Many new physicians face a mountain of student debt and the overwhelming task of navigating their financial future. According to BankRate.com, approximately 70% of grads have school-related debt, and the average amount in 2023 was $206,924. Unfortunately, these doctors enter the workforce without the financial literacy needed to thrive long-term.
Dr. Daniels, a Lucens mentor, understands these challenges all too well. While he no longer has student loans, he did. "When I finished med school in 2000, I was $160,000 in debt, and I had no idea how I was going to pay it off," he recalls.
To help young doctors overcome their financial hurdles, Dr. Daniels offers this advice:
1. Start early with a Roth IRA
Dr. Daniels thinks one of the most powerful tools for long-term wealth-building is the Roth IRA. Because contributions are post-tax, the money you deposit grows tax-free. "It's amazing how much these accounts can grow over time," he says.
Even if you're just starting out, contributing a small amount to a Roth IRA can set you up for significant gains by the time you retire. In 2024, the max an individual can contribute is $7,000 annually. Dr. Daniels points out that most physicians will eventually make too much to contribute to a Roth IRA, so he tells new physicians to utilize this financial vehicle while they can.
2. Maximize your 401(k) contributions
A 401(k) plan is often the primary vehicle for retirement savings, especially if a hospital or a large practice employs you. Dr. Daniels stresses the importance of taking full advantage of any company match. "If there's a company match, you want to contribute at least up to the maximum they'll match. It's essentially free money," he explains. Over time, these contributions can grow substantially thanks to compounding interest, providing a solid foundation for your retirement.
3. Consider whole life insurance
Whole life insurance often gets a bad rap, but Dr. Daniels feels it has its place in a well-rounded financial plan. "Whole life insurance builds cash value over time, which grows tax-free," he says. While it might not be the best option for everyone, for those who can afford it, whole life insurance offers a stable, tax-advantaged way to save. "It's one of the only tax-free vehicles available once you're no longer eligible for a Roth IRA," he adds.
4. Speak with a financial planner after any windfall
Financial windfalls, such as an inheritance or a significant bonus, can be overwhelming if you’re not sure what to do with the money. Dr. Daniels suggests sitting down with a financial planner to make informed decisions. "When my wife inherited some money, we had no idea what to do with it," he recalls. A good financial planner can guide you through your options, helping you to invest wisely and plan for the future. "We met with a planner, and now, 17 years later, we've built a strong financial foundation."
5. Invest in real estate for your practice
As you mature in your career, Dr. Daniels heartily recommends investing in real estate — specifically, the space where your practice operates. Dr. Daniels recounts his experience purchasing office space: "I bought the office condo next door to mine, and over time, it has become cash flow positive."
By owning the property, not only do you have control over your practice's location, but you also build equity over time. "Every month, I pay myself and build wealth," he says, highlighting the long-term benefits of owning real estate. Dr. Daniels's podiatry practice now has 13 locations, and he owns three of those facilities (a partner owns another two). It’s worth noting that the profit you make from owning property can help pay down debt, like outstanding med school loans.
6. Beware of lifestyle creep
As your income increases, it's easy to let your expenses rise along with it — something Dr. Daniels refers to as "lifestyle creep." He advises physicians to be mindful of this tendency and to prioritize saving and investing over spending. "You don't want to overspend or assume the gravy train will go on forever," he warns. By keeping your expenses in check and focusing on your long-term goals, you can avoid the pitfalls of lifestyle inflation.
7. Diversify your investments
Dr. Daniels believes diversification should be the hallmark of any investment strategy. "I have small investments in various areas, like real estate, index funds, and even minimal crypto," he says. By spreading your investments across different asset classes, you reduce risk and increase potential returns. "It’s not about putting all your eggs in one basket — diversification is key to long-term financial success."
One more thing: Consider 529 college savings plans if thinking of kids.
For physicians who have children or who plan to have them, Dr. Daniels encourages setting up 529 college savings plans early on.
"When each of my children was born, we started 529 plans for them," he says. All the money they received for birthdays, holidays, or from working went directly into these accounts. "College hasn’t cost us anything because it’s all come out of those accounts," he shares.
By following these financial planning tips throughout your career, you can build a secure financial future, ensuring preparedness for whatever life — and work — may bring.
Are you interested in learning more about this topic? Lucens is hosting a 10-day Rotation in early December. Sign up today for updates about “Money Matters: Financial Proficiency for Young Doctors”.
