Our last two posts were all about RESPs – everything you need to know and some very useful funding strategies that are difficult to find elsewhere.
With this post, I wanted to switch gears and dive into something I’ve been thinking about for quite a while. I’ve been hearing for years about doctors’ reputations for being “bad with money”. Whether that’s empirically true or based on anecdotal reports, I can’t really tell. But what I do know is that it doesn’t need to be that way. In my opinion, doctors are particularly well-equipped to be great with money. It has nothing to do with intelligence and everything to do with training and temperament.
Here are five reasons being a doctor and being good with money can go hand in hand. Then we’ll look at the flipside of this issue by listing five common ways doctor’s sabotage their own financial security.
5 reasons doctors can be great with money
1 – An appreciation of evidence-based practices
One of the first things we learn in medicine is that the human body and the conditions that afflict it are far too complicated to diagnose and manage based on intuition. We need systematic approaches, based on unbiased data. Evidence-based medicine is the foundation of our training and our practice for one simple reason – it works better.
Money is the same way. Using intuition to make financial decisions might work occasionally, but over years and decades – the timeframes relevant to our financial lives – evidence-based approaches are far more likely to give us the outcomes we’re looking for.
When it comes to money, keep your evidence-based hat on and you’ll be just fine.
2 – Awareness of cognitive biases
An appreciation of evidence-based practices is a great starting point, but specific situations require specific solutions. This is why robots haven’t replaced doctors – we need room for personal analysis and judgement in both medicine and finance. Unfortunately, this also leaves room for cognitive biases and errors.
Aside from medicine, what other profession is so acutely aware of these pitfalls? Every resident I’ve worked with over the years could have intelligent conversations about selection bias, confirmation bias, hindsight bias, anchoring, etc. An awareness of these biases is necessary in medicine so that we maintain vigilance against our own wiring. Exactly the same biases exist in the world of money and, particularly, investing. To minimize errors, we simply need to apply the same vigilance.
3 – Healthy skepticism
As physicians, we are tasked with sifting through layers upon layers of claims and information that may be irrelevant or even flat-out wrong. The diabetic with sky-high HbA1c’s who swears he’s been eating only salads, the oddly-behaving mother whose newborn “fell down the stairs”; the drug company rep who claims this painkiller really isn’t addictive. There are many days our “MD” could just as easily stand for “Medical Detective”.
Just like you have to be skeptical to be a good doctor, you have to be skeptical to be good with money. Whether it’s listening to a presentation by an investment manager, understanding the conflicts of interest inherent in mutual funds, or being able to ignore hot stock tips from your brother’s neighbour’s cousin, the same skepticism that ultimately helps our patients, will also help our financial lives.
4 – Delayed gratification
After high school I had a friend who started working at Canadian Tire full time while I went to university. For years he had more money than me and, for a little while, that stung a bit. But I was taking the long view, the one that was harder now but would pay off later. Life is full of examples where the easy thing to do now will make things ten times harder later, but do the hard thing now and doors start opening. Doctor’s are great at delaying gratification when we put our minds to it.
It is very tempting to be short-sighted when it comes to money: how do I earn it and what am I going to spend it on? But doctors have exercised that delayed-gratification muscle more than most, and if we can use it with our money by saving and investing for the long term, financial success is nearly guaranteed.
5 – Grace under pressure
You’re in the office and the middle-aged woman in front of you is growing more and more upset as she describes the months and months of escalating symptoms she’s been experiencing, with no diagnosis. Meanwhile, at the hospital, an elderly man arrives after a car accident with a GCS of 12 and a systolic blood pressure the same as his age. How do the physicians in these situations react?
We all have our styles when it comes to approaches, but one thing we all know to do when we find ourselves in a tense situation is to stay calm.
When the stock market is crashing and your portfolio looks like it’s bleeding out, how do you react? When real estate prices are shooting ever higher, do you abandon your budget for fear of missing out? Money is emotional. Intelligence is not the antidote; a level head is. When commenting on his own success, Warren Buffet once said, “Temperament is more important than IQ. You need reasonable intelligence, but you absolutely have to have the right temperament. Otherwise, something will snap you.”
5 Common ways doctors sabotage their financial wellness
I love being a cheerleader for physician financial literacy – you really can take control of your financial life. I’ve seen hundreds of doctors do it. But only half of that financial success comes from doing the right things. The other half comes from avoiding mistakes. Here are five common ways that doctors sabotage their financial wellness.
1. Buying into the “doctor image”
For some people, what it means to be a doctor doesn’t stop with clinical expertise and high ethical standards, it also involves appearances – doctors are “supposed” to drive luxury cars, live in big beautiful homes, and put their kids in private school. There is nothing wrong with any of these things if one has the means, but there is absolutely no reason to assume this is, or should be the norm, especially in the first 5-10 years of practice.
2. Over-confidence
Many doctors feel insecure when it comes to money – an issue I love trying to fix – but others make the opposite mistake. Being an expert in medicine does not automatically translate to being an expert in personal finance. There is a false equivalence that can emerge when someone, usually subconsciously, assumes that being highly accomplished in one thing – medicine, in our case – means competence in another thing – money.
Gaining financial competence is 100% possible for any physician, but, just like in medicine, it takes some time and discipline to understand and put into practice the evidence and skills.
3. Forgetting our late start
Many of us look at our high pre-tax income and assume that we can afford a certain lifestyle. It’s easy to forget that, because we accumulate more debt and start earning later than average, we need to think about our incomes differently than most people.
Consider this: Spending 85% of your post-tax income and saving 15% will likely mean financial independence is over 40 years away. For someone who starts working at 22 years old, that means retiring around 65. For a physician who starts working at 32, that means retirement around 75. A high income only compensates for a late start if we save more of that income.
4. Thinking financial professionals are like medical professionals
Most doctors choose to employ the services of financial professionals: planners, advisors, investment managers, etc. The interaction might feel a little like doctor-patient relationship, but don’t be fooled. It is their wealth, not yours, that is the first priority. Why? Because the financial services industry is a business and it’s first priority is profit.
The only way they survive is by attracting clients and finding creative new ways to extract fees from them. In the wealth management industry, doctors are trophies; they compete against each other for us. Understanding that this is the backdrop to every interaction will help you ask the right questions so that you understand exactly what you are getting and how much it will cost.
5. Misunderstanding wealth
The last way that doctors tend to sabotage their financial health is that we misunderstand what wealth is. Is it earning a lot of money? Owning lots of nice things? Having a high net worth?
Many people struggle to feel good about their wealth because they measure it by comparison. “Doctors in my specialty make $250k, but those guys make $500k – that doesn’t seem right.” “I like my car, but the guy across the street just bought a brand new Amazing-mobile 5000 – now I’m not feeling so great about my wheels.” Our persistent tendency to compare our situation with ones that are a little better, nicer, newer, etc. is a recipe for discontent.
I believe that a focus on time affluence rather than material affluence would help a lot of physicians understand the all-important relationship between time and money.
The bottom line:
As a doctor, your reputation precedes you: smart, altruistic, and bad with money. Live up to the first two and prove them wrong on the last one. Doctors have all the ingredients to be good with money. If you want a little help putting those ingredients together in the best way, consider registering for an upcoming moneySmartMD course.
