Recently we spoke to Dr. Jim Dahle, an emergency physician and founder of White Coat Investor. Since 2011, he has been guiding physicians into financial success through blog posts, books, courses, podcasts, and other resources. He provides comprehensive financial literacy education on investment strategies, student loan debt, life insurance, physician finance, retirement planning, taxes, burnout prevention, and more – so we were eager to hear his insights on financial management for physicians.
Hi Dr. Dahle, thanks for talking to us. Let’s dive right in: what are the most common financial mistakes made by busy physicians?
The most common errors include:
1) Not saving enough. I recommend saving 20% of gross income for retirement.
2) Buying unnecessary insurance like whole life insurance that almost no physician needs.
3) Paying too much for good advice. The going rate is $7,500-$15,000 per year.
4) Getting bad advice from advisors who are actually salespeople masquerading as advisors or who don’t understand the evidence about investing.
5) Not doing the basics like buying disability insurance and getting a will.
6) Collecting investments instead of following a solid written investing plan.
Let’s talk about student loan debt – I know many physicians start their careers with significant debt. Do you recommend any key debt management strategies?
Yes. Take out federal loans instead of private loans whenever possible; refinance private loans early and often. Use income-driven payment programs for federal loans, especially during training.
If you’re choosing a job that qualifies for Public Service Loan Forgiveness, take steps to maximize the amount of your loans you get forgiven. If you’re paying off your loans, live like a resident for 2-5 years after residency and send a big chunk of the difference between attending pay and resident expenses to the lender.
Does financial stress or a lack of financial literacy play a role in physician burnout?
For sure. Financial success not only eliminates financial stress, but it allows for lots of other burnout-reducing techniques like working less, hiring a coach or therapist, reducing work you don’t really like to do, moving away from a toxic job, etc.
What’s the right balance between being a do-it-yourself investor and knowing when to consult a financial advisor?
Mostly you just need to figure out what you are and then hire an appropriate advisor if necessary for your type of investor. It’s okay to be your own financial planner and investment manager, but you need to learn enough and be disciplined enough to do it about as well as a professional. That’s not that hard to do if you’re interested in this stuff.
If you’re a “validator” that just wants to check in with an advisor every few years, you need to hire an advisor who specializes in working with validators. Most advisors are set up to serve delegators and it’s fine to use an advisor so long as you get good advice at a fair price. But the hard part is figuring out up front if you’re a DIYer, a validator, or a delegator.
On that note, I know that physicians as a rule are very busy. What’s a good “starter strategy” for investing? Are there any low maintenance but effective investment strategies that don’t require significant monitoring?
Perhaps the best starter strategy is a “Target Retirement Fund” which is a set-and-forget, low-cost, broadly diversified fund of index funds that is totally appropriate inside retirement accounts like Roth IRAs. If I had it all to do over again, that’s probably the only investment I’d use for my first $100,000 going toward retirement.
How about physicians protecting their wealth? I know malpractice insurance is necessity. Are there any other forms of asset protection a physician should have?
Docs need to increase their personal liability (auto/homeowners) coverage and add an umbrella policy on top of that. Maxing out retirement accounts also provides substantial asset protection along with other benefits. In states where it allows, married couples should take advantage of “tenants by the entirety” titling.
Losing personal assets to a malpractice suit is actually extraordinarily rare, despite how much docs worry about it. They should instead worry about divorce (which is also more rare among physicians than the general population). In a lot of ways, date night is the best asset protection technique.
Can’t argue with date night. Do you recommend any tax-advantaged accounts or other ways for physicians to minimize their tax burden?
Yes, I recommend all of them – including Roth IRAs, 401(k)s, 403(b)s, 457(b)s, solo 401(k)s, cash balance plans, 529s, HSAs, UTMAs, ABLE accounts and more. Making retirement account contributions is one of the best ways for docs to reduce their current and future tax burden.
Imagine you’re back as a resident or young attending physician again. What’s the one piece of advice you wish you had known about personal finance?
The hardest part of the whole process is finding the right balance between spending now on “current you” and investing to take care of “future you” later. It’s amazing how many people severely struggle finding this balance and they err on both sides.
Thank you, Dr. Dahle!
Anyone interested in learning more about Dr. Dahle or White Coast Investor can visit https://www.whitecoatinvestor.com/.
