Financial freedom isn’t the reality for anyone who depends on their employment income to survive, but that doesn’t make it an impossible feat either.
In this guide, we’ll define financial freedom for physicians, identify many of the barriers that keep people stuck, and provide several practical tips to help you make the necessary changes and achieve your goals.
What is Financial Freedom for Physicians?
Financial freedom, or financial independence, occurs when you can pay off your debts and still rely on an income that meets your present and future expenses.
People who pursue financial freedom are looking to live life on their terms without the daily pressures of working a full-time job.
For some, financial freedom comes from entrepreneurship and growing a business that supports itself.
For others, financial freedom comes from generating passive income streams through investments and careful financial planning.
In reality, the best path to financial freedom typically comes from a combination of strategies.
Feeling empowered to amass savings can allow you to choose a fulfilling career without worrying about your financial future.
It may also allow you to retire early to travel the world, spend more time with your loved ones, or volunteer your time for an important cause.
10 Tips for Achieving Financial Freedom for Physicians
Financial freedom doesn’t have to be an improbable or unfamiliar avenue if you have a few practical tips in your back pocket.
Keep reading to find out how you can achieve financial freedom as a physician:
- Find Your Motivating Force
- Pay Down Debt
- Build Your Financial Literacy
- Consult A Financial Advisor
- Optimize Your Budget
- Max Out Retirement Accounts
- Contribute to a Backdoor IRA
- Purchase Real Estate
- Negotiate Your Present Salary
- Diversify Streams of Income
1. Find Your Motivating Force
The key to sustaining any long-term goal is finding your reason for doing it. Consider it a guiding light.
You may have sustained yourself through undergraduate and medical school at the thought of a high income and the prestige of being a doctor, but that may not be enough to keep you going once you’ve achieved it.
We recommend finding your motivating force. It could be wanting more family time. It could be wanting to move abroad or pursue other passions without the pressures of bringing in money.
Take a thorough inventory of your values to find your motivating force for pursuing financial independence.
2. Pay Down Debt
Debt literally subtracts from your total net worth and the goal of financial freedom is increasing your net worth to a self-sustaining amount. Every dollar you pay towards your debt is another dollar added to your net worth.
It can be helpful to cut down on discretionary spending, such as personal care, eating out, or lavish purchases, and cut back to the bare essentials so you can devote as much of your monthly income to paying down debt quickly.
Paying down debt quickly allows you to budget other funds that would have gone toward paying debt to retirement account contributions, investments, and emergency fund savings.
3. Build Your Financial Literacy
Financial literacy isn’t a part of the American common core curriculum, but developing a financial education can be a secret weapon that takes you far in life.
You can take charge of your financial literacy by dedicating time to reviewing your accounts every month, reading business journals, subscribing to thought-provoking podcasts, and asking your peers for tips on how they manage their personal finances.
4. Consult A Financial Advisor
Consulting a financial advisor goes in tandem with building your financial literacy. A fee-only financial advisor with a fiduciary responsibility won’t have any personal stake in suggesting certain investments. Instead, they’ll be required to provide advice in your best interest.
A financial advisor can not only help you set up financial planning that supports financial freedom, but they can also advise you on safeguards, such as disability insurance and life insurance, that can protect your net worth and other assets during unforeseen circumstances.
5. Optimize Your Budget
Many physicians look at their high income and scoff at the idea of budgeting. However, always having enough in the present doesn’t guarantee financial security in the future.
High incomes in particular carry the risk of impulsive and indulgent purchases you may not have considered otherwise.
Optimizing your budget with a financial advisor, smartphone app, or analog strategy can help you understand exactly how much of your money is going to specific areas of your life.
If you’re surprised about anything you see, being aware gives you the power to change it.
6. Max Out Retirement Accounts
If you are employed by an organization, you most likely have access to employer-matched retirement accounts with index funds. You should contribute the maximum amount you can and take advantage of every point your employer is willing to match.
Even if you don’t have an employer-matched retirement account, you should calculate the maximum amount you can comfortably contribute to your retirement funds each month.
We generally recommend 10% if you can afford it, but your financial advisor can provide more personalized insight.
