Avoid the Money Mistakes of Dr. Typical

Physician's Money Digest, April15 2004, Volume 11, Issue 7

The MillionaireNext Door

According to Dr. Thomas Stanley and Dr.William D. Danko, authors of (Longstreet Press; 1996),physicians are among the highest wage earnersin the United States, yet they only make up 9% ofmillionaires. Why aren't more physicians millionaires?It's simple: Most nonmillionaire physicians spend whatthey make. These physicians have really nice stuff, butare basically broke. I refer to these physicians as Dr.Typical. A physician-friend of mine says it just right, "Iam the highest-paid broke friend you have."

Dr. Typical's Sad Tale

Dr. Typical starts medical school excited aboutmedicine. Dr. Typical tends to borrow more moneythan needed, knowing one day there will be a big fatpaycheck waiting.

He graduates from medical school and begins his residency,earning a salary of $35,000 a year. Since he isworking at least 80 hours per week, he decides it's timeto enjoy life and starts buying luxuries such as a hometheater system, furniture, and a random vacation. Howdoes he pay for all of this? He uses credit cards frequentlyand justifies this debt because the big fat paycheckis just around the corner.

Finally, the big fat paycheck of $180,000 arrives,meaning after taxes he brings home $11,000 per month.What is the first thing he does? He buys a $300,000house and leases a luxury car, plus he has $120,000 instudent loans and $10,000 in credit card bills. Hismonthly combined debt payments are around $6500.Quickly, most of his paycheck is gone, and he hasn'tjoined the country club, paid the utilities, hired a yardservice, or bought any food. So, endeavors like retirement,emergency funds, or debt elimination don't quitefit into the budget.

Dr. Typical doesn't ever build any wealth and isbroke the rest of his life. He is forced to work the rest ofhis life because he cannot afford to retire.

Better Budget Adjustment

If you relate to Dr. Typical at all and want to buildwealth, then the Dr. Typical mentality must stop, andthere must be a willingness to change. After a commitmentto change has occurred, the physician must thencommit to making smart financial decisions. This requiresdiligence and hard work. A budget is the first thingthat must be addressed, and then you can tackle issueslike retirement, college, insurance, and estate planning.

If you are committed to change, there are two majoroptions available for physicians:

Warning:

Do all of your financial planning yourself. Thegreat thing about this option is that you care moreabout your finances than anyone. If you have 20hours every month to devote solely to studying differentinvestment, insurance, estate, and tax-planningissues, then hire yourself. Hire a financial planner to advise you. Not all financial planners are created equal. The lastthing you want to do is hire a financial planner whoseonly desire is to sell you financial products. You don'tneed to be sold; you need advice. However, advice aloneisn't good enough. You need advice from intelligent peoplewho understand physician nuances and can help youdesign and implement a plan.

When selecting a planner, be sure to interview thembefore hiring. Ask questions about experience, compensationstructure, credentials, and references. Ask howmany physicians they work with, and choose someonewho can help you the most.

Brock Barnes is founder of Strategic WealthManagement. He has built wealth for himself andis committed to teaching, advising, and encouragingothers how to build real wealth. He is a registeredrepresentative with Multi-Financial SecuritiesCorporation SIPC, NASD. He welcomes questionsor comments at 806-793-2584.