A Physicians Guide to Financial Freedom

Financial freedom requires sound financial habits. These are not to be confused with financial goals. Financial goals are what you want. Financial habits are the things you automatically do to achieve those goals.

Let’s clarify.

You’re probably all familiar with the Patellar Reflex Response. Strike the patellar tendon, and in a healthy human, the foot lifts or extends. This happens automatically, without conscious effort, signaling the spinal cord's healthy function at the L2-L4 vertebrae. Stimulus, response.

We want our financial habits to operate in the same way. Automatic, without conscious effort, signaling the healthy function of our personal financial system. Habit-formation is a subject for another post entirely (check out this one). Here are some money habits that will help you reach financial freedom this year.

Embrace Minimalism

American consumerism has created a more-is-more culture. Need proof? Next time you’re driving, take a look around (safely) and note how many pickup trucks are on the road with you.

  • What percentage of those drivers do you think actually need a pickup truck?
  • How many of them, for example, are contractors? The same applies to houses.
  • How much of your house are you actually using?
  • How much of the unused space is crammed with stuff you haven’t touched in years?

Principally, financial freedom begins with embracing less, the essentials. That doesn’t mean you need to live like a monk. After all, 2020 was one of the most challenging years in recent memory for physicians. You deserve some creature comforts. But, to quote a line from Fight Club, it becomes a problem when “the things you own end up owning you.”

Eliminate Debt

A sure indicator that the things you own are owning you is your overall debt load. Of course, physicians are at a distinct disadvantage here with their education and training's length and expense. However, becoming debt-free — even for a doctor — isn’t impossible. For example, the Frugal Physician eliminated $100,000 in student loan debt in 6 months! Make debt elimination something you don’t have to think about by setting up automatic payments.

Set credit cards to automatically deduct the monthly balance from a checking or savings account. Put student loans on an automatic monthly payment plan. The same goes for any auto or mortgage payments you might have. Note well: All of this requires careful budgeting, or you run the risk of overdrawing your accounts and racking up overdraft fees.

Make a Budget

Speaking of budgeting, at the risk of being redundant, you must have a budget. It’s almost unavoidable to write a personal finance post without mentioning budgeting, at least in passing. The tinkerers among you may enjoy having an Excel-based budget. Microsoft Office offers template options. However, in keeping with the theme of this post, we suggest making budgeting automatic.

Most budgeting apps require some initial startup elbow grease, including linking bank and credit card accounts and setting spending limits. But after that, you can pop in once in a while to monitor your progress.

Check out our overview of the best budgeting apps.

Cash Is (Still) King

Volatility is here to stay, and the COVID-19 pandemic showed physicians that sometimes uncertainty needs to be met with cash. If you don’t have an emergency fund, you need to build one. Aim to accumulate 3-6 months of living expenses in a savings account.

Of course, knowing your living expenses requires budgeting (see the previous section). Emergency funds aren’t sexy, and you may feel like a chump for putting cash into a savings account with a pitiful interest rate while Wall Street surges. But having a financial cushion to get through 3-6 months of joblessness certainly provides some peace of mind.

Automate Retirement Savings

There’s a cliche in personal finance circles that you should pay yourself first. But that tends to confuse what is with what it ought to be. Yes, you should pay yourself first. But the reality is, you have other expenses and financial goals that compete for your attention and your dollars.

That’s why we suggest taking yourself out of the equation entirely by automating your retirement savings; otherwise, the next shiny thing or life demand will suck up those dollars first. Set automatic payroll deductions for any employer-sponsored retirement accounts, and set up recurring transfers to any other accounts you might hold. Next, put an annual, quarterly, or monthly reminder on your calendar to check and possibly recalibrate your savings goals.

Envelopes Are Your Friends

Some banks are rolling out envelope functions for checking and savings accounts. Take advantage of these in 2021. For example, most physicians are vehicle owners. And if you aren’t leasing that vehicle, you will cover maintenance and repair costs. Major repairs, such as the engine, transmission, or electrical work, typically cost thousands.

You can account for this by setting automatic deposits to a checking- or savings-account envelope so that the next time you need tires for your car, a roof for your house, or braces for your kid, you’ll have all (or some) of the cash on hand.

Keep a Detailed Calendar

This is an indirect financial habit with direct financial consequences. Failure to do it costs many physicians a great deal of money. Many of the expenses that we incur throughout the year can be planned simply by maintaining a calendar.

For example, December and its holiday-related expenses tend to catch us by surprise annually. The same goes for our budget-busting summer vacation. By making a weekly scheduling session a habit, you can account for events in the months ahead, adjusting your budget accordingly.

This post originally appeared on PhysicianSense, a lifestyle blog for healthcare professionals, brought to you by MDLinx. PhysicianSense provides doctors with insights into healthcare, business, careers, personal finance, and life outside of medical practice.