7. Contribute to a Backdoor IRA
Individual retirement accounts (IRAs) are personal accounts you open on your own. There are traditional IRAs and Roth IRAs. In either case, you’ll have to make less than $124,000 to qualify for the tax advantages of these accounts, but there is a major loophole.
If you contribute the maximum amount to a traditional IRA, you can transfer those funds to a Roth IRA tax-free. This method works because your traditional IRA contributions have already been taxed as income, so you won’t have to pay taxes on it again later.
8. Purchase Real Estate
As many financial enthusiasts go on about the importance of investing in the stock market, real estate investing is a tangible asset that can appreciate at a much faster rate if you make a good purchase.
Not only will your property most likely appreciate before you pay off your mortgage, but you’ll also be able to collect passive income on your property by charging rent.
Many people begin real estate investing by flipping houses or purchasing multi-unit rental property to generate income, but it’s not the only path. Investing in commercial real estate can also be a powerful avenue to wealth.
9. Negotiate Your Present Salary
While financial independence and early retirement are noble goals, you won’t be able to achieve them without finding a way to grow your income. The best place to start is with your current salary. Put simply – negotiate your current salary, especially if you aren’t satisfied.
If you’re currently employed, you can go to your supervisor with a list of your accomplishments, compliments given to you by patients, and your history of exemplary work.
It can also be worthwhile to note the cost of living in your area and any inflation that’s occurred since you’ve been hired.
If you are unsatisfied with the financial opportunities at your current place of employment, you can often get a raise by switching jobs. Be careful to check the terms of your contract, but there’s never any harm in connecting with a recruiter or old colleague to better understand your options.
10. Diversify Streams of Income
In addition to growing your primary source of income, you should seek to make yourself bulletproof should you ever lose a source of income.
In business, diverse streams of income are the gold standard for maintaining positive cash flow.
You can diversify your income by building passive income, starting a social media influencing account, pursuing entrepreneurship endeavors, or collaborating on a podcast.
The opportunities are endless when you have your eyes set on financial freedom.
How Does the Average Physician Pay for Their Medical Education?
The average physician pays for their medical education with student loans, scholarships, and financial assistance from their families.
Believe it or not, many physicians come from generational wealth, or at the very least families of means. Only about 5% of all medical students come from families in the bottom quintile of income.
With that said, the overwhelming majority of physicians––as high as 73%––graduate with student loan debt from medical school.
Barriers to Financial Freedom for Physicians
Financial freedom isn’t something anyone can accomplish overnight unless they come into a sudden cash windfall, but physicians have a small advantage due to their high-income potential.
However, advantages don’t reduce the inherent barriers to financial freedom for all Americans who don’t come from generational wealth.
We’ve outlined some common barriers to financial freedom, but it’s far from an exhaustive list. We invite you to examine the barriers that exist in your own life and brainstorm strategies for overcoming them.
People develop a scarcity mindset when they internalize the belief that resources are limited––that there isn’t enough to go around.
Scarcity mindsets can lead to a hyper fixation on present problems, which can make a person shortsighted and limited in their problem-solving abilities.
People with a scarcity mindset often feel jealous and focused on what their lives lack compared to their peers.
Not Prioritizing Financial Planning
One of the more significant barriers to financial freedom for physicians is not making financial planning a priority.
Many people decide that they don’t have enough extra funds to stick to a financial plan while just as many people, often physicians, assume their high income is enough to compensate for a lack of financial planning.
Limited Understanding of the Stock Market
The stock market is an opportunity to invest in publicly traded businesses and earn money back. Investments are a proven vehicle for long-term wealth, but many people lack the experience and confidence to begin the process.
The stock market is akin to gambling in that there is always a risk that you may not see a return on your investment, but the key to making money in the stock market is often staying the course.
Remaining in the stock market can be particularly challenging for medical professionals who haven’t already built up an emergency fund and short-term savings fund because withdrawing from the stock market can eliminate the possibility of any future return.
Unfortunately, a lot of basic financial strategies aren’t common sense for every American and it’s not through any fault of their own. Financial tips are often picked up through experience or handed down from generation to generation.
If you haven’t been privy to this intel, it can feel like you have a lot to learn before you can begin to take charge of your financial independence.
Mounting Student Debt
Physicians are often saddled with more student loan debt than the average college graduate. According to a report from the Education Data Initiative, medical school graduates owe as much as 7 times more than the typical college graduate.
