Where do I start?

Frequently at work when discussions during breaks or at lunch turns to finances, APPs and physicians alike ask me this simple (yet loaded) question: “Where do I start?” or to put it another way, “How does it work?”. In many ways, the steps are the same for APPs and MDs but the difference is in the details.

  1. Live below your means- This is especially important for APPs. Physicians generally have the advantage of a higher salary from their primary job and therefore are a step ahead of APPs in earning potential. This makes living below your means especially important for us. Lifestyle creep is not unique to physicians but can affect your financial plans more drastically when primary income is less.
  2.  Get out of debt- Getting out of debt, especially high interest (>8% interest) can be the best “bang for your buck” investment you can make. By removing high interest debt from your life, you can see a nearly immediate return on your investment. One method, popularized by Dave Ramsey is called the “debt snowball”. The basic idea is that as you pay off smaller debts or higher interest debts (your choice), you add the amount you were spending each month on to the next bill in line to pay off. This can be a very quick and effective way of removing debt from your life. One useful tool that can help you visualize how much you could save in interest and how quickly you can pay off your debts, is this free tool.
  3. Get a side hustle- this topic is one of the reasons I started this blog. Listening to podcasts such as the White Coat Investor Podcast, and reading Passive Income MD you will hear again and again that one of the quickest ways to increase savings and decrease debt is to get a side hustle. Given differences in state law and 3rd party reimbursement however, this is where PAs, NPs and MDs start to diverge in available options. Some APPs act as medical experts or do case review for insurance companies, however this is not as prevalent as it is for physicians. PAs and NPs are often employed providers and therefore do not directly receive the revenue received from nursing home care or in home rounding. I have found by talking to other APPs that many find side hustles outside of medicine and this is also common amongst MDs as well. Real estate can be a very good source of passive income.
  4. Save, save, save- This is crucial. As outlined in his book, the White Coat Investor describes not only how compounding interest really works but also what you can realistically expect to get in returns from your principal in today’s marketplace. The often quoted 12% compounded interest is not only unrealistic, it is virtually unobtainable. The biggest way to grow your retirement account is to save as much as possible. Consider saving 20% of your income.
  5. Invest- All this saved money is great, but leaving it in a savings account will not lead to financial independence. Based on my reading and experience thus far, I like to invest heavily in index funds/ETFs as they tend to perform better, in my experience, over time than any guru investor strategy, Bitcoin, or god forbid: individual stock investing. If you aren’t confident selecting your own mix of investments, select a Target Date Fund if these are available and consider one with a retirement date beyond your planned retirement date for a more aggressive mix. These funds employ a “set it and forget it” approach and change the mix to a less aggressive assortment as you near retirement. Be careful with any investment choice to consider expense ratio and note that sometimes a Target Date Fund may not be a good investment if it has a high expense ratio. There is a lot of information out there to educate yourself about this topic, and some of my favorite sources are the White Coat Investor and the Financial Residency Podcast
  6. Create an emergency fund/get disability insurance- if you have people depending on your income, this is crucial. A solid financial plan is not solid without some protection including 3-6 months worth of expenses in an emergency fund and disability insurance. Your employer may offer subsidzied disability insurance and this should usually be taken advantage of. Sometimes employer disability insurance is not enough. You need about 2/3 of your monthly income in coverage. This type of insurance is not needed forever however and may not always be a good deal. You should speak to an independent insurance salesman about disability insurance if you think your employer coverage is not enough.
  7. Create a financial plan/policy statement- this is an often overlooked but very important part of your debt free journey. There are many good resources available to aid in this but a good, reputable financial advisor (not an insurance salesman claiming to be a financial advisor) can help with this. White Coat Investor has a good article about this and this can certainly be done by anyone on their own for free if you understand what should be included and why you are doing it.

Hopefully this list helps. This is not a comprehensive list but is meant to be an introduction to financial planning and the path to financial independence. Did I leave anything off the list? Want to hear more about a specific topic? Comment below or send me a message.

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