How to be Financially Successful as a Physician?
To become a certified physician, you need to know everything about human anatomy and physiology.
However, being certified does not guarantee a successful career. Being busy with medical studies does not give me enough time to learn anything else, especially personal finance management.
This is a significantly important matter as studies show that over 79% of medical school graduates have at least US$ 100,000 in student loan debt. Around 50% of newly-certified doctors graduate with more than US$ 200,000 in student loan debt.
It is shocking that more than half the doctors start their careers with hundreds of dollars in debt. With this small amount, one can easily finance a house. However, these doctors are burdened with enormous financial debt even before they earn their first paycheck.
Besides this, almost 1 out of 2 doctors end up establishing private practices, but without the financial know-how to make it a success. This leads to the question, how important is it for physicians to learn at least the fundamental of financial management?
The best way to go about this is to crunch the numbers. You don’t have to worry too much, as there is very little math involved. Instead, you can follow the 3 ways to be financially successful as a physician here.
3 Ways To Be Financially Successful as a Physician
1 – Keep a score
Remember, knowing the numbers is the same as getting a baseline of your finances. It is extremely similar to getting baseline information on a patient’s health. Before deciding to make the necessary changes, you must first know where to begin.
Are you aware of your FICO score? Or at least a general range of your FICO score? It is easy to understand if you don’t know this or don’t even know what a FICO score is.
FICO is short for Fair Isaac Corporation. This is an analytic software company that first launched the concept of credit scoring to the world. They use a variety of criteria, such as your income, debt, available credit, etc.
A higher FICO score shows that you have good personal finance management skills. On the other hand, if you have a low FICO score, then this could point to an issue with money management or debt mismanagement. The FICO score was first used in 1995 to determine if applicants could qualify for a mortgage loan. In this, a higher score meant you ended up paying a lower rate of interest.
In contrast, a FICO score over 800 is seen as exceptional. Only around 1% of consumers have a score in this range, and these are considered the least risk to lenders. These select people can get loans at incredibly attractive (low) interest rates.
Finding FICO Score
You can easily find your FICO score by contacting your credit card company. If you have a card from a major brand, such as Chase or Citibank, then credit score is a common feature that the companies provide to their card users.
You can simply log in to your online credit card account and find your FICO score for free.
Everyone has the right to check their credit score at least once a year for no charge whatsoever. This can be done from one of three bureaus – TransUnion, Equifax, and Experian.
If you have a low FICO score and want to increase it, or if you want to maintain your good FICO score, you need to follow these simple steps:
1. Pay all bills on time
2. Limit further borrowing
3. Keep credit card balances low
4. Keep credit card limits high
5. Never cosign a loan
6. Review your credit report once a year
7. Correct any errors found in your credit score
2 – Calculate Your Net Worth
Net worth is the total value of assets minus liabilities. You can use one of many online asset calculators for free to determine your actual net worth.
Assets are defined as cash, retirement accounts, valuable jewelry and numerous household appliances and goods that have a significant value. On the other hand, liabilities are the things you owe. A house or a car can be assets and liabilities too. For instance, if you have taken a loan to buy a house or car (i.e. you have paid for the product completely), then the car and house are deemed liabilities.
It is vital to manage finances so that you know your total net worth. This is like a starting point that helps you to make feasible and practical decisions concerning your personal finance management.
3 – Optimize Your Cash Flow
Cash flow is the money coming in and going out over a fixed period. Your monthly paycheck is the cash flowing in, while the monthly expenses (including incidental expenses) are the cash flowing out. This process of the money being earned and spent forms a cash flow.
It is called a flow because there is no end to earning money and paying expenses, as this is a continuous loop.
You can get control over your cash flow effectively. For instance, financial experts advise keeping things under a fixed budget. A budget is nothing more than your cash flow in written form, as it contains the amount of income you earn and the number of expenses you pay with the income.
Once you have a clearly written budget, you can start thinking about your financial choices. Check the bottom line of income and consider your needs and wants in terms of expenses. Take into account any long-term goals, such as paying off student loans.
Every time you have an impulse to buy something, pause for a few seconds and think if you need it. You can ask yourself if making the purchase helps you get closer to your personal financial goals or if it pushes you further away from them.
There’s nothing wrong with spending money, as long as you make meaningful purchases that help you achieve your personal finance goal sooner.
Finance experts highly recommend planning your finances for the upcoming year, decade, and career.
The best time to learn and plan your finances is now. Remember, knowing your net worth and cash flow are simple ways to be financially successful as a physician.