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  • Writer's pictureMark Fonville, CFP®

5 Financial Mistakes Physicians Make (And How to Avoid Them)

5 Financial Mistakes Physicians Make (And How to Avoid Them)

Financial planning is essential for everyone, but it is especially important for physicians who face unique financial challenges.

Despite earning high incomes, many doctors struggle with managing their finances effectively.

In this blog, we will discuss five common financial mistakes that physicians make and provide advice on how to avoid these pitfalls, enabling you to build a stable financial future.

Before you get started, here are a couple of free resources to help with your journey:

Mistake 1: Not Creating a Budget

One of the most common financial mistakes made by physicians is neglecting to create a budget. A budget is a crucial tool that helps you understand your income and expenses, allowing you to make informed decisions about your spending and saving habits.

Without a budget, you may find yourself overspending on non-essential items and failing to save enough for future financial goals.


Example 1: The Consequences of Poor Budgeting with Dr. Emily Thompson

Dr. Emily Thompson, a successful pediatrician in her mid 40s, had always been confident in her ability to manage her finances. With a six-figure income, she never worried about living paycheck to paycheck. However, despite her high income, she never saw the need to create a budget, believing that she had more than enough money to cover her expenses and save for the future.

Over the years, Dr. Thompson developed a taste for the finer things in life. She frequently dined at upscale restaurants, took lavish vacations, and splurged on designer clothes and accessories. Additionally, she purchased a luxury car and a sprawling home in an exclusive neighborhood, both of which came with hefty monthly payments. Since she didn't track her spending or set limits on her expenses, her lifestyle quickly began to exceed her income.

One day, Dr. Thompson received an unexpected medical bill for a procedure that her insurance didn't fully cover. As she went through her bank statements to assess her financial situation, she was shocked to discover that her savings were nearly depleted. To make matters worse, she realized that her credit card balances had skyrocketed, and she had amassed a significant amount of high-interest debt.

Dr. Thompson's situation quickly became dire when she was faced with an emergency home repair that she couldn't afford. She found herself borrowing from her retirement accounts to cover the costs, jeopardizing her financial future. With no budget in place, she had unknowingly spent herself into a financial crisis.

Had Dr. Thompson created a budget early in her career, she would have had a clear understanding of her income and expenses, allowing her to make informed decisions about her spending and saving habits. A budget would have helped her identify areas where she could cut back, allocate funds to emergency savings, and prioritize her financial goals. By neglecting this crucial financial tool, she jeopardized her financial stability and put her future at risk.


To create an effective budget:

  1. List your monthly income sources, including salary, bonuses, and investments.

  2. Identify all your fixed and variable expenses, such as mortgage, utilities, food, and entertainment.

  3. Allocate funds to savings and investment goals, such as emergency funds, retirement accounts, and college savings plans.

  4. Track your spending regularly to ensure you stay within your budget.

To maintain your budget, consider using budgeting apps or software, and review your budget periodically to make necessary adjustments.

Mistake 2: Ignoring Student Loan Management

The average medical school graduate carries a significant amount of student loan debt. Ignoring this financial burden can lead to higher interest costs and a longer repayment period.

To effectively manage your student loans:

  1. Understand your loan terms, including interest rates, repayment options, and potential forgiveness programs.

  2. Consider refinancing or consolidating your loans to secure a lower interest rate or more manageable monthly payments.

  3. Research loan forgiveness and repayment assistance programs, such as Public Service Loan Forgiveness (PSLF) or income-driven repayment plans.


Example 1: The benefits of managing student loan debt with Dr. Andrew Martinez

Dr. Andrew Martinez, a dedicated family practitioner in his mid-30s, was well aware of the heavy burden of student loan debt he carried after completing medical school. With over $200,000 in loans, he knew that managing this debt would be crucial to his long-term financial success. Determined to tackle his student loans head-on, Dr. Martinez devised a comprehensive strategy to reduce his debt as efficiently as possible.

First, Dr. Martinez took the time to understand the terms of each of his loans, including interest rates and repayment options. He discovered that some of his loans had significantly higher interest rates than others, making them prime candidates for prioritizing in his repayment plan.

Next, he researched refinancing and consolidation options, ultimately choosing to refinance his high-interest loans to secure a lower interest rate and more manageable monthly payments. This decision saved him thousands of dollars in interest over the life of the loan.

Dr. Martinez also explored various loan forgiveness and repayment assistance programs. He learned that he qualified for the Public Service Loan Forgiveness (PSLF) program due to his work at a nonprofit hospital. By enrolling in an income-driven repayment plan and making consistent monthly payments, he would be eligible for loan forgiveness after ten years of service.

