Habit #3: Give to Causes Greater than Yourself

As first we were surprised when our clients asked us about how much money they should be giving away. We had not expected to be involved in such a personal decision. It turns out that many physicians have questions about giving money to charity or tithing to their place of worship. This is exciting. It tells us that we are involved with a generous portion of society that believes financial success is not something to be taken for granted.

On the surface this issue is personal, but we believe the question arises as many people share a worldview that this life is about more than just ourselves.

Many of us approach life from different religious beliefs, and this influences the way we manage the financial resources that have been entrusted to each of us. The world’s major religious faiths share three fundamental financial principles as it relates to giving, that are paramount to this discussion:

  1.  Those of us who have resources also have a responsibility to help provide for those who do not.
  2. Giving to those less fortunate should involve a measure of personal sacrifice or we are not doing our part.
  3. Giving should be done at all phases of life. (We are fooling ourselves by thinking that we will give later when we have more resources.)

Money is a temporary tool for a temporary life. At the end of the day, we know of no man or woman who hopes his or her gravestone says, “Here lies a really rich doctor.” Instead, our hope is that we can help our clients achieve enough peace of mind regarding their own financial lives that it frees them to devote more of their time, effort, and energy to building a meaningful legacy.

If your primary question is, “How much should we give?” perhaps a paradigm shift in your thinking is appropriate. A better question might be, “How much can we give?” In their book Why Good Things Happen to Good People, Stephen Post, Ph.D. and Jill Neimark, document consistent studies that show those who are generous with their time and wealth are happier, healthier, less stressed, live longer, and feel more spiritually fulfilled.(2) Therefore, when it comes to cash flow management, we believe one of the most important habits to establish early on is a consistent method of giving away a portion of your resources to passions greater than yourself.

Dr. Ryan Vickery, a successful anesthesiologist, summed up these principles well for us in a personal interview. He found that perspective is vital in understanding why it makes so much sense to give away time or resources

“For years,” he said, “I focused the actions of each day on the short term. It was as if the only important part of life was the next 3-5 days.” He then added, “When we actually sat down on different occasions to give it some real thought, it connected for my wife, Becky, and me that life is really about something much bigger than what we were previously focused on.” (3)

When we look at life in terms of the “big picture,” as shown above, everything else will change. If we focus on the long-term, the way we interact with our spouses will change, the way we parent our children will change, and most important, as it relates to this article, the way we manage our financial lives must change.

Dr. Ben Carson, director of the pediatric neurosurgery division at Johns Hopkins says the following in his book, The Big Picture: Getting Perspective on What’s Really Important in Life: (4)

The reason we need to consider our priorities carefully–and the principles on which we base them–is that they impact every important choice we make in life. Those choices further determine both the ultimate direction of our lives and the unique set of opportunities that will come our way.

Giving BackHow is a doctor to make this long-term perspective on priorities practical in his or her own financial life? For those physicians who have not yet established their own philosophy for their family’s charitable giving, we offer a suggestion. Our approach is simple. Begin giving away a set percentage of the after-tax paycheck you bring home. To begin, the percentage is irrelevant, just do something to get started. Make it a goal as a family to increase this percentage whenever possible, but at least every year. Even if you only increase by 0.5% per year, you will still be giving more and more, and likely finding your efforts increasingly more fulfilling.

Giving becomes easier once it develops into a regular habit. We have yet to meet a physician who started giving and later regretted it. You need not take our word for this, instead consider the words of Dr. Will Mayo:

By 1894 my brother and I had paid for our homes. Our clinic was on its feet. Patients
kept coming. Our theories seemed to be working out. The mortality rate among our
cases was satisfyingly low. Money began to pile up. To us it seemed to be more money than any two men had any right to have. We talked it over a lot, that year of 1894 we came to a decision. That year we put aside half of our income. We couldn’t touch a cent of that half for ourselves…

From 1894 onward we have never used more than half of our incomes on ourselves and our families… My brother and I have both put ourselves on salaries now. The salaries are far less than half our incomes. We live within them…

My interest and my brother’s interest is to train men for the service of humanity. What can I do with one pair of hands? But, if I can train 50 or 500 pairs of hands, I have helped hand on the torch.” (5)

Habit #4: Begin on the Final Page

Simply building emergency reserves, categorizing your life, and giving to great causes will not automatically lead to financial success. The remaining key is to spend the right amount less than you earn. In order to determine the right amount to properly set aside for the future, you must first “begin on the final page.” The point is simple: if you don’t know where you’re headed; there is no good way to get there. Instead, when you know what you want to achieve, you can work backward to determine the amount that you need to save
today in order to make it happen.

Beginning on Your Final PageDelayed gratification is a difficult concept for many Americans to grasp. We live in a society that thrives on getting whatever we want whenever we want it. Fortunately, doctors have a much better understanding of delayed gratification than the general public, or they never would have spent so much time in training. No different than setting your sights on becoming a physician, it is crucial to set some reasonable objectives about what you want to achieve in the future as it relates to your financial life.

Doctors and dentists are often pleasantly surprised when they find out that they can still enjoy a great lifestyle today, while at the same time providing for the future. In fact, families tell us it is comforting to know the appropriate amount they need to save, to set aside for the future. By knowing that, they also know how much they can spend and enjoy today.

It is always better to know sooner, rather than later, if your expectations are realistic. When it comes to money, almost everyone hates surprises.

Creating a Savings Target

We are often asked: “How much should we be saving for the future?” Because each family’s situation has so many different variables, there are no generic answers to this question. However, the following chart, from the Journal of Financial Planning, provides some general guidelines based on the most common situations we see for younger physicians.(6)

Notice that achieving a comfortable retirement requires a far larger portion of your income to provide for retirement than the typical 10% you may have previously heard. Of course, the earlier you begin saving, the lower the percentage of income required to meet your goals. Note that this issue is a gigantic aspect of what makes your financial life so unique as a physician. If you had 40 years to save for retirement, your required savings rate might drop to as low as 8% of your income. Because physicians typically desire a much shorter time frame to reach financial independence, this dictates their savings rate must be greatly increased.(7)

Do your wealth management habits need help? Let us support your strategy.

(1) Altfest, Lewis J. Personal Financial Planning. Boston, MA : MacGraw-Hill Irwin, 2007. (2) Post, Ph.D., Stephen and Neimark, Jill. Why Good Things Happen to Good People. New York, NY : Broadway Books, 2007. (3) Vickery, M.D., Ryan and Vickery, Rebecca. Personal Interview with Dr. Ryan and Mrs. Rebecca Vickery. 2010 30-September. (4) Carson, M.D., Ben and Lewis, Gregg. The Big Picture: Getting Perspective on What’s Really Important in Life. Grand Rapids, MI :Zondervan, 1999. (5) Logan, J.T. The Mayo Clinic. The Free Methodist. 1931 13-February. (6) “Comfortable retirement” seeks to replace 50% of pre-retirement income. This data is provided through a source we believe to be fully reliable but we cannot directly attest to the accuracy of the findings. Data is based on historical findings and does not guarantee future results. (7) Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle. Pfau, Wade D. Washington, DC : Financial Planning Association, May 2011, Journal of Financial Planning.