In addition to the high cost of medical school, physicians often have undergraduate student loans and credit card debt.
High Cost-of-Living and Negative Cash Flow
It’s no secret that many Americans are living paycheck to paycheck and struggling to keep up with the ever-rising cost of living in every corner of the country.
Maintaining a budget when it seems like all your money is spoken for before you get the chance to think about it can be a real and valid challenge. It’s also connected to a scarcity mindset.
Being intentional with the resources you have at your disposal can help you identify the expenses contributing to your negative cash flow and develop new strategies for the future.
Burnout From Demanding Job and Life Responsibilities
Working full-time isn’t just working 40 hours per week and physicians can work even longer hours. Often individuals are commuting to work, putting in overtime hours, and performing domestic labor at home. Without an end in sight, these ongoing demands can lead to burnout.
Burnt-out individuals are already running on fumes, which doesn’t leave a lot of energy left over to think about how to achieve financial freedom.
Factors that Contribute to Physician Burnout
Physician burnout is an epidemic. It stems from long periods of prolonged stress with few moments of reprieve. It can erode the inherent empathy that exists in humans called to a life of providing medical care to people regardless of class, color, or creed.
However, identifying the factors that contribute to physician burnout can help individuals combat it within themselves and organizations step up to alleviate the circumstances that produce it.
The COVID-19 pandemic changed the healthcare profession forever. Medical professionals and physicians had a front-row seat to public health failures and devastating illnesses with seemingly no light at the end of the tunnel.
A recent study found that the self-reported physician burnout rate rose from 38.2% in 2021 to 62.8% in 2022. There are still physician shortages in areas all over the country and it’s expected to get worse over the next 10 years.
Juggling high-pressure job responsibilities, a pandemic, and simultaneous medical ailments all while coping with staffing shortages is enough to burn out anyone. Physicians were uniquely predisposed to burnout before the pandemic, but it exacerbated the conditions.
2. Larger Healthcare Industry Pressure
Even with the pandemic aside, the healthcare industry has an essential function in modern society.
Many physicians get into medicine to satisfy their deep underlying desire to serve people and neverending curiosity about the complexities of the human body.
But wanting to serve and heal people is entirely different from the realities of working in the healthcare industry.
Physicians will often treat patients and their families on some of the worst and most emotionally difficult days of their lives. Frustrations will be hurled at them.
They’ll face desperation and they’ll deliver difficult news all while managing dozens of patients and staying up-to-date on new treatments and research.
Organizational factors, such as poor leadership and underpayment, can also contribute to burnout.
Juggling all this pressure can make it difficult to stay motivated at work and home.
3. Law, Regulations, and Red Tape
State, local, and federal governments impose laws and regulations on healthcare providers under their purview. Often these regulations create additional administrative requirements for the already busy physicians.
Unfortunately, these regulations are often written and implemented by people who have limited, if any, experience on the ground treating patients.
4. Insurance Policies
It takes a seasoned eye to understand their personal insurance policy and it takes an omnipotent being to understand every insurance policy every patient has.
It’s an unfortunate reality for many physicians to suggest a treatment, surgery, test, or other medical intervention that insurance won’t cover. If it is covered, it may require prior authorizations, in-network providers, and a limited scope.
Physicians don’t deal personally with insurance policies when they work for large healthcare organizations, but private practice physicians depend on them.
Even when physicians are paid a salary by the hospital, it can be exhausting to watch patients reject care or switch providers due to insurance policy fine print and financial restraints.
5. Payment Issues
Similar to insurance policies, physicians face payment issues when their patients can’t meet co-pays and/or insurance companies haggle the cost of service. Many doctors don’t get into medicine to negotiate their worth to insurance companies with no clinical experience, so it can be a particularly potent recipe for burnout if it’s an ongoing issue.
6. Medical Record Documentation
New technology has paved the way for physicians to ditch paper files and move over to electronic documentation. However, codes and regulations rarely allow for a streamlined process.
Quality measurement, recording, and medical treatment documentation can make it more efficient for outside eyes to consult on healthcare, but it’s often a significant burden for clinicians.
Understanding the source of your burnout can help you advocate for better conditions at work, transition to a role that better fits your values, and allow you to take steps to nurture yourself.