7 Easy Steps Towards Achieving Meaningful Wealth
Sebastien Chevrier - Apr 21, 2016
As a physician, you have amazing potential to accumulate wealth and enjoy a rewarding lifestyle if properly planned. However, because of a combination of factors including delayed ability to earn, often significant debt from training (average debt of graduating residents is $200K+), a lack of time to focus on things outside of medicine, and for some, a lack of interest in finances in general, many physicians never realize the financial freedom they’ve been working so hard for.
To achieve Meaningful Wealth, the point at which you work because you want to, not because you have to, you need a system in place. To benefit from the growth of investments over time, you need to have something to invest in the first place. And the sooner you do it, the more compound interest can work for you. It takes money to make money. By implementing and following these 7 basic steps, you will find yourself well on your way to achieving a thriving financial life. It’s a small up front investment in time that will pay dividends for years to come.
Step 1 - Maximize Income
- Ensure billings/stipends/consulting fees/etc are optimized and submitted on time
- Take time to understand and summarize the billing codes under your specialty in the Schedule of Benefits and create a cheat sheet that you can easily reference
- Collaborate with a mentor or colleagues about their billing practices and learn from each other
- Bill and submit as you go instead of in batches to ensure you have maximally billed what you are owed
- Set a reminder in your calendar to ensure you don’t miss deadlines
- Quickly review your RA monthly to ensure you have been paid, and if not, learn why and correct it for future billings
- If you have a billing agent, understand what is being submitted and paid and ask questions.
Step 2 - Set Goals
- Put together a trusted team (Financial Advisor/Accountant/Lawyer/etc.) who can help you achieve your goals and who will collaborate together as needed to ensure all aspects of your financial life are in synergy and optimized
- Reflect and become clear about your short/intermediate/long-term goals
- Use a financial plan to act as a roadmap to guide you towards your financial goals
- Invest with a plan in mind and a proven, dedicated strategy
Step 3 - Create a Budget
- Use a personal finance management system to keep track of bills and expenses (filing system/software)
- Minimize expenses & ensure savings/debt payments/insurance (ie disability/critical illness/life*)/taxes are expense line items, and automate payments whenever possible.
- Ensure expenses never exceed your income from month to month
- Don’t significantly increase your lifestyle until you consistently have surplus in your budget (we recommend newly graduated residents continue their resident lifestyle until all their debt is paid off and an emergency fund is established, which can be done quickly if expenses are minimized)
Step 4 - Pay Down Debt
- If you have accumulated credit card or other moderate to high interest debt, consolidate into one low interest loan/Line of Credit (LOC)
- Only use credit for purchases if you have the discipline to purchase within your budget
- Pay off credit card debt monthly before due date to avoid extremely high interest rates on balance
- If you are not able to pay off your credit card debt go back to your budget and reassess spending
Step 5 - Prepare for the unexpected
- Build an emergency fund; 3-6 months worth of expenses is typically recommended
- Consider having access to a low rate Line of Credit as a means of managing unexpected expenses beyond your savings
- Ensure you have Disability and Critical Illness insurance that it is up to date and reflects your current situation/needs
- Avoid using credit cards for unexpected expenses
Step 6 - Savings for Retirement and Education
- Maximize RRSP/TFSA/RESP/CORP** contributions
- Automate deposits to drive regular contributions in amounts dictated by your plan and your budget
Step 7 - Save for short/intermediate Financial Goals
- Determine amounts & timelines and save accordingly using automation to drive regular contributions
- Include your savings as expense lines in your budget so you can be confident you will always have the funds you need to meet your goals. If you try to save whatever is left after paying all your expenses, you may never reach your goals.