Everyone’s watching their expenses these days, and many doctors are no exception. Physicians who have taken a hit to their income in recent years are looking for ways to reduce unnecessary personal costs, and they’re approaching this goal in several different ways.
In Medscape’s Physician Wealth & Debt Report 2023, we asked doctors how they were cutting their personal and family costs, managing their budgets, and crunching their spending numbers overall.
The report pointed out that 60% of doctors reported that their family net worth exceeds the national average, yet 42% of respondents say they’re increasingly concerned about spending and their families live beneath their means.
One doctor reported that he has decided to avoid getting married and having kids in order to save money; a small number of physicians reported that they have had to file for bankruptcy.
Close to three quarters (71%) of the physician respondents said they have not done anything major to reduce expenses, even though they are worried about their financial future.
“How you view money in one situation is how you view money in other aspects of your life as well,” says David J. Norris, MD, MBA, a practicing anesthesiologist/business consultant for healthcare providers and the author of The Financially Intelligent Physician: What They Didn’t Teach You in Medical School. “It doesn’t change as you shift from your personal to business life and back again. Your duties may change; how you approach your finances does not.” The key is to take an overview of your entire financial picture and see where you need to make changes.
When it comes to finances, there’s so much a physician can do to take control. Here are seven useful strategies that many financially-savvy doctors are using to cut their expenses.
Pay Attention to the Big Picture
Step back and look at all aspects of the money you spend from a functional perspective. “You need a budget philosophy,” one internist stressed. “Each dollar needs a job.” Shift your perspective, so that any money that leaves your budget should only do so for a specific, necessary purpose.
Apply this philosophy to your practice first. “Physicians must examine three critical financial reports: your balance sheet, your income statement, and your cash flow statement,” advised Norris. “These statements must be studied monthly, at a minimum, and you need to understand what each line item represents on these reports. Ask yourself, your office manager, and your accountant how each line item impacts patient care, and whether or not it’s necessary for patient and staff. You should understand each of the processes in your clinic, and what costs are necessary to provide exemplary patient care and ensure patient satisfaction. However, that cost should always be evaluated and compared to alternatives in the marketplace.” This strategy can stabilize practice spending and improve your profits.
Now, look at your personal financial numbers. According to the US Securities and Exchange Commission, the easiest way to do this is by listing your assets and your liabilities; subtract your liabilities from your assets, and this is your net worth. This information is essential when it comes to planning for retirement, and you should take it into account whenever you’re considering major investments or purchases.
Discuss each point with your spouse if you are married, and do it frequently. “We take an honest snapshot of our financial position every quarter and limit big expenditures, which are greater than $2000, to what we agree on,” one anesthesiologist said.
Admit What You Don’t Know
It’s easy to get so busy pursuing your work that you overlook important metrics.
“About 12 years ago, I surveyed every physician in my county, asking them if they knew how much it cost them to see a patient, and their revenue per patient,” Norris says. “I also asked if they balanced their personal checkbook, knew how much they spent every month, and knew their current account balances. There was a correlation between a lack of knowledge in both their personal and business finances.”
The answer? Focus on the absolute basics of budgeting. One hospital-based pediatrician advocates zero-based budgeting, an approach that requires planning from scratch every month.
This is a great way to prioritize essential costs. “Setting aside money for retirement and my 529 is non-negotiable,” the doctor said.
Zero-based budgeting also allows you to see where corners can be most easily cut. “I don’t eat out, purchase used items when possible, use coupons for groceries, and travel frugally,” the doctor adds. Also, limit credit card spending, big time. “I use a cash-only system,” one doctor explains. If you don’t have the green in your wallet, don’t buy it, period.
Pick Your Pleasure vs Necessities
No matter how much money they make, splurging doesn’t make sense to many doctors.
“It’s actually very simple,” one physician said. “We choose to live well below our means so we can control what we choose to do financially.”
This means evaluating what extras really add to your life and eliminating wasteful spending.
“I have basic cable only, do my own lawn care, and eat at home,” one physician reports. Other doctors cite taking “staycations” and even cutting their own hair as efficient cash-savers.
When you don’t pay for things that don’t matter to you, you can feel OK about putting your money toward something special that’s truly meaningful.
Watch Your Investments
Many doctors report that their 401ks are down due to stock market drops and bad cryptocurrency investments. This is where expert financial advice comes in. Talk to an advisor so you understand the ups and downs of the markets, and move your money to low-risk investments whenever you can. Do extensive research and get input from a financial advisor before sinking your hard-earned cash into alternate currency or start-up business opportunities.
Think Twice About a Luxury Car
To reduce expenses, many doctors cost-cut on their vehicles. “I buy good, but not crazy-expensive cars, and drive the wheels off them,” as one doctor puts it. If you cover several hospitals, it may make good financial sense to have more than one vehicle, in case one breaks down, of course. Buying a back-up used car with enough life left in it mileage-wise is your best bet.
Apply for Loan Forgiveness
“When I die, my student loan will probably still have a balance,” one anesthesiologist lamented. A hospitalist added, “Every physician essentially has a second mortgage with their medical school debt. My effective income is 25% lower for 15-20 years because of this debt.”
According to the American Association of Family Physicians, many physicians may qualify for debt forgiveness through service programs. You can also try to renegotiate with your lender or move money from another source to cover what you owe. “We just paid off my medical school loans as part of refinancing our home mortgage,” says a family physician.
“I am freaking out about only being halfway to my retirement goal,” one physician respondent said. “I feel like I did something terribly wrong by working like a dog for 30-plus years, only to have the world explode into a viral and political hell that cuts MD pay and limits what we can do for our patients.”
There’s no need to make fear-based decisions when it comes to money. Most likely, you have plenty of time and opportunities to make more. It’s easy to fall into financial despair if you don’t think things through. Talk out your financial worries with your spouse, a close family member, and/or your financial advisor, and you’ll see options you never realized you had.
One doctor said that in their family, “we discuss every economic/financial situation very well before we make any decisions.” In the words of Warren Buffett: “Risk comes from not knowing what you’re doing.” Make a wise plan, stick to it, and reap the benefits!
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