$ Top 10 Financial Mistakes Young Doctors Make

Forum for New and Future Neuro-Ophthalmologists

NANOS 2017 Annual Meeting

KaushalM .Kulkarni, M.D.

Based on The White Coat Investor Blog (whitecoatinvestor.com) & Mr. Money Mustache (

1) Neglecting Your Financial Education

Somehow in the medical field, talking about personal finances has become taboo. However, financial health is just as important as physical or mental health (up to a point), especially in a profession as demanding, frustrating, and challenging as the medical profession, which has a high burn-out rate.

On top of that, because doctors generally earn a much higher salary than the average population, yet are generally uneducated and overconfident when it comes to personal finances, they are easy prey for brokers and salesmen, the vast majority of whom only have one person’s interests in mind (Hint: Its not yours).

Therefore, you need to get your financial education.Just like rotating through gynecology or psychiatry, this has to be done whether you like it or not. And as you know, you’re not going to get it in medical school, residency, fellowship, or as an attending in private practice or academics. You’re going to have to do it on your own. The good news is that it doesn’t take long, and it’s probably the best investment you will make.Think of it like a second job.

Note: Trusting it all to a “financial advisor” will likely lead to disappointment.

Everybody, no matter whether they choose to rely heavily on a financial advisor or not, needs to do some initial financial education by reading The White Coat Investor Blog ( In addition, read at least one good financial book a year. Just like CME, you need a few hours of CFE each year.

2)Holding on to Your Student Loans

If you have student loans, your one and only mission in life should be to pay them off as quickly as possible. Paying too much interest causes a major drag on your finances. Also consider refinancing or renegotiating your loan if you have a high interest rate. If you have sizable student loans, become an expert on theIBRandPSLFprograms.And it goes without saying to avoid other types of loans, such as car loans, credit card loans, vacation loans, and poorly designed mortgages (we’ll talk about this later).

3)Neglecting Your Retirement

I know it sounds weird to start thinking about retirement when you’re barely out of training and your main worries are whether you are going to even get a job, and where it will be, and whether it’s private practice or academics. But the goal isn’t retirement—the goal is financial freedom, to get to the point where you work because you want to, but not because you have to.If you would like to get to that point, you need to start planningnow.If you start now and follow the advice on here, and educate yourself, you will save yourself huge sums of money, and will reach financial freedom much earlier than you think. The longer you put off planning for this, the longer it will take you to. Your other friends have gotten a head start on saving because they started earning in their 20’s. Doctors are typically 10 years behind, so now is the time to catch up.

4) Spending Too Much

You’ve spent years scraping your way through medical school, and residency, and now you’re finally getting ready to earn a real paycheck. When that first year’s paycheck comes in, you’ve never seen that much money in your life, and you have no idea what to do with it. Is it time to go out and buy that fancy new sport’s car you’ve been dreaming of? Time to finally buy a house with a big mortgage? Time to buy a yacht?

No. It’s time to keep living like a resident. That means living sufficiently far below your means, so that you can carve out money to invest, pay down debt, and build net worth.Ideally, you should be putting awayat least 15%-20% of your income towards retirement from day one. If you want to retire early, better bump that up to 30-50%. Remember that isn’t counting saving for your next car, that boat, a house downpayment, or your kid’s college fund. That’s JUST retirement. A 5% savings rate just isn’t going to cut it. So on a $200K salary, that’s $40K a year. Just putting $17K into your 401K each year isn’t going to be enough.

What keeps doctors from saving more?Part of it is a sense of entitlement after years in training and many long hours at work. But a major factor is the expectation in your own mind (and the mind of family and neighbors) that you need to live like a doctor. Once you become an attending and start earning a real salary, resist the temptation to go out and buy a bunch of stuff, like cars or a house. Your motto should be to “live like a resident” for as many years as possible.

