Earning a high income doesn’t automatically translate into building wealth. In this brief video, Ben Martinek of Bona Fide Finance shares four financial habits that can help physicians save, invest, manage spending, and plan for their financial future.
Transcript:
We make our habits, and then our habits make us. Hi, I’m Ben Martinek with Bona Fide Finance. I’m a financial advisor that primarily works with physicians.
And over the years, I’ve learned that there are a few important habits that you need to make if you want to do well with your money. And so what I’d like to share with you are some of the most successful habits I’ve seen my successful clients have for themselves.
1. Pay Attention to Your Money and Spending Habits
The first habit is paying attention to your money.
Keeping an eye on how much you’re making, and how much, maybe just importantly, how much is going out the door, where that money is going. It’s easy, I think, as the big paychecks start to come in, that you don’t feel like you need to focus as much on the money. And the truth is, you don’t.
You have some margin already built into those larger incomes that you can get a little lazy, if you will, on how the money is being used and spent. The problem is that laziness can get to be rather costly and expensive. So our most successful clients are paying attention to the money as it’s being earned and as it’s being spent.
2. Understand How Compound Interest Helps Physicians Build Wealth
But paying attention isn’t the only important habit I want you to have. The next one is to have an appreciation or respect for time and compounding. And as part of this time, having commitment to your plan throughout the course of time.
What’s rather fascinating within investing is this notion of compounding, where we allow money to make money for you. And so it’s not money that you’ve earned, it’s your money earning the money. And that starts to really amplify things, especially if we give it enough time.
How Does Starting to Invest Earlier Affect Long-Term Wealth?
So let’s quantify and run some numbers for that. Imagine you save $2,000 a month for 25 years and you get 6% rate of return on that money. We would expect you to generate about a $1.4 million portfolio from your savings.
Now, let’s say instead of doing this for 25 years, you do it for just 15 years. We cut off 10 years of savings. So that reduces your overall amount of savings by about $240,000.
But more importantly, because we don’t have compounding take place, we don’t grow that portfolio to $1.4M in this latter case; we only grow it to $600,000. Again, the difference for the reduction is because we haven’t saved as much.
But even more reason for the reduction, we haven’t seen as much opportunity for the money to compound. Now, happily, you can make up for that sort of shortfall by simply saving more. But it only comes in the cost of putting more money towards investing.
So for this latter 15-year scenario, in order to make up and come to the same final outcome of $1.4 million, instead of saving $2,000 a month, you have to save $4,800 per month with more than double the cost. And so let’s put compounding to your benefit so that you don’t have to save as much for the future.
3. Build Financial Flexibility Into Your Retirement Plan
The third item our successful clients do to make sure they do well for themselves, they build in margin to their plans.
The truth is, nothing is going to go quite the way we want it to go; that’s just life. In fact, one of my favorite movie quotes comes from Dan in Real Life, in which he says at the very end of the movie, if there’s anything that we can plan for, it’s plan to be surprised.
I think that’s just simply so true. So we know things aren’t going to go our way. How can we make sure that our plan is still going to work? We can have margin built in the plan, which gives us optionality.
Make sure that we don’t have ourselves painted into a corner or our back up against the wall. And optionality provides leverage and it provides the ability to pivot when needed. And so saving a little more of what you may need only accelerates the possibility for an early retirement, but it also accelerates you to be the one in control of your financial future and not letting other extraneous events decide what can and cannot happen for you.
4. Learn How to Spend and Enjoy Your Wealth in Retirement
Now, our fourth financial habit is knowing how to spend your money. What I mean by that is knowing how to harvest. It can be very easy to sow, sow, sow, put money away, put money away, put money away and accumulate wealth.
And that’s all good. In fact, I want you to do that. It’s how we get optionality built into your finances.
But if your future self never learns how to spend money appropriately because your present self never learned, we haven’t really done anything for yourself because that future self is going to be afraid to spend the money when the time comes. And so a good part of having balance in your finances is knowing what to save and how much, but it’s also knowing what to spend and to be able to appreciate that spending and not to be wracked with fear or concern because you’re not sure whether or not you should spend that money.
Let’s have it be guilt free. Super important in order to be able to enjoy your wealth.
Financial Planning for Physicians With Bona Fide Finance
Schedule a call for us to discuss more about how our financial services can be of help to you and your finances. We’d love to hear from you.
You can reach out to hello at BonaFideFinance.com. Again, I’m Ben Martinek with Bona Fide Finance. I’m a financial advisor who primarily works with physicians all over the country, and we would love an opportunity to work with you too.
Frequently Asked Questions
What financial habits do wealthy physicians have in common?
In our experience at Bona Fide Finance, the physicians who build lasting wealth share four traits: focus, commitment, diligence, and awareness. They know where their money goes each month and automate their savings. They also stay invested through market swings while still enjoying the income they worked so hard to earn. For the missteps that can slow this progress, read 5 Common Financial Mistakes Physicians Make.
Can a physician save too much for retirement?
Yes. Saving beyond your needs can move up your retirement date and strengthen your position in contract talks, yet some physicians save out of fear and keep working long hours after they already have enough. A financial plan can show when it’s reasonable to ease off. Our Guide to First-Time Physician Contract Negotiation and Avoid Burnout in Your First Years As an Attending Physician cover both sides of this balance.
When should physicians start building good money habits?
Residency is a great time to start. Compounding means each dollar saved early does more work over time, which lowers the amount you need to save each month later in your career. Residents can build these habits through our Resident Financial Launch Program, and new attendings can use Wealth Building for Physicians: How to Grow a $1M Portfolio as a road map.