By Stephen C. Fitzer
Bexar County Medical Society
Executive Director
Becoming a new, practicing physician
involves a lot of adjustments,
not the least of which is having
more income than ever in your life. While
it is tempting to spend like never before,
wise physicians are prudent with their newfound
increase in disposable income.
Steve Young, the former San Francisco
49ers quarterback, was an example of
someone who was very disciplined and
responsible with his new wealth. Steve
started playing in the now defunct USFL,
then moved over to play for Tampa Bay.
By the time Steve got to San Francisco
and started the prime of his career, he
already had earned many millions of dollars
as a pro football player.
But rather than go on a spending spree
and buy all the things he had been denied
all his life, Steve saved his money. He was
driving a 10-year old car when he got to
San Francisco, and he didn’t feel the need
to keep up with the spending of the other
pro football players, but instead thought
more long-term. It is a lesson in prudence
for all those beginning their careers.
We all know stories about people who
have suddenly come into money, piddled
it away, or made bad investment decisions
and wound up with nothing.
Unfortunately, some of these stories are
about successful physicians. No one wants
to be there.
Physicians have a profession that has
the potential to give them a very comfortable
lifestyle. How a physician runs his or
her business and personal financial life
will determine long-term lifestyle as well
as those of the spouse and children.
It all starts with basics. As a physician
comes out of residency, the most prominent
financial issue faced is usually that
of college and medical school debt.
Consolidating loans and looking for the
best terms under which to consolidate
loans has to be a very high priority. Look
for low interest rates, fixed interest rates
(in this low interest rate environment)
and sufficient time to repay the loan to
keep payments manageable. It’s okay to
spread this debt over many years, as it
will probably be the lowest interest rate
debt available to you.
BCMS, TMA and your medical school
can help direct you toward reliable student
loan consolidators. Check the
BCMS website for more details.
Credit card debt must be given priority
for urgent payment. With credit card
interest rates now running as high as 36
percent or more, it is possible to make
minimum monthly payments and have
to make those payments for decades.
Prioritizing debt by paying off the highest
interest rate debt first is always the right
thing to do.
Purchasing a home is a great investment
for the long term. Speculating on
short term run-ups in real estate prices is
gambling. The recent real estate crunch
and sub-prime debt crisis has exposed the
myth of “buy more house than you can
afford and ride the real estate market up.”
Real estate markets and financing costs
and availability trend up AND down.
The most conservative posture to take
in buying a new home is to get a 30-year,
fixed rate low interest loan that equates to
monthly payments not exceeding 25 percent
of gross income. Unless your income
ceases, it will mean you will always be
able to make the payments and very
probably will see the burden become less
than 25 percent of your income as the
years go by.
If you have extra income that can be
used to pay down the mortgage, and
since there is no pre-payment penalty in
Texas, you can apply accelerated payments
directly to the principle balance
and save tens of thousands of dollars in
interest payments. As income and equity
grow, periodically the home choice can
be re-evaluated.
The market is very competitive for
physician start-up loans. These are loans
to start a new practice or buy an existing
practice (if assets come with it). Calling
around to 10 or 20 banks to find who is
most willing to loan you money at the
lowest rates and terms is homework you
must do to ensure the best deal.
Again, anytime you are borrowing
money, it should be based upon what
you can afford to repay. If you have
not done a business plan which forecasts
your business income and
expenses for several years out, you are
gambling. Study the trends of reimbursement
to physicians, determine
your mix of clients (Medicare,
Medicaid, private pay and uncompensated
care). What are your fixed
expenses? Personnel costs and lease
costs will be major expenses you will
need to get your arms around.
Of course, if you join a practice, ask
lots of questions of other partners about
the finances of the firm; even consider
hiring a consultant to evaluate the deal
being offered to you before you sign on
as a partner.
Finally, manage your money as if you
do not know where your next paycheck is
coming from. For the first two or three
years of practice, spend only what you
have to in order to meet your basic needs.
Save some money. Pay down high interest
debt. Start yourself on the road to
financial independence. You have plenty
of years to enjoy the money you will
eventually earn.
