Young professionals, especially doctors, are pitched a boat load of products in the middle of their studies, let alone the beginning of their careers! We’ve worked with many doctors and have seen misguidance in practice, nefarious or otherwise. It’s easy to be overwhelmed with choices out there; here’s a sliver of our thinking on a few common areas which I hope will resonate with you.
Budgeting – your salary’s about to increase
Transitioning from a resident or fellow’s stipend to a staff physician’s salary is often a significant jump, sometimes before you’ve started a family and/or bought a first property. What we see happen most typically is that as incomes increase, so does spending. Not necessarily at a one-to-one, but ideals of frugality don’t typically fully hold – and that’s OK! You’ve worked hard to get where you are and want to enjoy life.
That said, making room for savings (by paying down high interest debts and/or investing) is something that you’ll want to implement as soon as possible; if you struggle doing this without a family and mortgage, consider the challenge of cutting back when there’s more on your plate! A good starting point is aiming to put at least 20% of your gross salary towards paying off your debts and investing for your long-term goals. For the latter, using registered accounts first like an RRSP, TFSA and FHSA (if applicable) are great places to start.
Incorporating – a powerful savings vehicle (when it makes sense)
Broadly speaking, a corporation lets you slow the outflow of your income (to income taxes and lifestyle), letting you save more tax efficiently than if the money were held personally in a taxable account. The Loonie Doctor, a highly recommended source at the intersection of finances and physicianship, aptly likens this to a dam holding back free-flowing water; you let flow only enough personal income to suit your lifestyle needs. The rest is held in the corporation with a lesser tax bite having been taken. With that said, open the dam too wide and it reverts to being an unencumbered waterway.
Should you rush and incorporate right away after med school? No. After residency? Also, no. Paying off debts and filling up the accumulated room in your RRSP and TFSA accounts is likely a better place to start. It’s simple, tax efficient, and helps build the savings habit you’ll need to stay disciplined throughout your career. Many in our industry are poised to tell you otherwise – tread carefully!
Insurance – what’s essential?
Some of the most aggressive pitches you are likely to receive are from insurance agents overselling products. Don’t get me wrong – insurance is an integral piece of a solid financial plan and is highly recommended. However, there are many expensive, complex, and, sadly, unnecessary products on the market that don’t match the needs of many starting physicians. At a minimum, term life insurance, disability insurance, and whatever mandatory insurance your field requires is all you need to get started.
Life insurance narrows the gap between your future earning potential and current obligations, as I’ve written in a previous post, should you sadly pass away prematurely. To this end, rolling 10- or 20-year term policies is often the most cost-effective way to cover your liabilities. Looking for a starting guide to how much term insurance you need? Refer to this piece. For a deep dive into permanent vs term insurance, check out this excellent paper from colleagues Ben Felix, Jaclyn Archer, and Jordan Tarasoff.
Disability insurance protects your earnings while unable to work, either permanently or temporarily. Aiming for a policy that covers your lifestyle needs plus your savings is ideal; most policies only pay out until age 65, meaning you’ll be living off savings after that point. Here are some guidelines on how approach this.
Investing – set it and forget it
We believe that markets are efficient and that consistently outsmarting the collective wisdom of the investment world over the long run is a fool’s game. The core of our investment philosophy is easy enough to implement, largely thanks to the pioneering work from colleagues Dan Bortolotti and Justin Bender. Buying inexpensive index funds diversifies your risks away from any one sector or stock while benefiting from owning a sliver of over ten thousand companies worldwide. It’s boring, and it works well – save your excitement for your personal life!
Good team – DIY is great, but it’s not always easy
You’ll want to work with a solid accountant and, if incorporated, a lawyer to get your taxes and legal structure right. These are certainly fields where DIYing it is not advised; a solid team of professionals are well worth it. While it is more feasible to implement an investment strategy and keep up to date on best financial planning practices, it is not for everyone. An investment advisor helps you navigate markets and stay the course in trying times, and an advice-only financial planner will reconcile and align your life goals with best practices in a complex environment.
We believe, and are biased in so doing, that your best bet is integrated financial planning with wealth management, ensuring that your investment actions are aligned with the many financial goals you’ll have throughout your lifetime. Tax regimes, financial regulations, and changing personal goals are all valid reasons to work with a trusted team to keep your investments and financial plan updated and aligned.
