It’s OK to make mistakes in life. That’s the only way to learn. Hopefully, the major mistakes get made earlier in life so that we have less to lose and more time to “make up” for faltering. But hey, life wouldn’t be interesting if challenges aren’t presented to us. Let’s look at ten of the common doctor financial blunders that have either happened to me or my coworkers:
1. Borrowing too much from your future self. The potential of having a stable career in medicine makes spending a breeze. I still remember the day I applied for a credit card as a resident and my approved credit line was actually greater than several months of my salary! I think that there are provisions these days to prevent excessively leveraging your credit, but as doctors we are still given relatively broad leveraging freedom.
2. Growing too quickly into your income. This has happened to me on multiple occasions. We work hard in our jobs. Sometimes we get a lucky break and get a bonus or raise. It’s very tempting to use that additional income as a reward for our headaches at work. I certainly did that once by purchasing a car in cash. Was it better than financing the car at 2.9% for five year? It’s still not clear to me, but if you make too many of these spontaneous purchases, your wallet will eventually feel it.
3. Buying a timeshare. Those marketing and salespeople are fast to close the deal. They offer free breakfasts or free show tickets for a 2 to 3-hour timeshare session. What’s ten or twenty thousand dollars amortized over the course of your lifetime, especially if you consider how much you could potentially spend on vacation? There are annual HOA dues to most timeshares which dig into the budget as well.
4. Buying a vacation home. This is probably worse than buying a timeshare. Perhaps you decide that you like Hawaii very much, but you don’t live or work there. What’s wrong with buying a vacation home in Hawaii so that your family can stay there any time of the year? There’s nothing wrong with owning a second home, but there are costs to owning relatively expensive secondary homes. There’s only value in these investments if you sell them at an inflation-adjusted profit in the future. You be the judge if that is likely to happen.
5. Job hopping. You don’t like your hospital or boss. You hunt around and find that there are other better options, but the problem is that it’s halfway across the country. Pack up the family and move. The problem is there is opportunity cost to moving. If you switch jobs, then you will have downtime where you will not be earning income.
6. Living as if you can work forever. If you spend exactly as much as you earn, then your net worth will never grow. I have had colleagues who do a great job spending down every paycheck. Be aware that at some point in your career you might not be able to sustain the same work hours that you did when you were younger.
7. Lending money to family/friends. This is a touchy subject as different cultures treat borrowing money differently. In some parts of the world, it is expected that more successful family members support those who were less fortunate. Unfortunately, you may never expect to receive any repayment for family loans. I once knew one nephrologist who ended up having to moonlight in order to help pay for his brother’s mortgage. Tough situation.
8. Thinking that all doctor incomes afford the same lifestyle. Face it. There is a difference between a neurosurgeon’s and internist’s salary. There is no way that the lower-income profession can live the same lifestyle as the higher one.
9. Thinking that you are different. Don’t delude yourself into living a life that your existing wealth cannot afford. Just because one of your coworkers spent her way into bankruptcy doesn’t mean that you are immune. You aren’t. If everyone else you know lost big on a syndicated apartment investment, don’t think that you’ll be different.
10. Expecting a windfall. This is a bizarre concept to me—some coworkers somehow justify a lifestyle with the expectation that a windfall will bolster their existing incomes. It could be an expected raise, an inheritance, a winning lotto ticket, or a huge payout from an investment. Anything could happen, but wait until the windfall comes before you make life decisions based on a particular outcome.
“Smart Money, MD” is an ophthalmologist who blogs at the self-titled site, Smart Money MD.
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