Residents, APPs, and new attendings often ask me what they should do with their money.  While everyone is unique, the financial journey of most high-income medical professionals can be broken down into five distinct stages.  Nothing is more important than protecting yourself and your family as you start your career, so this is stage 1.  The 2nd stage is taking the easy financial wins that maximize the returns you generate.  Once all the low-hanging fruit is picked, securing your retirement becomes the focus in stage 3.  Stage 4 is to get wealthy.  You can focus on wealth-building activities now that your future is secure.  Stage 5 allows you to fine-tune your finances & give back since you have already done the heavy lifting.   

The Five Stages of Your Financial Journey

Wealth Building Steps

The Financial Vitals Checklist

     Most financial education is designed to be general in order to appeal to a wide audience.  Even if you find a specific, actionable item, how do you know it’s the best next step for you?  It is equally important to know what to do and in what order to do it.  A guide would be helpful here!  Fortunately, we have a niche audience here at Business is the Best Medicine, so I would like to introduce the Financial Vitals Checklist, a sequence of ten steps medical professionals should follow in their financial lives.  These ten items meet you where you are and lead you through the five stages of your financial journey to wealth building.  The steps are listed sequentially, much like a pre-procedure checklist, so wait to move on until you have completed the prior action.  If a step doesn’t apply to you, or you have already completed it, you may move on; otherwise, don’t skip ahead!  Use the checklist as a guide on what to do with your next dollar as you march toward financial freedom.

Wealth Building Checklist

What Qualifies as Saving/Investing?

     The Financial Vitals Checklist is designed specifically for high-earning professionals.  Your salary gives you an advantage over the average American.  Therefore, every medical professional should save/invest at least 25% of their gross income.  In this context, save/invest includes any money that increases your net worth, excluding your primary residence:  emergency savings, regular savings, retirement investing, brokerage investing, loan paydowns, and other investments such as rental real estate.  

Savings/Investing Qualification

How Much to Save/Invest

     The more money you make, the higher percentage you should save/invest.  If you make $200,000 a year, you should save a minimum of 25%, or $50,000 per year.  Anyone making over $300,000 per year should save at least 30%.  If you save/invest 30% of your income, you can still live off 40%, even if you pay the other 30% in federal taxes.  Someone making $300,000 would have $120,000 per year for living expenses.  For the first five years after residency, this should be your goal.  You can relax after the first five years, but you never want to go below 25%.  If you save this amount and follow the Financial Vitals Checklist, you are virtually guaranteed to build wealth over time.  

Savings Rate

Follow The Steps in Oder

      You may not be able to complete all the steps at once.  That’s ok!  This is a path to follow at your own pace throughout the year and your career.  If you can only complete step 1 with your first paycheck, start your emergency fund with your next.  It may take you six months to complete your emergency fund, but move on to the next step once you do.  Once you have obtained your employer match, start paying off any high-interest debt, and so on.  Steps 1-6 are rigid and have a defined starting and stopping point.  Do not move on until you have completed the prior step unless it doesn’t apply to you.  Steps 7-10 are more nebulous, but by the time you reach them, you will have a solid financial foundation on which to build your unique dream.  Once you have reached your target savings percentage for the year, you are done.  Stop at whatever step you are on and congratulate yourself!  You are on the path to financial freedom and wealth building; you simply need more time for your investments to grow, so enjoy your life.  

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Example

Judy is a hospital employee with a $180,000 annual salary paid monthly.  Her gross monthly income is $15,000, but after FICA and income taxes are withheld, she receives $11,196 net.  Judy will save 25% of her gross income, or $3,750 per month ($45,000 per year), leaving her $7,696 to live each month.  She follows step 1 and buys disability insurance with a premium payment of $5,400 per year (3% of her salary) paid quarterly.  She is unmarried and has no children, so she decides she doesn’t need life insurance at this point.  Judy currently has $5,000 in a savings account and does not own a home.  Her specialty is in high demand, and she has decided a 3-month emergency fund is sufficient.  She estimates her monthly expenses at $7,696, so she rounds to a $23,000 emergency fund goal.  Judy also has a $20,000 credit card balance at 18% interest.  She has access to a 401k plan through the hospital and receives a 100% match on contributions up to the first 5% of her salary ($9,000).    

Breakdown Y1

Example Year 1

     During her first year of work, Judy was able to protect herself by buying disability insurance and fully funding her emergency fund.  She then maximized her returns by getting her full employer match and then moved on to paying off her high-interest debt.  

Breakdown Y2

Example of Year 2

     Judy began her 2nd year by getting her 401k match.  Once she had reached the needed $9,000, she finished paying off her credit cards.  After that, she returned to her 401k contributions as she didn’t have access to a HSA.  She began investing in a brokerage account after her 401k contributions were maxed out.   

     At the start of her 3rd year of work, Judy gets a raise to $216,000.  She will still save/invest 25% of her gross income, now $54,000 annually.  This also increases the money she can spend on her monthly living expenses to $8,700.  Judy leaves her emergency fund unchanged, so she starts by maxing out her 401k and then moves on to her Brokerage account.  

Breakdown Y3

Example of Year 3

     Judy is on Step 7 of the Financial Vitals Checklist at the end of three years.  She is now protected, is high-interest debt-free, and is well on the way to securing her retirement.  She has options on the path to becoming wealthy.  

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Conclusion

      As a medical professional, you have all the tools needed to succeed financially.  You are intelligent and conscientious, work hard, and earn a high income.  You have already followed a prescribed path to earn your degree and position.  For physicians, it is college, MCAT, Medical School, Step I, Match, Step II, Residency, Licensure, Certification, and CME/Recertification.  You know how to follow a long, arduous path towards a goal.  The Financial Vitals Checklist is your prescribed path to wealth – it gives you the steps to follow.  You couldn’t skip steps in your education and training, no matter how smart you were.  Regardless of advantages or ability, everyone went through the same stages.  The same goes for your finances.  No matter how much money you make or what advantages you have, you still must traverse the same stages using the same steps.  Some may have it easier than others and arrive sooner, but the path to wealth remains unchanged.  

     This checklist is a tool to use as you navigate your finances.  By design, it will take you years to reach step 10.  This is not a get-rich-quick scheme; it is a build-wealth-slowly blueprint.  Use this tool to know the next step as you go through the stages of your financial life – protect yourself, maximize your returns, secure your retirement, get wealthy, and fine-tune your finances & give back.  This article is just a jumping-off point.  You can download a copy of the Financial Vitals Checklist by clicking here.   For a deep dive into each step of the checklist, click here.  

     If you have any questions or concerns, email info@BusinessIsTheBestMedicine.com or leave a comment below.