Do any of these sound familiar?
- Investing in startups or other long shot endeavors.
- Not focusing on what you do best.
- Being inadequately insured.
You are an expert in your field. You went to school for six to ten years longer than most college graduates and it’s paid off. You earn substantially more income than most Americans and have garnered prestige and respect throughout your community. However, that training and brainpower does not protect you from making common mistakes when it comes to your finances and running your own practice.
Here are a few traps that often ensnare highly successful physicians. Don’t let these happen to you:
Investing in Startups or Other Long Shot Endeavors
If you own your practice, you are aware of the costs and risks associated with doing business as a medical professional. To mitigate those risks, you probably have an experienced CPA who understands your profession and bankers who provide lines of credit and loans to keep your business running smoothly. Chances are, the bank has done its due diligence and reviewed you and your practice and determined you were worthy of a business loan.
My rule of thumb is that if a bank won’t loan someone the funds they need, then neither should you. We all know people who got lucky and made a killing investing in a startup. Just remember, they were most likely a lot luckier than they were smart about the investment. You may never know about the dozen other projects/startups that sounded promising but never panned out. It’s extremely difficult for anyone, including professional investors, to replicate a consistent track record investing in startups. I certainly wouldn’t bet my family’s financial future on a longshot – neither should you.
Not Focusing on What You Do Best
Think back to your cumulative years of education from your undergrad, medical school, and residency. How much of that rigorous training was devoted to learning how to run a medical practice? Not much, right?
A good office manager is worth his or her weight in gold as they often can run the administrative side of your office in a more proficient manner. To run a highly profitable practice, you should be allocating your time seeing patients, providing services, and dispensing expert advice. You should NOT be spending your valuable time updating patient insurance information or managing staff schedules. Having the right team in place will minimize your stress, increase your earning potential, and serve patients better and more efficiently – which only makes them happier to provide referrals. Avoid getting in the way of your own success and hire a great office manager. Spend your time focused on being the best doctor you can be.
Having Insurance Gaps and Outdated Coverage
I can’t tell you how many times I come across life and disability insurance policies that were sold to now-thriving doctors, early in their career. At the time, the policies were sufficient, but now those policies are grossly inadequate as the physician’s medical practice has grown and income and responsibilities have skyrocketed.
Life insurance should be reviewed as your net worth, family, and responsibilities grow. Having fixed rate term coverage is often the best option but you should regularly review coverage as your needs evolve. Disability insurance is designed to protect you and your family if you suffer a serious injury or illness during your prime earning years and cannot work for an extended period. Disability insurance can help make up for your lost income, but what about the people working for you? Your staff depend on your income for their own paychecks. Business overhead expense insurance can maintain your team while you recover from an injury or illness. I recommend you have your policies reviewed on a regular basis and discuss them with your financial advisor, someone who can provide an objective analysis of your needs.
Spend Your Time Wisely
You’re a great doctor and you should spend your time doing what you do best. Invest and protect your wealth with a long-term view in mind. Ensure that you, your family, and your team are protected if your business is disrupted.
James Nevers,CFP® is a Senior Advisor at Soundmark Wealth Management, LLC. James works closely with physicians, business owners, directors and executives at Amazon, Microsoft, and Boeing, and other successful individuals to help them define their financial goals and implement an ongoing financial planning process.