The worst financial mistakes doctors can make

Since the COVID-19 pandemic roared into the US, the shaky state of the business of healthcare has frightened people from all walks of life. But healthcare’s questionable financial standing has been especially frightening for and harmful to physicians. 

Consider this: In a California Medical Association survey, 64% of physicians said they urgently need financial assistance, while 47% pressed for temporary housing. “Doomsday! Scariest days and nights. For all staff, MDs as well as patients,” one physician respondent said. “My family is at edge due to potential COVID-19 exposure, financial strains, and mental cloudiness.” And physicians who work for health systems are also in trouble, as a tally last month found that at least 18 US hospitals have closed.

The pandemic has worsened the precarious financial situations of some physicians, but medicine has always harbored hidden money problems. In 2019, for instance, 43% of physicians in a private survey said they suffered financial losses due to poor investments, practice challenges, and other setbacks. Earning a medical degree doesn’t guarantee financial freedom, but doctors who dodge certain pitfalls are much better off. 

Here are some mistakes physicians should avoid in the quest for financial security.

Remaining financially illiterate

“The biggest mistake doctors make is simply not paying sufficient attention to their finances,” says Jim Dahle, MD, an emergency physician and author of The White Coat Investor. Money doesn’t work for anyone unless they put it to work. For physicians, that can be challenging. 

A 2017 study, for instance, found that medical “residents and fellows had low financial literacy and investment-risk tolerance, high debt, and deficits in their financial preparedness.” Almost a third of respondents said they struggled to meet their monthly expenses, despite having a median income around the national average. The researchers concluded that medical school students should undergo training in budgeting, estate planning, investing, and retirement planning. 

Dahle, meanwhile, argues that many physicians forgo saving enough money. Sanjiv Lakhia, MD, a psychiatrist with Carolina Neurosurgery & Spine Associates, explains the challenge like this: “And once you get your first job as a practicing doc and you get your contract and your salary, there’s an urge, a tendency, to ramp up your lifestyle real quick, whether it’s a new, shiny car, big house, or what have you.”

A little bit of budgeting and retirement planning can go a long way in fighting poor financial literacy and lifestyle creep.

Bad investing

While doctors can make a lot of dough on the market or in real estate, each investment adds risk.

Physicians aren’t immune to falling for false dreams of big money on the markets, like the doctor who sunk $25,000 in a marijuana farm that claimed to deliver 18% annual returns and an investment pitch for rubber horse shoes that somehow captivated an entire doctor’s lounge. Doctors who responded to one private survey pointed to a slew of investment problems, from buying bunk stocks high and selling them low to failed startups and risky bets on penny stocks, bitcoin, and day trading. “The further you get away from traditional investments, such as certificates of deposit, stocks, bonds, and real estate, the greater the knowledge required,” writes retired cardiologist Robert Doroghazi, MD, in The American Journal of Cardiology, “and the greater possibility for error.”

Even safer bets like real estate can lead to problems if a physician believes their money will make up for their lack of industry knowledge. 

Falling behind on loans

Medical school debt is higher than ever. The average med student from the class of 2019 took out $201,490 in loans to don that white coat, a 2.5% jump from the prior year, according to data from the Association of American Medical Colleges. Despite their high salaries, some physicians have a tough time paying down these astronomical debts. 

Farzon A. Nahvi, MD, an emergency medicine physician in New York, highlighted the problem 2 years ago when he noted that he couldn’t afford a home thanks to his $3,000 monthly loan payments. After graduating with $180,000 in debt, Dr. Nahvi did his best to save money by riding a bike to work and eating free lunches. “Yet upon completing residency, the amount I owed had, to my disbelief, increased to $188,000 — all my efforts had not been enough to cover even the interest accumulating on my loans.”

Doctors have options to reduce the burden, though. They may apply for federal loan forgiveness or refinance their student loan debt. The key, it turns out, is understanding one’s budget and landing a lower interest rate. Oh, and it always helps to pick a high-paying specialty.

Prep for the best, brace for the worst

COVID-19 taught us that things can get bad, quickly. For example, 97% of physician practices had lost money by April due to the pandemic, and nearly half had instituted furloughs, according to a Medical Group Management Association survey. That means physicians, despite their high pay, are at risk of losing everything during economic downturns. That is, unless they have enough save ahead of time.

Good financial habits can also fend off personal crises. Nearly 30% of physician respondents said in a recent survey that insufficient compensation or reimbursement—read: feeling devalued and financially strained—contributes to their burnout. Another poll found that half of physician respondents working past retirement age did so because they wanted to maintain their lifestyle, even in the face of declining career satisfaction.

Yet doctors have the means to live better than most. So, what can they do to ensure they won’t make these mistakes? Dahle, the emergency medicine physician who blogs about finance, says it comes down to taking an active interest in one’s finances. “If you manage it well, it will be profitable and will support you long after you’ve stopped working,” he writes. “If you do a poor job, you will reap the consequences.”