To further accelerate his loan repayment, Dr. Martinez committed to living frugally and directing any extra income, such as bonuses or tax refunds, towards his student loan debt. He also set up automatic payments to ensure that he never missed a payment and potentially jeopardized his eligibility for forgiveness.

Thanks to his diligent management of his student loan debt, Dr. Martinez was able to pay off a significant portion of his loans and secure forgiveness for the remaining balance. By actively addressing his debt, he freed up funds for other financial priorities, such as saving for a down payment on a house, investing for retirement, and creating an emergency fund. His proactive approach to student loan management set the stage for a stable and secure financial future.


By actively managing your student loans, you can reduce your debt burden and free up funds for other financial priorities.

Mistake 3: Inadequate or Improper Insurance Coverage

Insurance is an essential part of any financial plan, providing protection against unforeseen events that can negatively impact your finances. Physicians, in particular, should prioritize acquiring adequate malpractice, disability, and life insurance coverage.

Common insurance pitfalls include:

  1. Underestimating the amount of coverage needed or opting for the cheapest policy without considering the quality of coverage.

  2. Relying solely on employer-provided coverage, which may not be sufficient or portable if you change jobs.

  3. Neglecting to review and update policies regularly, leading to gaps in coverage as your financial situation evolves.


Example 1: The consequences of being underinsured with Dr. Sarah Mitchell

Dr. Sarah Mitchell, a skilled anesthesiologist in her late 40s, had always been diligent about her career and patient care. However, she paid little attention to her insurance needs, assuming that her employer-provided coverage was sufficient. Unfortunately, her lack of attention to her insurance coverage would eventually lead to serious financial consequences.

One day, while on her way to work, Dr. Mitchell was involved in a severe car accident that left her with multiple injuries. Her recovery would require months of physical therapy and time away from her practice. As the primary breadwinner for her family, Dr. Mitchell was concerned about maintaining her financial stability during her prolonged absence from work.

Confident that her employer-provided disability insurance would cover her income during her recovery, she was shocked to discover that the policy only provided 60% of her base salary, and her additional income from overtime and bonuses was not covered. This significant reduction in income made it difficult for her family to keep up with their mortgage payments, medical bills, and other living expenses.

In addition to her inadequate disability insurance, Dr. Mitchell had opted for a minimal life insurance policy, believing that her high income and savings would be sufficient to support her family in the event of her passing. However, her recent accident and the resulting medical bills had depleted much of her savings, leaving her family financially vulnerable.

Had Dr. Mitchell taken the time to evaluate her insurance needs and supplement her employer-provided coverage with appropriate individual policies, she could have avoided the financial strain her family faced during her recovery. A comprehensive disability insurance policy with coverage for her full income, including overtime and bonuses, would have provided her with the financial security she needed. Additionally, a more robust life insurance policy would have ensured her family's financial stability in the event of her passing.

Dr. Mitchell's experience serves as a cautionary tale about the importance of thoroughly evaluating one's insurance needs and obtaining adequate coverage to protect against unforeseen events that can impact one's financial well-being.


To ensure you have the appropriate coverage, consult with a trusted fee-only financial advisor who can help you evaluate your needs and recommend suitable policies.

Periodically review your insurance coverage to ensure it remains adequate as your circumstances change.

Mistake 4: Neglecting Retirement Planning

Starting retirement planning early is crucial for physicians, as a late start can lead to inadequate savings and reduced financial security in later years.

To effectively plan for retirement:

  1. Understand the various retirement savings options available to you, such as 401(k) plans, IRAs, and Roth IRAs.

  2. Maximize employer-sponsored retirement benefits, including contribution matching programs.

  3. Develop a long-term investment strategy that balances risk and return, taking into account your age, risk tolerance, and retirement goals.

  4. Regularly review and adjust your retirement plan as needed, considering factors such as changes in income, inflation, and market conditions.


Example 1: Dr. Robert Anderson neglects planning for retirement

Dr. Robert Anderson, a respected cardiologist in his early 50s, had spent the majority of his career focused on providing exceptional care to his patients. Although he had earned a substantial income over the years, he had never given much thought to retirement planning. Instead, he believed that his high earnings would naturally provide him with a comfortable retirement.

As Dr. Anderson approached his 50s, he began to realize that he had not saved enough to maintain his desired lifestyle during retirement. His only retirement savings were in his employer-sponsored 401(k) plan, to which he had contributed the minimum amount required to receive the employer match. He had not explored other retirement savings options such as IRAs or back-door Roth IRAs or taxable brokerage accounts for better tax management in retirement, nor had he developed a comprehensive investment strategy to grow his nest egg.

Concerned about his financial future, Dr. Anderson sought the advice of a financial planner, who informed him that he would need to significantly increase his retirement savings to avoid a drastic reduction in his standard of living during retirement. Unfortunately, given his age and proximity to retirement, Dr. Anderson had limited time to make up for the lost years of savings and compound interest.

