A Dozen Dumb Money Mistakes Doctors Make

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Even smart doctors do one or more of the dumb dozen. Don’t be like that. Know about these risks.

I have had the privilege of working with dozens of brilliant, caring physicians. I have learned so much from them. That is a debt I could never payback. 

Even so, these brilliant clinicians didn’t always make the best money decisions.  We are all human.  We can only know so much.  Even for those of us who have a lot of knowledge, it is almost impossible to make rational decisions.  Our fears, past experiences, misconceptions, and peer-pressure influence our behaviors.

I have made many of these mistakes.  Knowing and doing are two different things.

Even though you won’t make perfect choices all the time, it is worth knowing the more common pitfalls.  Being vigilant and aware of them will reduce your risk.

1. Buying Too Much House

Housing costs are expensive.  It is in the top three on any list of expenses.  Transaction costs are significant and often buried in a pile of closing documents. Inspections, closing costs, and loan initiation fees can total in the thousands.  Selling a house can cost even twice as much as buying.

We focus on the sale price and often ignore ongoing expenses. Taxes, utilities, maintenance, etc. can add up to 5-10% of the price every year.

Annual mortgage interest payments exceed $1,000 per month. Some justify the mortgage arguing alleged tax benefits.  Paying interest to get a third or less of it back isn’t a way to build wealth.

Large houses come with spending peer pressure, landscapers, and homeowners association fees. Workers will add a “doctor discount” and increase charges. That impressive house will cost you in many ways.

The millionaires studied by Thomas Stanley lived in modest homes.  He concluded that a large home and a large mortgage are obstacles to accumulating wealth.

He recommended we never get a mortgage more than twice your annual gross income.  

As a specialist living in the Midwest, I have been able to buy my homes at a total price equal to my salary.  Any mortgages were brief and less than 1x salary.  

I realize that won’t work for a pediatrician in San Francisco.  Realize the barrier that the high cost of living is putting before you.

2. Leasing a Car

Dave Ramsey refers to leasing as the “fleecing of America.”  I tend to agree. A lease is like renting a car using a car loan.  The asset is depreciating. Lenders charge fees and interest rates that are hard to even find or calculate in the contracts.

It could only be helpful to someone who wants a low monthly payment.  And if they need a new car every 2-3 years. But who would need that?  If money is in short supply in your life, buy a used car for cash.  The term “used car” has a negative connotation.  Some think “pre-owned” sounds better.  

Whatever the name, it is the best deal around.  Most of the depreciation happens in the first 1-3 years.  After that, the prices stabilize some. That is the sweet spot. A 3-year-old car has almost all the best technology and safety features at a discounted price. Cars used to be unreliable after a few years.  Now some brands are getting warmed up at 50,000 miles. 

If you are a millionaire, then you should have no guilt when buying a new car.  Use cash and shop around to get the best deal.  Either way, leasing is rarely your best option. I could afford a new car, but I still enjoy getting a good deal on a used one.

3. Not Having Umbrella Insurance

People know doctors make high incomes. That puts a target on your back. People see you as having “deep pockets.”  Others will blame you for anything that goes wrong to someone’s health and safety.  

One worker who falls off a ladder in your garage can be the beginning of your financial downfall. Or if your dog bites a neighbor or your teenager drives into a pedestrian.

Consider getting several million dollars of coverage.  The limits will pick up where your home owner’s and auto insurance leave off. You worked too hard to have it all crash down by a plaintiff attorney. You can manage this risk for a few hundred bucks per year.  

4. Skipping Disability Insurance

We are much more likely to become disabled than we are to die. Your “human capital” accounts for a big chunk of your assets. As a resident, I always laughed when people thought I was a “rich doctor.”  My net worth was negative.  I was more broke than the homeless people on the street.  

In financial terms, I had no cash.  But I had been building the value of my primary asset.  My knowledge, skills, and certification as a physician. I needed to convert that asset into financial assets through labor over time.  

A disabling injury or illness would derail that conversion.  That would be catastrophic. You wouldn’t dream of owning a house without homeowner’s insurance.  

So don’t own your asset of “human capital” without disability insurance. An own-occupation disability policy how you insure against that loss.

5. Having Kids but No Will

It isn’t pleasant to think about death.  Preparing for it is even less fun. But consider the alternative. If you die “intestate” the state will determine who gets what and when. Do you want to let that happen? Make a simple will. You can even do it yourself if you don’t want to pay a lawyer.

It is worth it to pay for legal help to get the paperwork in order. I paid for a few hours time for the work of a competent attorney.  That gave me peace of mind that we complied with state law and covered all the bases.  We competed for all our estate documents at once. Including will, trust, power of attorney (POA), living will, healthcare POA, and guardianship.

A few years later we met again and updated them.  There were changes in the names of banks and trusts and some minor interval changes in state law.  We waited eight years, but updating them every five years or so is a good idea.

