Top 10 Tricks on Financial Planning for Fellows

Michael Merrill, CFP, CLU, ChFC, is senior managing partner of Finity Group (Portland, OR), which specializes in financial planning for the medical community. A lifelong saver, Merrill spends his days advising physicians young and old on everything from retirement strategies to investment portfolios. He coauthored the book Real Life Financial Planning for the Medical Professional and is especially passionate about sharing his wisdom with early-career clinicians. He talked with TCTMD’s Fellows Forum about his Top 10 Tricks for fellows looking for advice on how to manage their current incomes, transition to full-time work, and save for the future.

1. Work with a financial advisor

Much like a physician shouldn’t treat him or herself or family members, Merrill says, doctors should seek outside help to manage their finances from someone without emotional attachment to them. “It’s hard to make objective decisions” on your own, he says. While there may not be a need to hire someone to be deeply involved in your everyday expenses—although you can if you’d like—at least meet with someone you trust a couple of times a year to review your strategy and make sure you’re going in the right direction. He often meets with clients online, so you might not even have to leave your home when seeking advice. For help vetting a financial advisor, Merrill recommends searching the Financial Industry Regulation Authority website, where you can check if brokers have active licenses, see about any complaints, and review outside business activities. Go with someone who has credentials, he advises, since this shows “they actually care enough about what they are doing to be as good at it as they could be.” Also find someone who specializes in medicine, and to prove they are a good fit make sure to ask him or her questions that only someone who has a clientele of physicians would know about, such as moonlighting or tail insurance. Lastly, work with a financial advisor that acts as a fiduciary, which is someone who has a duty of loyalty to you. These people are required to always serve the interest of the client, and disclose any conflicts of interest. This means they will not be required or encouraged to sell you any financial products and will always keep your best interest their priority. 

2. Plan for a rainy day

Doctors, like everyone else, are not exempt from financial emergencies. In order to protect yourself from panic if something should ever happen to you, always keep a liquid rainy day fund on hand that will support you from 3 to 6 months, Merrill advises. This money should be easily accessible with no fees to withdraw and be FDIC insured—and once it’s saved, don’t touch it! 

3. Build up your transition cash

In addition to your rainy day fund, if possible, set aside some cash to help carry you from fellowship to that first paycheck. Most fellowship programs end in June, but many graduates don’t begin their jobs for at least a few weeks after, with many having to simultaneously plan cross-country moves and put down housing deposits, “so there’s going to be some lapse in income,” Merrill explains. Don’t bank on a sign-on bonus to help get you through this transition, because most of these are paid along with your first paycheck. Fellows who neglect to save for this period sometimes have to resort to a relocation loan with a high interest rate or take on credit card debt, he says. At the very least, plan ahead for cheap financing so you have something in place and are stressed out in June, Merrill advises. 

4. Pay off your loans with the highest interest rates first

When it comes to paying off your debts, Merrill says the most efficient way to do so is removing the emotional component you have with them. While it might feel good to pay off your smallest, lowest-interest loans first, instead he recommends focusing on any debts with interest rates above 7%. Do this even before you plan any outside investments. After those are paid off, line up your debts from highest to lowest interest rates and pay off the highest ones first. As you get lower and lower down your list, you could then consider investing money elsewhere. 

5. Don’t become house poor

“I spend at least 30% of my time with new practice docs just on this topic alone,” Merrill says about situations where people spend too much money on a house to the point that they can’t afford to do anything else like take vacations, have fun, or even buy furniture. “One of the quickest ways to kill the financial plan is to buy too much house,” he adds. Especially if you are thinking about having a family, consider how much you can reasonably afford to spend and act with tough love. Another thing to think about when buying a house is how long you intend to stay in that area and, if you’re planning on living there only a few years, what the housing market is predicted to look like in the short-term. 

6. Insure yourself

Life and disability insurance policies are better to get sooner than later, Merrill says. “The best time is when you feel you don’t need it at all.” This is because often by the time you need insurance, it is either too late to purchase due to a change in health or too expensive due to age. As a fellow, these policies could be included in your compensation package, although Merrill advises all residents and fellows to purchase an individual disability policy. If you have children, consider purchasing additional life insurance coverage. Once you graduate, you should be provided with group coverage, but it almost always ends up falling short of being adequate, he says. With that in mind, it can’t hurt to get extra unless you are already financially independent. 

7. Take care of your estate

Estate planning is another thing that younger people don’t often think about, Merrill notes. “When people have children, getting a will done is super important from the standpoint of naming a contingent guardian of the child,” he says. “I can’t tell you how many times I run into situations where people only think of having a will when they have assets. A lot of fellows feel so poor that it doesn’t even register in their brain that they should have a will if they have kids. However, if they don’t have a will and they have minor children and mom and dad pass away, then the state generally assigns what happens to the children. You end up getting custody battles, it just becomes a super messy situation.” 

8. Invest wisely

When there is room in your budget for investing, the main factor that should influence your investments is time, Merrill says. For example, think about if you will need that money in 5 years or 50. If the former, “don’t put it anywhere near the stock market,” he advises. But if the latter, don’t let current economic trends scare you, as “the stock market can make drastic turns at any point. When the market is down, that’s the best time to buy,” Merrill adds. “The shorter the time horizon, the more conservative you should be. The longer the time horizon, the more aggressive you should be. That isn’t a news flash for most people, but in reality many end up ignoring that and letting emotions and natural biases take over.” Physicians interested in investing should also be aware of potential conflicts of interest, especially with regard to healthcare and pharmaceutical companies. 

9. Save for retirement

Most budding cardiologists “are getting at least a decade-late start in the retirement savings game compared with people who start work straight out of undergrad,” Merrill says. Fear not, however. This just means that once you do start saving, you will need to put away a larger proportion of your income than nonphysicians your age. In his “picture-perfect world,” Merrill says, you should aim to save 20% of your gross income after you have already funded your 401(k) to the maximum. “If you do that, there’s almost no doubt that you will retire at a very reasonable age,” he adds. As a fellow, one of the best ways to start saving for retirement is with a Roth IRA—a retirement plan with income restrictions that creates tax-free funds for retirement, Merrill says. 

10. Show some restraint

Making the leap from fellow to attending generally means a sizeable jump in salary, and many feel the urge to splurge after graduation. While you don’t need to “punish yourselves and stay on the Top Ramen and hot dog diet for another year when you can afford caviar,” Merrill says to think about maintaining close to your old standard of living for at least 6 to 12 months after fellowship. A trap he sees many early career physicians fall into is living on 101% of their fellowship income then translating that habit into their attending salary and getting into financial trouble. “Discipline yourself to not do that, and live below your means,” he says. Pay off credit card debt, save for a home down payment, and plan the foundation of your financial future before you make huge adjustments. “It’s always easier to spend more and save less than it is to save more and spend less,” Merrill says. “If you start to buy impulsively early, it usually doesn’t stop there.” 

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