Episode 096: Financial Planning for Physicians: Don’t Let Your Money Control You

Speaker 1: You’re listening to Your Practice Made Perfect; support, protection, and advice for practicing medical professionals, brought to you by SVMIC.

J. Baugh: Hello everyone and welcome to this episode of Your Practice Made Perfect. My name is J. Baugh. I will be your host for today's episode. Today, we're going to be talking about financial planning for physicians, and to help us with this very important topic is John Dameron. John, welcome.

John: Thank you.

J. Baugh: It's good to have you here. Before we get into the topic itself, can you tell us a little bit about yourself and what you do?

John: Certainly. First of all, I'm excited to speak with you all on a topic that we're very passionate about and thanks for having us on. I am a partner with Spaugh Dameron Tenny here in Charlotte, North Carolina. We're a boutique financial planning firm that works with and specializes in comprehensive financial planning for physicians and dentists. We've been in practice a little over 50 years and have clients across the country, probably 30 to 33 different states.

J. Baugh: We appreciate you taking the time to talk to us. Let's start with a very basic question, when should physicians start planning for their financial future?

John: Well, that's a great question. The earlier the better. We find that physicians, especially early on in their training feel like when I make more money, that's when I should start planning, and they think that it's going to get easier, but it doesn't. It actually gets more complex, because you have big ticket items that you can purchase and your income starts to go up and banks are willing to loan you more money and, wherever you are in your career, whether you're in training as a resident or fellow or you just got out or you've been out for 10 years, the earlier, the better to get a handle on your finances.

J. Baugh: One of the issues that we hear in the news a lot today is physician burnout. With finances being the second cause of physician depression, what are some challenges that you see when you work with physicians?

John: Finances really become secondary to everything, especially early on in training, because physicians have such a heavy curriculum while they're in training and they have so much to learn in their specific field that finances are just put off. Even though, early on, we see physicians faced with major financial decisions, and that it is difficult for them to stop and gather enough information in order to make a good financial decision based on their situation. One of the things that kind of weighs a physician down early on is student loans. Soon out of medical school, transitioning into residency, they have to make a decision, what are they going to do with their student loans? How are they going to pay it back? And that in of itself is a very complex question and answer. It's very difficult for physicians to get a handle on what their best options are. To us, that's where it all starts, and then when they transition out of residency or fellowship into practice, they still have that loan. Then they all of a sudden are buying a house, maybe moving to a different city. They've had a car for six, seven, eight years, that is on its way out. They need to purchase a new car and all those financial decisions need to be made.

But it's difficult, because they have limited resources, limited time and a lot to get accustomed to, they move to a new town, etc. It starts very early on in a physician's career and just continues.

J. Baugh: I was talking with a friend of mine who is a physician years ago and he was talking about the amount of student debt that he had when he started his career, and he said it was basically like having two mortgages.

John: Yes.

J. Baugh: The amount that he was paying for his school loan was about the same as the mortgage he was paying on his house. And for someone who's not a physician, such as myself, I thought that was a really good way of explaining to me just how burdensome medical school debt can be, that it's the same as having two house payments. That really made an impression on me.

John: Absolutely. And typically you don't want to pay your student loan back over 30 years, especially if it's at a higher interest rate.

J. Baugh: That's right, yeah.

John: It's typically based on your income. It's not deductible, so the payments can be equal to or sometimes greater than what you're paying in mortgage.

J. Baugh: For our listeners here who want to get some idea of how to get started regarding their financial planning, what is a small step that would actually make a very big impact?

John: I think a small step would be to start thinking about your finances and organizing them in the way that they make sense to you. What do you have? It depends on where you are in your career, but a lot of times if we meet with a physician or dentist that's been working for 10 to 15 years, it seems like they have what we call a financial junk drawer, where they've made a lot of decisions along the way and they've taken that decision and just basically put it in their financial drawer and haven't brought it out and looked at it to dust it off and see why they made that decision and if that is still a good decision today, moving forward based on their goals and what they want. I think the first thing is just to get an idea of what you have, everything that you own and everything that you owe and start from there, putting together the people that you owe and how much and what the interest rate is, and then what you own, do a financial inventory.

J. Baugh: Okay, and try to work on that in a methodical way to take care of what you owe based on what you own. Is that what you're saying?

John: Correct. And we call that your financial X-ray, good or bad, right or wrong, where you are today that gives you a good understanding of where you are and what you owe and what you own, your assets and your liabilities, and then from there you can determine what needs to be done next as far as looking at your income. If I have surplus left over, what do I do with that income? Do I save it in a retirement account or do I pay off some type of debt? That would be the next step. Organizing a budget and saying how much realistically is left over every month, every quarter, and what should I do with it based on what I want?

J. Baugh: When you're talking to physicians who might be struggling with their finances, do you see any kind of an impact regarding their specialty or their income level? Does that have anything to do with the struggles that a physician might have with their finances?

John: We see physicians across the board, no matter what their specialty is, struggle with finances, no matter what the income level is. However, if you are an orthopedic surgeon, you typically tend to have more challenges in that if you're not working for a hospital, you're working for a private group, you have a buy-in to the group or you might be able to purchase and buy-in to a surgery center. Typically physicians across the board struggle with finances, but then a lot of your specialties, when you have the ability to buy-in to a surgery center, that adds another level of complexity to your planning, because sometimes these surgery centers that you buy into could be 350-400,000 dollars, and that's a big buy-in that typically has to be paid back between three and five years depending on the loan that you get. How's that going to impact your finances and the goals and the things that you're trying to accomplish?