6. Owning Life Insurance with No Dependents

If no one is dependent on you, you do not need life insurance. It seems simple. It is amazing how many have unnecessary life insurance. I even know a young single woman (no kids, no dependents) with a policy! Crazy.

If you are financially independent, you can skip life insurance.  The income from your work isn’t required to maintain your household. That is the essence of financial independence.  So when you die it won’t be a financial hardship. At least not a catastrophic one.

7. Confusing Speculating with Investing

I know doctors who claim to have picked the “next Microsoft.” Then they tell me about the company and it boggles my mind.  Companies to ship air to China in little soda cans. Or to make all food become “organic” by a chemical process. Maybe to make a movie, build a satellite, or fund a trip to Mars. Wow. 

And they think these are “investments!’ These are super-smart doctors mind you.  They know a lot. Not how to assess the intrinsic value of a company.  Or even the difference between an investment and speculation.

For those still wondering what the difference is, I refer to Benjamin Graham.  He is the “founding father” of value investing.  He also taught Warren Buffett who went on to be the most successful investor of all time.

Graham noted that something is an investment only if it is safe from loss. And that isn’t from guessing, but a reasoned financial analysis.  One should expect only a modest return.  If safety is not assured and high but unlikely returns are being sought, then that is speculation.

8. Under-Saving

A lot of doctors think they can “out-earn” all their problems. They know they make a lot of money and so they don’t see the need to save.

“Cash is the most renewable resource I know” one surgeon stated. Or they save 5-10% of income. This is better than most Americans, but not enough. That is why only a minority of physicians have several million dollars in their fifties. One in four doesn’t even have a single million at age 65.

A 10% savings isn’t going to cut it. Not given the late start on a high income, large student loan debt, and lack of investing knowledge.   Not even the Dave Ramsey recommended 15% is enough to ensure a comfortable retirement. 20% would do the trick if you are willing to work a full career of 30 years or more.

I recommend a higher savings rate of 35-40%.  That will provide financial independence within 20 years.  If you start a medical career at age 30 you will be set by 50.  If you find yourself getting burned out or tired then you can cut back a bit or make changes to improve your work life.  Without the stress of worrying about how you will cover the mortgage payments.

9. Choosing a Wrong Asset Allocation

Some are afraid of losing money. They play it safe. They won’t consider buying companies or real estate. Those could go down. So they stick to CDs, short-term bonds, and money markets.

Others are too aggressive. With 100% growth stocks, start-up small companies, market timing, and stock picking.

The asset allocation decision is one of the most important decision you will make.  Your savings rate and your asset allocation determine your financial future. Spend time thinking about these two factors. 

Even following a simple guideline would be better than no thought to the issue. Options are setting your bond percentage equal to your age (e.g. a 40-year-old would have 40% bonds). Adjust it every five years or so.

Or pick a target retirement fund. Or a balanced fund with a 40%, 50%, or 60% stocks and the rest in bonds. Set it and forget it and you will do fine. You will capture generous returns over the long-run but with little volatility.

10. Trusting the Untrustworthy

Some have a “money guy.” They met them at a “free” dinner at a steakhouse. They can’t tell you what their credentials or track record are. Yet they trust them to do a great job and look out for all their financial interests. Don’t be naive!

There are no specific legal requirements to call oneself a “financial planner.”  We assume every professional has rigorous training and a high ethical standard.  Many financial planners have minimal formal education in investments or finance.  Some are brokers or insurance salespeople. 

Most financial planners are good people trying to make an honest living.  Their company-sponsored training convinced them their product will benefit you.  They are also trying to provide for their own family in the process. There are conflicts of interest galore and their advice may turn out to benefit them more than you.

You don’t have to be a do-it-yourselfer like me.  Not everyone enjoys finance the way I do.  I get it. But no one will care about your money as much as you do. Understand what your advisor is doing and how they get paid.  You can delegate. Oversee and understand the process. Abdicating your financial responsibilities can end in financial disaster.

11. Cheating and Getting Divorced

I know several doctors who seem cavalier about having affairs. These married doctors fool around with office workers, nurses, and even patients. This often leads to divorce. Then there are extraordinary financial losses. 

Morality aside, the financial consequences are devastating. It can put you back a decade or more in your progress. Divorce often includes a loss of half of the assets. Not to mention years of ongoing expenses for alimony and child support. This pattern then gets repeated when remarrying. I have seen a few doctors go through that cycle several times.  They are getting into their advanced years and have no hope of retiring.

12. Losing Your Medical License via Sex or Drugs

Physician misbehaviors can result in a loss of medical license. They cannot practice medicine without it.  Their livelihood vanishes despite all the training to get there. 

Review your state medical board’s list of reprimanded physicians and the reasons why.  It will be eye-opening. 

