Finance & Business

Lifestyle Adjustments That Can Help Physicians Achieve Financial Freedom

While physicians are some of the highest income earners in the U.S., a sizable salary doesn’t guarantee financial freedom. Like many professionals in other high-paying fields, physicians often struggle with their finances.

Sometimes it’s because they don’t spend their money wisely. Sometimes it’s because they have an excessive amount of debt. Sometimes it’s because they don’t know the best ways to invest or save or budget.

Looking to learn how to improve your finances and establish financial independence?

Here are six lifestyle adjustments that can help physicians achieve financial freedom.

Create a Budget

No matter how much or how little you earn, everyone can benefit from having a budget. On your own or with the guidance of a financial planner, create a budget that specifies how you’re going to spend, save, and invest every dollar you earn.

Many experts recommend the 50/30/20 rule:

  • 50% of your income goes towards needs (housing, utilities, transportation, and food)
  • 30% of your income goes towards wants (vacations, dining out, entertainment, etc.)
  • 20% of your income goes towards savings and debt repayment

This is not a hard and fast rule that applies to everyone, but it’s a good starting point that many physicians find helpful.  

Live Within (or Below) Your Means

It can be tempting to want to buy the fanciest new car, shop at the most upscale clothing stores, or take the most lavish vacation you can think of. But if you don’t keep non-essential expenses in check, you can easily blow your budget and run the risk of not saving properly or, even worse, going into debt.  

Always live within your means or below them. The less you spend each month, the more you can save for retirement or put towards investments that can net you bigger gains.

Pay Off Debt

Most new physicians finish residency saddled with student loan debt (and sometimes credit card debt too). Until you pay those debts off, be as disciplined as you possibly can with your spending.

Paying off your loans quickly will save you on interest and put you on a path to financial freedom. Once your debt is gone, you’ll have more monthly income to put towards investing, savings, or making big purchases, such as buying a home.

Note that your level of debt will also affect your credit score.

When it’s time to apply for a mortgage or lease a new car, lenders will consider your credit score. The higher your credit score, the more likely you are to get more favorable loan terms, such as lower interest rates, which will further help you save more money in the long run.  

Purchase a Home

It’s common for young physicians to feel uncertainty regarding where they want to live and work. But renting a home or apartment for years and years won’t do much for your financial freedom. It’s better to purchase a home and build equity that you can tap into in the future or use to put towards your next home when you do decide it’s time to move.

If where your career will take you is still uncertain, consider purchasing an investment property or a multi-family home that you can rent to tenants. You can put the rent you collect towards paying off the mortgage, and if you can rent for higher than your mortgage payment, it will be a second stream of income.

Create an Emergency Fund

Build an emergency fund with a target goal of saving at least six months of income. Set these funds aside as emergency living expenses in case you lose your job, as a safety net if you have a medical emergency, or if you need to pay for repairs to your home or car.

An emergency fund is especially important if you’re a homeowner, as home repairs can be costly. It’s always better to draw from your emergency savings to pay for such expenses rather than having to take loans or put necessary purchases on a credit card.  

Use Paid Time Off Wisely

Some physicians “cash out” unused paid time off to put more money in their pocket. But using PTO days for their intended purpose can be more beneficial in the long run.

Physician burnout is real, and feeling it early in your career may result in taking an early retirement. Establishing a better work/life balance by using vacation days and taking breaks can actually make you more productive and happier. The happier you are, the less likely you are to retire early, which means more years to earn income.  

To learn more about negotiating PTO in your employment contract, read this article from Physicians Thrive.

In Conclusion

Financial freedom is liberating, and there are many steps you can take to put yourself on a path to financial independence.

If you’re not sure where to begin or how to start making these lifestyle changes, seek advice from a professional. Financial advisors and planners can help you determine and reach annual financial goals, no matter what they are or where you are in your career.  

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