To address the shortfall in his retirement savings, Dr. Anderson was forced to make some difficult decisions. He began aggressively contributing to his 401(k) plan and evaluated the potential for a back-door Roth IRA and Mega Backdoor Roth IRA to take advantage of the tax-free growth. He also had to reevaluate his investment strategy, striking a delicate balance between growth and risk as he approached retirement age.

In addition to ramping up his retirement savings, Dr. Anderson had to make significant lifestyle adjustments. He downsized his home, postponed his plans for luxury vacations, and delayed his retirement by several years to give him more time to save and grow his investments.

Dr. Anderson's story illustrates the importance of early and consistent retirement planning. By neglecting this crucial aspect of financial planning, he jeopardized his financial security during his retirement years and was forced to make considerable sacrifices to compensate for his lack of foresight.


Pro Tip: You rely on checklists when helping patients. Be sure to download our free retirement planning checklists to help you avoid major retirement planning mistakes.

By prioritizing retirement planning, you can build a comfortable nest egg that ensures your financial security throughout your golden years.

Mistake 5: Lack of Investment Diversification

A well-diversified investment portfolio is essential for managing risk and optimizing returns. However, many physicians make the mistake of concentrating their investments in a single asset class or sector.

This lack of diversification increases the risk of significant losses during market downturns.

To create a diversified portfolio:

  1. Spread your investments across various asset classes, such as stocks, bonds, real estate, and cash.

  2. Diversify within asset classes by investing in different sectors, industries, and geographical regions.

  3. Consider using low-cost index funds, exchange-traded funds (ETFs), or professionally managed mutual funds to achieve diversification without the need for constant monitoring.

  4. Periodically rebalance your portfolio to maintain your desired risk level and asset allocation.


Example 1: Dr. Samuel Green learns the importance of proper diversification, the hard way

Dr. Samuel Green, a renowned neurosurgeon in his early 50s, had managed to accumulate a substantial net worth of over $2 million through his diligent retirement savings and disciplined investment in taxable accounts. Confident in his financial success, Dr. Green had invested the majority of his wealth in the healthcare sector, particularly in biotechnology and pharmaceutical companies, as he believed his industry knowledge would give him an edge in generating significant returns.

Unfortunately, Dr. Green's overconfidence in his investment strategy led to a lack of diversification in his portfolio. When an unexpected global event caused a major disruption in the healthcare industry, the stocks of biotechnology and pharmaceutical companies plummeted. Dr. Green's heavily concentrated investments in these sectors experienced significant losses, resulting in a drastic reduction in the value of his retirement and taxable investment accounts.

Realizing the gravity of his situation, Dr. Green sought the advice of Covenant Wealth Advisors who emphasized the importance of diversification to protect his portfolio from future market downturns.

To create a more diversified portfolio, Dr. Green was advised to:

  1. Reallocate his investments across various asset classes, such as stocks, bonds, and real estate, to reduce his overall risk exposure.

  2. Diversify within asset classes by investing in different sectors, industries, and geographical regions to avoid over-concentration in any single area.

  3. Consider using low-cost index funds, exchange-traded funds (ETFs), or professionally managed mutual funds to achieve diversification without the need for constant monitoring.

  4. Periodically review and rebalance his portfolio to maintain his desired risk level and asset allocation.

  5. Overlay proper tax management across his portfolio to help improve after-tax returns.

By following Covenant's recommendations, Dr. Green began the process of diversifying his investment portfolio to reduce risk and better protect his assets from future market fluctuations. Though it would take time to recover his losses, Dr. Green learned a valuable lesson about the importance of diversification in ensuring long-term financial stability.


Pro Tip: You rely on checklists when helping patients. Be sure to download our free retirement planning checklists to help you avoid major retirement planning mistakes.

By maintaining a diversified investment portfolio, you can reduce risk and potentially enhance long-term returns, helping you achieve your financial goals.


In summary, the five common financial mistakes physicians make are neglecting to create a budget, ignoring student loan management, having inadequate or improper insurance coverage, neglecting retirement planning, and lacking investment diversification.

By addressing these issues and implementing the suggested solutions, you can build a strong financial foundation and secure your financial future.

It's important to educate yourself about personal finance and maintain discipline in managing your finances.

However, don't hesitate to seek professional financial advice tailored to your specific needs and circumstances.

Remember, the sooner you start planning and avoiding these mistakes, the better prepared you will be for a prosperous and secure financial future.

We help. Contact us for a free consultation to see how we can better manager your financial health.


Author: Mark Fonville, CFP®

Mark is the CEO of Covenant Wealth Advisors, a fee-only financial planning and investment management firm helping physicians build, preserve, and enjoy their wealth through improved financial health.

Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine.


Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view.


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