I read an excellent book by Dr. Fawcett.
It covers things I needed to know when leaving residency and getting a “real job.” I wish I read it twenty years ago.
I eventually learned all these lessons – but only after trial and error and the school of hard knocks.
At the end of my residency, I read Personal Finance for Dummies by Eric Tyson. That was immensely helpful. I still recommend that book.
It helped with personal finance, but what about all the rest I needed to know? My parents and academic mentors weren’t equipped to be able to teach me all that I needed to know. After all, topics include practicing, overhead, savings, investing, debts, time off, etc.
Fortunately, my private practice partners lead by example and I modeled my behavior after the right people.
If you are early in your career, read Dr. Cory S. Fawcett’s book, “The Doctors Guide to Starting Your Practice Right.” You may think it is only for people who are starting a private practice. Although it would help those folks for sure, it isn’t the only target audience.
I think a better title might have been, “The Doctors Guide to Starting Out After Residency.” I told the author that too. He isn’t about to change the title anytime soon.
Nevertheless, this practical volume would be helpful for young physicians who are about to be employed or go into academia. If you are a few years out and have a sense that you didn’t make optimal choices so far, you may want to use the information in this gem to hit the reset button.
It is never too late to start making better choices in your life and work.
Dr. Fawcett practiced twenty years as a general surgeon. Most of his experience was in private practice. He is financially independent and “semi-retired” (or “repurposed” as he refers to it) in his fifties.
He doesn’t need the book revenue to support his lifestyle. He is sharing what he learned to help the rest of us.
Having worked in private practice, academia, and on salary for a non-profit I assure you these lessons work in all these environments.
Until you get your own copy, I will hold you over with some of the pearls I gleaned:
Start out right.
Don’t buy a house that is too big. A big early mortgage will sap cash flow from your life. It will force you to divert funds away from other priorities such as loan repayment, kids, travel, or retirement.
Seriously consider your early decisions such as the town, proximity to relatives and hobbies, quality of professional partners. These set an early course that becomes more pronounced over time.
Prepare to make good money. Don’t let money be the sole driver though – or even the primary driver. You will find the other quality of life factors to be important. You will make plenty of money in almost any reasonable job in medicine. Don’t get suckered into a bad job by the lure of a high starting salary.
Know what you are looking for.
Know where you want to live and where you won’t live. Have that clear in your head before the recruiters start calling you with enticing offers outside of your limits.
Be persistent and proactive when looking for a job. Many of the best jobs aren’t posted yet. Call the best practices or hospitals in your target area. You may be surprised to learn they were about to announce a position.
Pick a great practice in a good location. Moving to another practice or town soon after your first job would be expensive and disruptive. Dr. Fawcett estimates it can cost $175K to change jobs! Do your homework to reduce the risk of that happening. Choose right the first time.
Understand which practice environment fits your needs best. The book does a nice job of laying out the pros and cons of employment vs. private practice vs. academia. His take is very similar to my experience of working in the three environments, which I have written about elsewhere.
Get a good contract.
Understand your base salary, your bonus structure, and your productivity requirements. How is overhead divided? Is there a practice buy-in? What happens if you do or do not become a partner? Are there opportunities for ancillary income (e.g. a lab, MRI, surgery center, etc.)? How is vacation or CME time off handled? What about leaving the practice? What happens if you get fired from the practice? Is there a vesting schedule for the retirement accounts? Understand any loan repayments, sign on bonus, or non-compete clause.
He points out that a 30-year career at a salary of $250K will produce $7.5M. Wow. That’s a lot of money. Making a few changes in your contract upfront might be worth it, right? Even if you don’t change much, you need to make sure you understand what you are reading and signing. Also, see my post about contracts.
Determine your own lifestyle.
Take an inventory of your interests. Schedule your work and life around those. If being home with family is a high priority, make sure your office schedule reflects that. You have more power than you realize. If you make it clear that you can never start before 8:30 A.M. or you need to be home for dinner most nights or you need four weeks’ vacation, it will happen. Without clear thinking, priorities, strategy, and communication, work will fill the void. The volume of work is endless. Put a limit on your daily work schedule. Don’t let it crowd out the important parts of your life.
If you have kids and a spouse, put them on your schedule. Act as if that date night or school play is as important as your surgery schedule. It is, isn’t it? So, act that way and you won’t be absent from your own life. Have your calendar reflect your highest priorities in life.
Take time off. CME. Vacations. Staycations. Travel time. Unscheduled time. Time for exercise. Time to get a haircut or go to the dentist. Remember you are a human being and have normal needs. Don’t feel guilty about being human. Make time for your life.
Increase your spending gradually. Too many doctors make a mistake here and it is an expensive mistake. It is hard to not start a spending geyser. You have been deprived for so long. All your college friends have had “real jobs” for years and are living well. Your spouse has felt like they took a vow of poverty. And then finally your income jumps by a big factor (between 4 and 10 times). It is okay to spend some of it, but increase the spending slowly.
Understand that the bigger house may not be worth it. The extra room and status come with more cleaning work, higher utility bills, larger transaction costs, more taxes, and insurance costs. That may require you to work an additional ten years to pay for all that. Is it worth it?
You may choose to not buy a house right away. There is a significant chance you won’t stay in that job or practice beyond the five years that would be needed to break even on your housing costs. My wife and I rented an apartment at first. Then we moved into a rental house. Years later we bought a modest house of our own using a large down payment. It worked well for us and now we could buy a larger house for cash.
A large mortgage can form the basis of a pair of “golden handcuffs.” These force you to continue grinding on the work treadmill. That one decision could make you work until age 70 instead of 62. Once again, is it worth it?
Consider saving up to half of your (net) income. Invest consistently and watch it grow into your freedom fund. This isn’t as hard as it sounds. I never had a fixed savings rate but -looking back- it would be about this level. It allowed me to become financially independent (FI) within about 17 years.
Dr. Fawcett suggests we consider not getting a mortgage that is more than 2x our income. I first saw this rule in the book, The Millionaire Next Door and it is a great guide. Personally, I have always been way under this cutoff.
Minimize your debt. Look into the federal loan forgiveness program (PSLF). If that isn’t an option, then refinance and make accelerated payments. Attack it like it is an enemy – because it is. I couldn’t agree more with this advice. I paid off my student loans in under three years. We paid off our mortgage at the first opportunity. It feels wonderful to be debt-free.
The book contains a sample budget. It illustrates how well one could do with a $250K income and a high savings rate. $29K a year could go to retirement. $25K to charity. $68K for student loans. Once the loans are paid off, that $68K per year could go to paying off a mortgage. A $400k mortgage would be paid off within seven years.
Get out of debt before you start spending. If you are deep in student loan debt, don’t look to buy a big “doctor” house. Hack away at your debt first. Consider renting until your debt is more manageable.
Mortgage debt is still debt. Despite all the people screaming on the Dave Ramsey show that they are “debt-free (except the house),” you aren’t debt-free if you owe on your house. Stop making mortgage payments and you will soon find out who really owns your house.
Prepare for retirement or FI.
Understand your retirement plans. Set a high automatic savings rate. Consider working with a financial planner – at least until you understand what you are doing. After that, you may just pay one by the hour as needed every couple of years to ensure you are on track and aware of any new changes in laws or taxes.
Save big. Invest early and often. It is the surest route to financial freedom.
There is a lot more worth pondering in this practical and important book. I hope I have whetted your appetite enough to get your own copy. If you don’t need it, consider buying one for a medical student or resident.