Preventative Medicine measures for our physical well-being are quite trendy right now. However, often we often neglect our financial health. In this blog, we bring you today’s Preventative Medicine for your financial health. We’ve written this article especially for the world of the medical practitioners. But in it, you will find good financial measures for anyone in a professional field. We call this time-tested accounting measures preventative medicine for your finances.
A New Financial Awareness for Medical Professionals
Yes over the last decades, we have become very aware of preventative medicine and lifestyle. Americans have been changing the way they eat, sleep and exercise. They do this in order to avoid medical problems in the future. Thus they are using good health habits as preventative medicine. And doctors, dentists, nurse practitioners, and other medical professions must have a sense of pride in patients who choose preventative medicine.
We hear praise from our healthcare professionals when they see us developing preventative habits for our physical health. However, people, in general, are not getting a lot of praise for taking care of their financial health. Sadly, and in spite of an improving economy, neglecting financial health is almost an epidemic among American healthcare professionals.
Needed: Healthy Financial Habits and Medicine for Chronic Financial Ills
Accountants are often distressed when they see medical practitioners who avoid medicine for their finances. Gifted accountants like those at Gavrilov & Co like to keep your financial healthcare simple. And by simple, we mean much like the instruction laid out by J.L. Collins’ book, The Simple Path to Wealth.
Gavrilov & Co puts forth a Basic Three-Step Financial Plan: Medicine for Your Wallet
These three concepts are your keys to financial health:
1. Spend less than you earn.
2. Invest the surplus.
3. Avoid debt.
The world of high finance and accounting can seem a good deal more complex than these simple rules. However, with the right accounting and tax guidance behind them, these simple rules can help you grow your wealth and keep your finances healthy.
About Doctors Who Build Wealth from Nothing
In his article, Build Wealth from Nothing, Dr. Faucett discusses the above 3-step plan and the Collins’ book in detail. But one point we’d make is different from the Collins’ book. And this is that you need not be a slave to a financial system, even a good one.
You see, Collins wants you to save half of what you make. And that might be just too big a bite, especially for a medical practitioner who has already accumulated a large amount of debt. (Of course, it would lead you to financial independence in record time. But everyone has to make personal decisions about their saving technique. This is just like what you eat or drink or smoke requires a personal choice. However, keep in mind that the percentage of income you choose to save is key to how soon you can retire.
Medical Practitioners and the Savings Syndrome
Our concern is simply that you develop a healthy attitude toward saving. Being health conscious about saving is just as important for your fiscal life as a healthy attitude toward eating is for your physical life.
In many ways, the percentage of the money you save is as intimate as the number of calories you choose to consume. A lot of financial planners work hard to get their clients to save 10% of their monthly income. Many Americans simply don’t save at all.
How Much is Enough?
In the first place, 10% or less won’t leave you a comfortable retirement. There are two categories of clients that we see who need to plan better savings: On the one hand, we see many doctors and healthcare professionals who are a little overconfident about their financial know-how. On the other hand, we see medical practitioners who have trusted the wrong professionals and friends about their finances. And like children, they have given over their financial responsibilities to the parental style of a well-meaning but poorly prepared or unethical “adult.”
In between these two types fall other healthcare professionals. These are ones who simply lack financial training. They live pay-check to pay-check, month to month. They neglect their financial health. Maintaining a savings routine for your financial life is like maintaining exercise for your body.
We See Two Savings Trends:
- We understand doctors who must begin high-earning and investing later in life, due to the years they spent in training.
- Likewise, many medical practitioners shoulder-high debt loads. And lack of financial training might be symptomatic that they haven’t done well in negotiations or investments.
At Gavrilov & Co we show our medical professional clients how to overcome these obstacles and build their wealth. You teach patients about preventative medicine for their health. And we teach you about preventative medicine for your wealth.
Preventative Medicine for the Savings Deprived
Many professionals who are both medical and financial, like Jim Dahle, MD advise doctors to save 20% of their gross income. Now that is a target amount that we view as only a minimum savings rate. Do you realize that at 20% savings, you are still committing to 30 years of work in order to have a comfortable retirement?
If you want more financial options sooner, take our preventative medicine prescription: Try to save between 35%-40% of your income every month. As a medical practitioner, there will be enough money to do that. And you will still be able to maintain a comfortable (but not extravagant) lifestyle. This is tough medicine, perhaps a little bitter. But saving a good percentage of your income is a healthy habit. We’ll show you how to grow the habit, one step at a time.
Doctor’s Deadly Financial Sins
In our previous blog, we revealed the six chronic financial diseases that most often affect doctors and medical professionals. This week we begin another list for you. These are the financial snares, pitfalls, and traps. These traps can cause critical financial illness very quickly in spite of how highly you are paid. We call them deadly financial “sins” because they also involve making choices.
One-Financial Preventative Medicine Says: Write A Will
If you have children, be sure you write a will. You can do this with a competent attorney at a reasonable price. Cover all the things you hate to talk about. This will probably include the will, a trust, power of attorney (POA), living will, healthcare POA, and guardianship. Our preventative medicine advice is to take the time to do it right. And then update it every 5 years. Ignoring it is just sort of a financial “sin.”
Two-Preventative Medicine Says: Do Not Confuse Speculating with Investing
All accountants know doctors who dabble in investing. At the credible resource, Wealthydoc, we hear that some doctors “claim to have picked the “next Microsoft.” Then they confide to their accountant that they have invested in a friend’s fantastic company. This company plans to “ship air to China in little soda cans. Or to make all food become “organic” by a chemical process. Maybe to make a movie, build a satellite, or fund a trip to Mars. Wow.”
Investment Vs. Speculation
Such doctors need to learn the difference between investment and speculation. For them, we prescribe reading Benjamin Graham’s “Intelligent Investor.”
To put it briefly, Graham’s book teaches high earners to:
- “minimize the odds of suffering irreversible losses from investments,”
- “maximize the chances of achieving sustainable gains,”
- and to control “self-defeating behavior” that prevents investors from “reaching their full potential.”
A Simple Couple of Spoonfuls of Definition
Our trusty experts at Investopedia define speculation as “the act of conducting a financial transaction that has a substantial risk of losing value but also holds the expectation of a significant gain or other major value.” And they add, that someone who commits money in speculation “is typically more concerned about generating a profit based on market value changes for that investment than on long-term investing.”
In contrast, investment is defined as “is the act of allocating funds to an asset or committing capital to an endeavor (a business, project, real estate, etc.), with the expectation of generating an income or profit.”
With these definitions side-by-side, it’s easy to see the safer course for most healthcare practitioners is investing. This is especially true for those who have little time for growing a financial empire outside of their medical practice. To reiterate the terms, “Graham noted that something is an investment only if it is safe from loss. And that isn’t from guessing, but a reasoned financial analysis. One should expect only a modest return. If safety is not assured and high but unlikely returns are being sought, then that is speculation.”
Keeping these definitions in mind will help you avoid the financial sins of either over-investing or speculating without a budget. Maintain a relationship with your accountant over the long term. This will permit participating in your choices for tax-planning and business planning. This is also good financial preventative medicine.
More Financial Preventative Medicine on the Horizon
We have a few more financial pitfalls and sins about which to warn you. This is true whether you are a medical professional or not. However, that requires another blog. We will reveal them in our next blog. Then, you will discover just how closely related your life planning skills are to your financial health. Even if you are a medical practitioner and a high earner, you cannot afford to miss it.