You will find many due to inappropriate sexual relations with patients. Fraud and embezzlement may make the list.

DEA controlled substance violations abound. Some sell drugs for cash or trade it for sexual services. I had two friends whom I respected a lot. They were brilliant, attractive, and well-trained. They got addicted to Oxycontin and began splitting the medicine with patients. 

One lost his practice and license and became disabled. The other lost his job, license, investment income, and his stellar reputation. Later, he lost his freedom when confined in federal prison.

Learn all you can about the dumb dozen.  Read a good book or two. The more you know the better your choices. Learn from the mistakes of others.  Do you agree with this list?  Any others? How many of these mistakes have you made?

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19 Comments

  1. Mike Drak said:

    Nice piece of writing Wealthy Doc I’m going to send your article to all my professional friends.
    When I read the caption “Having kids but no will” I thought you were going to write about us spoiling the and giving then too much money and serving as their private ATM.
    Other possible headings could include “Too many wives” and “runaway lifestyle inflation”.
    My father in laws cardiologist can’t ever retire having to support 4 ex ‘s. Just thinking about that makes me shudder!

    September 11, 2019
    Reply
    • Mike,

      Thank you. It is validating and flattering to get a compliment from one of my favorite authors!

      I was talking about you and your work a lot at FinCon19. I even gave a copy of your Victory Lap Retirement book to a speaker there.
      Having kids but no will could mean having kids wears down your willpower too. That’s how I feel now. They wear me down for sure. Not spoiling them is certainly one of my goals for the kids. I’m not sure I’m succeeding in that though. They are privileged. I hope they don’t take it all for granted.

      Lifestyle inflation is a big one. Too many youngsters in the “FIRE” community underestimate the effects of inflation and lifestyle inflation. They think because they can live on $35K a year as a 27 yo single male they are set for life. HA!

      Four ex-wives sound miserable. I can’t imagine the emotional and financial losses involved in all that. My cousin told me at his fourth wedding that the “fourth time’s a charm.” It didn’t end well for him though.

      September 11, 2019
      Reply
  2. Xrayvsn said:

    Very comprehensive list of all the follies most medical professionals have endured during their career, I certainly am no exception.

    Divorce definitely derailed my financial path for awhile but managed to right the ship quickly once I “saw the financial light.”

    I hate to admit it but umbrella insurance was something I was lacking until about 3 years ago when a colleague told me about it and said I should get it. For the amount of coverage you get for the bargain price premium, it is something everyone should have.

    It was awesome to meet you at FinCon and put a face to a name.
    Xrayvsn recently posted…Damn You Sir Isaac Newton!My Profile

    September 11, 2019
    Reply
    • Xrayvsn,

      I have made a lot of these mistakes too.

      I have fortunately been “lucky in love.” Divorce is certainly one of the more devastating events. It can’t always be prevented. And sometimes it is the best option for non-monetary reasons.

      Still, there are things we can do to build and strengthen an existing marriage. When risk-elimination isn’t an option, there is still risk-mitigation.

      You are not alone about umbrella insurance. A large percentage of my physician audiences either don’t know about an umbrella or don’t have one. Shocking. All we can do is spread the word.

      It was great to meet you too. Although I don’t have an actual face. Ha. At least I don’t want to mess up any of the photos of the good-looking physician bloggers by including my mug.

      September 11, 2019
      Reply
  3. Bill Yount said:

    The Dirty Dozen are great rules for a Wealthy Doc Life! 13 should be VTSAX and Chill while using a big blue balloon for anonymity cover!:)

    September 11, 2019
    Reply
    • Bill,
      I’m glad you liked the list.
      Thanks for stopping by (and for the inside joke!)

      September 11, 2019
      Reply
  4. Question/Comment sent by e-mail:

    “Pardon the ignorance but on that recommended 35% to 40% saving rate is that from your annual income or every paycheck or monthly income “

    September 11, 2019
    Reply
    • Diana,

      That question isn’t due to ignorance at all. It is because my writing was unclear.
      Thanks for reaching out.

      That range is a general recommendation and is based on gross (before taxes) annual (12-month total) income.
      A gross (pre-tax) savings rate of 38% works out to about a 50% net (after-tax) savings rate.

      It wouldn’t have to be with every paycheck or monthly. Some doctors pre-load all of there retirement funds in January and then have to save less during the year.
      I never had a fixed savings rate. I fix my spending and invest the rest.

      This post might help: https://wealthydoc.org/financial-freedom-without-budgeting/
      WD

      September 11, 2019
      Reply
      • Received Via E-mail:

        Thank you so much for such prompt response and wonderful guidance.

        God bless you for sharing all this info with us; especially for those who are just starting their careers like me and are somewhat clueless

        Thanks again!

        Diana

        September 12, 2019
        Reply
  5. Dr. MB said:

    Hey WD!

