by Forrest Friedow, Partner & Senior Financial Advisor, Larson Financial Group
If you want to reach financial independence and achieve other long-term financial goals, I would argue the primary predictor of your success or failure is the way you manage the income jump from training into practice.
Many physicians compare themselves to their peers further along in their careers and assume that they too should buy a huge house, fill it with cool furniture and park two shiny new cars in the driveway to say, “I made it!” Very few clients in my practice went this route. The ones who did had some catching up to do.
For most people—physicians in particular—living on a budget may have negative connotations. It means the end of lattes, no chance at a luxury car, and never any fancy vacations; just paying down student loan debt and investing for some unimaginable future retirement date.
In my practice, that is not how most of my clients live. In fact, I don’t expect my clients to save every penny for the future and miss out on living now; I encourage them to enjoy the above-average income and to spend time doing things they enjoy. Instead, I ask my clients to do one thing: Pay yourself first.
The concept has been around for a long time and it’s simple. Before you spend money on anything else, make a commitment to set aside a percentage of your income or a flat dollar amount. To improve your chance of success, consider the following:
- Automate your savings. Whatever you choose, percentage or flat amount, set up a monthly draft from your primary checking account to an account or accounts depending on where you plan to save/invest the money.
- Choose a percentage or amount that will leave extra money in your checking account each month. This is simple psychology: It keeps you from feeling strapped for cash. As your account increases, it has the added benefit of providing additional funds for larger purchases, like a much needed and often overlooked vacation.
- Reevaluate periodically as income increases or if you receive bonuses for RVU true ups or annual collections. As income increases, most physicians spending increases. Instead, I recommend increasing the percentage or flat dollar amount allocated to saving/investing.