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I Wish I Had Known: Financial Planning

Two factors in retrospect that I wish I would’ve had greater insight into both revolve around financial planning. It’s difficult to know upon entering residency, and then transitioning into practice, how some very basic decisions will impact your financial well-being 10, 20, 30, and 40 years down the road as one looks to retire.

First, with respect to financial planning related to the practice, I encourage all physicians to reflect strongly upon the value proposition of renting versus owning.

While renting is the easiest point of entry to either create a practice from scratch or get a prior existing practice acclimated to the new ownership, it does not afford the physician the ability to accumulate an asset. The monthly cost of a mortgage payment is generally no greater than renting and is often less, especially when depreciation is taken into consideration.

Obviously, a barrier to ownership of commercial property is having adequate available funds to provide for the down payment. In situations where physicians are starting out and creating a new practice, one alternative is to negotiate into the lease an option to purchase the commercial property and to work diligently towards exercising this option as quickly as possible as cash flow begins to materialize. Additional advantages of a one-zone commercial space are assuring the future of the business and being able to control costs in the long term by avoiding rent increases. Effective financial management of the commercial space occupied by the practice can result in a sizable asset that the physician can sell upon retirement in order to fund the transition from practice to retirement.

Similarly, on a personal basis, I encourage young physicians and physicians at all points in their careers to place a high value on savings both within and outside of retirement plans. As early as residency training young physicians should take advantage of the 401(k)s and 457B plans that are made available to them, especially when funds are being matched by large institutions. It is a well-known financial maxim that saving early with the effect of compounding interest and growth has a huge influence on the value of retirement plans at the point a physician leaves practice.

Furthermore, developing a relationship with a trusted and respected financial advisor can benefit a physician greatly by helping to create a customized investment strategy.

Likewise, a professional financial advisor can help to create an individualized approach to creating a retirement plan for the practice that allows a physician to maximize his/her contributions and provide for the retirement of long-term employees as well.

In summary, effective financial planning at all stages of medical training and practice is essential to provide for a smooth transition into retirement. The engagement of a professional financial advisor is key to helping physicians make well-informed, individualized financial decisions throughout practice and into retirement. Additionally, targeting to purchase and own the commercial space occupied by the practice will help physicians effectively provide for their retirement. By creating ownership of a significant asset that can be used to fund retirement.