    Finance is so similar to fitness. Everyone knows what to do but it is hard to actually do it.

    Nice list btw.

    September 11, 2019
    Reply
    • Dr. MB,
      Glad you liked it.
      I totally agree.
      I joked I’m writing 2 books. Each is 2 pages long.
      My weight loss book: page 1, Eat Less. page 2, Exercise More.
      My personal finance book: page 1, Make More. page 2, Spend Less.
      I’m now writing up a proposal for an advanced investing book.
      page 1, Buy VTSAX. page 2, Chill

      September 11, 2019
      Reply
  6. Very nice list. I’ve made some of the mistakes there too. As a late starter, I cannot afford to make more. Even as a “poor Pediatrician”, I still followed your mortgage rule and bought a home <2x my annual income and that’s been helpful as I’m on track to pay it off after 4 years. Thanks for the refreshing reminder of the dumb dozen
    ImmigrantFinances recently posted…You Need An Investment Policy StatementMy Profile

    September 12, 2019
    Reply
    • ImmigrantFinances,

      Thanks so much for stopping by and for the comment.

      I especially love hearing from a pediatrician who started later and made mistakes. That is encouraging for other readers to see. In medicine, we can have incomes in the lower ranges, make mistakes, and still come out ahead financially. There is less room for error on that path. It sounds like you are doing things right.

      The mortgage “rule” was an inadvertent discovery by Stanley and Danko in the MND. They studied PAW and compared them to UAW (those who build wealth vs those who don’t respectively). The PAWs had smaller mortgages and they paid them off sooner.

      September 12, 2019
      Reply
  7. Gasem said:

    You list what not to do during accumulation. I’ll add one more:

    Not understanding how you’re going to fund the 30 years your going to have to spend what you saved. Buying 35% of VTSAX/yr for 20 years is all well and swell but exactly what will that fund? Buying “Pretax Money” is groovy until you ask who owns that money. HINT it’s not you. It’s the government who lets you keep a portion but entirely determines how and when that product you bought will be distributed AND TAXED. Exactly how much is your retirement going to cost? Seems like that might be important in determining how much to save. What does your budget look like? Oh yea you don’t keep a budget, so you walk around clueless. What do you do if retired and a high cost disaster strikes? This is why you own insurance but how do you cover that eventuality while retired? What about your wife, what happens to her after you croak? Can you afford that insurance? Can you devise a plan to self insure? How much does that cost?

    All of this is relatively knowable and predicable, and it will determine the sustainability of your retirement. What makes you think 20 years of VTSAX is enough to cover 40 years of old age for 2 people? Reading a book is not a substitute for understanding and planning your particular future.

    Not to be harsh, the article is a good start, but there’s a whole lot more to know.
    Gasem recently posted…Is “Living Fully” Just a Social Media Moment?My Profile

    September 12, 2019
    Reply
    • Gasem,
      Thanks for the comment.
      I agree there is a whole lot more to know. This is a list of some of the more common big mistakes doctors are prone to. It doesn’t constitute all of personal finance knowledge.
      I share your concern about retirement taxes: https://wealthydoc.org/avoid-retirement-taxes/
      I don’t recommend people retire at all, let alone have no income for 30-40 years.

      September 12, 2019
      Reply
  8. I love this list so much I’m putting it on my Fawcett’s Favorites list for next Monday. Thanks for putting it together and thanks for spending time with me in Washington DC. It was fun to speak with a kindred heart. By the way, buying a whole life policy might deserve a place on your list.

    Dr. Cory S. Fawcett
    Prescription for Financial Success
    Dr. Cory S. Fawcett recently posted…Eight Critical Steps to Take as a New Attending (They Don’t Teach This in Residency):My Profile

    September 13, 2019
    Reply
    • Dr. Fawcett,

      I’m so glad you like it. I will look forward to being on the Fawcett’s Favorites list!

      There are quite a few of us spreading a similar message now, but every day I run into doctors who don’t know the basics.

      Yes, whole life insurance policies have done more harm than good to doctors and probably should be listed. I’m sure I will post a variation of this in the future. There is no shortage of mistakes to make.

      September 14, 2019
      Reply
  9. Crispy Doc said:

    The Dumb Dozen, like America’s Most Wanted, is a wonderful compilation to avoid making.

    Thanks for fleshing out these bad choices, many of which are clear in retrospect after financial literacy, but retain a “there but for the grace” quality from when we were young, hungry and undisciplined.

    Appreciate you, WD!

    September 21, 2019
    Reply
    • Thanks for stopping by CD.
      I fleshed out a lot of these choices using an old-fashioned method.
      I made the mistake and did the dumb thing. Then I looked back and thought, “Hey, that was dumb. I shouldn’t have done that.”
      Then I added that to the list. Live and learn.

      September 21, 2019
      Reply

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