J. Baugh: Having to pay back that kind of a loan that quickly is obviously going to have an impact on anyone's finances. That's a lot of money to pay back in a short period of time.

John: Absolutely. In addition to having a mortgage and having possibly a large student loan that you're paying back.

J. Baugh: Right. When it comes to finances, many times there's a dynamic going on with a physician that involves the spouse. What kind of challenges do you see between spouses and physicians when it comes to finances?

John: Wow, this is a topic we could spend hours discussing.

J. Baugh: That's true. We could.

John: I think the biggest struggle between spouses that we see is really them not knowing what their current financial decisions that they're making now, how it's going to impact them long term. We typically see the default either we're not sure how our spending's going to impact our long term goals, so we're going to save everything we can save, and that's kind of one default that we see.

J. Baugh: Okay.

John: And then the other default that we see is, you know what? We make a good income, we've been living on a resident salary, fellow salary for three, five, six, seven years, we're going to spend what we want to spend and have fun and we make enough money where we can catch up later.

J. Baugh: Okay.

John: Later really never comes until it's possibly too late.

J. Baugh: Right.

John: Another thing is interesting, one of the questions that we ask spouses is, growing up, what's the one or two things that you learned about finances as you grew up, positive or negative? Because a lot of times we might not realize the impact that our parents had on the way we see and view finances and think about finances. If my parents were savers and they saved everything, typically the child is saving everything and concerned about finances. The opposite of that is they're spending everything. We like to also talk to husband and wife and determine what was it like growing up? What was finances? Did your parents talk about finances? Not talk about finances? And then eventually that's going to lead us into, what would you like your kids to learn and know about finances?

J. Baugh: Yeah. That's a very interesting point that I had not thought of, is how important it is, when you're talking to physicians and their spouses about how they grew up and what their parents' view of money was, because as you said, that not only affects the goals that the physician and the spouse will have, that might be different from each other, but it also impacts the communication that they're going to have between each other. Did they grow up in a home in which parents talked about finances, or was that something that you just didn't talk about in front of the kids?

John: Right.

J. Baugh: So I can see where that will have sort of a multilayered impact when it comes to physicians and spouses, because it not only affects what your goals are, but it affects the way you communicate as well.

John: Absolutely. Absolutely. It's very, very clear, when that question is asked and they start talking about it, then that kind of brings it out as to now I understand why you never want to talk about finances, or now I understand why you feel like we have to save everything, because your parents fought about money and there was never enough, etc. It really starts to break down some of those communication barriers that we really don't know exist until it's brought out.

J. Baugh: Right. Someone who's outside of the marriage, such as yourself, consultants, whoever it might be, needs to be the one to ask that question, because it's something that they may not even realize it's there, but someone who's in a position like you are can bring that out.

John: Absolutely.

J. Baugh: As we are getting ready to bring this podcast to a close, do you have any last minute tips or advice for our listeners who might be ready to dive into trying to get a better control of their finances?

John: Yeah. Something that comes to mind is to sit down with your spouse, your significant other, or even a friend, and start to share your financial goals and start to write those down. What do those look like? And we always want to start with short term goals. It's easy for us to think, what do you want financially in the next three years.

J. Baugh: Right.

John: So get those down. What do those look like? And then after that, then over the next four to 10 years, what do you want? Financially, professionally, personally, what are some goals that you have? And then start talking about long term 10 plus years. And then depending on where you are in your career, if you're still in residency, then don't worry about planning for when do I want to retire?

J. Baugh: Right.

John: I've got to make it through residency. I don't know what work's going to look like, so plan on, in your residency, one to three years.

J. Baugh: Okay.

John: They don't have to be big goals. I think a lot of times, when people think of goals, whether you're in residency or have been out for five, 10 years, the goals don't have to be huge. They can be very, very small, but make a big impact. If you start that process of talking and sharing it with your spouse, your significant other, then that's just going to continue to snowball and two, three years down the road, you're going to look up and you guys will be talking about money and be comfortable with money. I think the biggest impact that we want to have on our clients is we see that money controls our clients, and we want to shift that around and have our clients control their money and believe with planning that you control your money, your money doesn't control you, because with a plan, you know why you're doing what you're doing, whether it's you're spending X amount of dollars every year on vacation, but you know that's not going to impact your retirement. Or you're going out to eat every night and you know that's not going to impact your kids' education.

That's when you control your money. The opposite of that is, well, I think I make a lot of money or a good amount of money, so I'm going to go out to eat or the big vacation, it's a little bit of guilt spending, because I don't know what impact that's going to have on my kids' education. Am I going to be able to retire when I want to retire or purchase the vacation home, or whatever that looks like. I think having control of your money and not letting your money control you from a planning standpoint, that's the shift that we see when working with clients. That really is the reason we get up everyday and come into the office.

J. Baugh: Well, that's a great way of putting it. I think that's something that all of our listeners will be able to relate to, that we should get to a point where instead of our money controlling us, we're controlling our money, and I appreciate you putting it that way. And John, I also appreciate the time that you spent talking with us today. Again, this is a very important and very interesting topic for all of our listeners. Thank you for your time and sharing your expertise with us today.

John: Appreciate the opportunity and thank you very much.

Speaker 1: Thank you for listening to this episode of Your Practice Made Perfect with your host, J. Baugh. Listen to more episodes, subscribe to the podcast, and find show notes at SVMIC.com/podcast. 

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