5)Not Maxing Out Your Retirement Plans

Max out your retirement accounts every year! Whatever your group or company offers: 401k, 403(b), Cash Balance, Profit Sharing, make sure you max these out. The tax savings is well worth it. And learn about the Backdoor Roth IRA at

6)Mixing Insurance and Investing

Insurance You Need:

  • Disability Insurance: At least $7500/month of good quality, personal, own-occupation
  • Umbrella Insurance: $1-2 Million
  • Malpractice Insurance: $1-3 Million (usually covered by your practice)
  • Term Life: $1-$3 Million of 20-30 year level term life insurance if you are married, have kids, or have debt

Insurance you don’t need:

  • Cash Value life insurance (whole life, universal life,variable life, variable universal life etc). Do not let an insurance salesman sell you one of these policies!These products tend to be complex, and that complexity favors the insurance company and its agents. First of all, the company doesn’t invest in any magic investments you can’t invest in yourself. But once the agent gets his commissions, the company pays its expenses and profits, and you pay for the costs of the insurance part of the policy, is there any surprise that the “investment” can’t keep up with more traditional investments? Even considering the tax advantages of these products, these are investments designed to be sold, not bought.

6)Paying High Commission for Investments or Investing Advice

In investing, you get what you don’t pay for. Many doctors pay 1-2% a year or more for investing advice,mutual fund feesor loads, commissions or other costs. The difference 2% a year can make in an investor’s final net worth is astounding. Consider two physicians, both of whom invest $50,000 a year in similar investments. The first, however, minimizes his investment costs while the second accrues an additional 2% a year in costs. If they both make 5% after-inflation, but before costs, how much more does the first doctor have after 30 years? Nearly $1 million more ($3.32 Million to $2.38 Million). For a million bucks, you can spend a little time learning about investing, and doing it yourself with low cost index funds. If you add on another 30 years in retirement, the numbers get even worse.

7) Picking Stocks

The evidence is study after study is quite clear.Stock pickers and market timers simply cannot outperform a low cost index mutual fund, such as VTSMX. Warren Buffet says, “A low-cost index fund is the most sensible equity investment for the great majority of investors.” Humble yourself and realize that yes, you are part of that “great majority of investors.”Don’t listen to your colleagues trying to give you stock tips in the break room. If you cannot resist picking stocks, set aside a very small portion of your investment account (around 5%) for risky stock picking, and put the rest in a low cost passively managed index mutual fund.

8) Watching the Market

There is no reason to watch the stock market, and no reason to check your account every day. Whether the market goes up, down, or sideways should not matter much to you. The goal is to stick with your investment plan. You will pass through 3-6 serious bear markets during your investing career. Don’t invest so aggressively that you cannot sleep at night when things turn South, as we know they will. Buying high and selling low can add 5-10 years to your career that you might have preferred to spend doing something else.Write down an investment plan—and stick to it. Keep your costs low. Rebalance once a year. Then quit listening to or watching the market.

9) Buying a House

This one is controversial, and goes against the advice that you normally hear. But there is a very strange phenomenon amongst 4th year medical students and residents.They have this seemingly overwhelming desire to buy a house. It seems to be some unwritten rule that once you own a house “you’ve made it.” While everyone’s situation is different, most residents and even young attendings probably shouldn’t buy a house. It is no longer uncommon for a graduating medical student to have $250K or more in relatively high interest student loans.It really isn’t a great time to be adding on even more debt.

Even realtors, the most diehard advocates for purchasing a home early and often, admit that it’s hard to break even on a home unless you’re in it for at least 3-7 years. The main reason for this is transaction costs. Expect to spend 5% of the value of a home when you buy it, and another 10% when you sell it.Unless you are absolutely sure you are going to stay in the same town and in the same house for that length of time, it probably makes more sense to rent. If you want to do the math, a great tool is the NY Times Buy vs. Rent Calculator.

Houses are expensive consumer items, not an investment.

10) Not Having a Written Financial Plan

It’s important to come up with a written financial plan, and stick to it. Here’s where we can get into the details of how to actually invest. Again, all the information you need to know, and much more, is at But assuming you have set up your retirement accounts and are maxing those out, and have a taxable account that you put additional funds into, the question now is, what do I invest in? The best advice, and the advice that Warren Buffet would give you, is to come up with a fixed asset allocation, and invest monthly—whether the market goes up, down, or sideways. This means to pick anywhere from one to five low cost, passively managed index mutual funds (ideally through Vanguard), and stick with it over time. There are many different options for how you set this up.