Improving Your Finances in 5 Simple Steps
Arya clients find that optimizing processes in their practice can generate a significant increase in revenue and help them find a better work-life balance. Similarly, optimizing financial processes in your personal life can have a similar positive impact on your personal finances, future life goals (buying a house or other major purchase, preparedness for retirement on your own terms), overall financial health and future wealth.
When your personal finances are on track you are in a better position to pick and choose the work that you do and create the work-life balance you want, which can have a protective effect on burnout risk.
To learn more about physician financial well being, we spoke with Dr. Kirsten Lindner, Chair of the Physicians Wealth Advisory board (PWA). PWA is one of Canada‘s only boutique financial planning and wealth management practices focusing solely on physicians and co-founded by a physician.
If you have a financial ‘To Do’ list that never seems to get done or you worry that you are missing financial opportunities that you are not aware of or find it hard to put time aside to make sure everything is on track and optimized, apparently you are not alone.
According to Dr. Lindner and PWA, many physicians find it challenging to find the time to put towards organizing their finances and by the time they get to it, if they do at all, they’ve lost many opportunities. Or worse, an unexpected event occurs and they’re not adequately protected. Planning well from the outset can avoid a lot of stress and can create a solid financial foundation from early on which will help you manage the unexpected and put you on a solid path towards a successful financial future for you and your family.
Common areas that get left to the wayside include:
Checking in on your budget/cash flow regularly, making sure it’s not going in the red and accumulating more debt
Keeping track of paying your bills on time thus protecting your credit rating
Keeping up with regular contributions to an RRSP in order to avoid having to make a big lump sum payment before RSP deadline that you may not have cash handy for
Regular contributions to your Corporation to make it worth the carrying costs
Creating a retirement plan and actioning the steps required to achieve your goals
Ensuring your will is up to date and reflective of your current situation and priorities
By creating a solid Financial Plan early in your career, or sooner rather than later if you’re already well into practice, you can ensure that all those things and more are attended to and optimized. Having a Financial plan helps everything fall into place. It will save you tens, if not hundreds of thousands over the course of your career. And it’ll help you sleep at night.
Young physicians face a delay in earning due to training and often graduate with significant debt, so having a plan at the outset is important. Getting on the right path early will have a significant impact on retirement age and accumulated assets (aka the desired lifestyle you want when you are no longer working). It can also reduce the risk of burnout as a consequence of escalating work-load to generate income for escalating lifestyle costs that can get out of control quickly. Learning about mindful spending early on and careful expansion of lifestyle can protect your work-life balance and your wellbeing.
Mid to later-career physicians may be so busy with their established practice and a busy personal/family life, that carving out the time to think about financial preparedness, i.e. whether they are on track for retirement or if their insurance is sufficient to protect them in a crisis, often falls to the wayside. Many physicians have had to face working into their late 60’s and 70’s as a consequence.
If you want to see your vision for your future realized, setting out a road-map at the beginning of your journey will maximize your chances for success in arriving at your desired destination.
5-Step Process to Financial Planning
Here is a simple 5-Step Process to Financial Planning that can help optimize financial health and achieve future goals:
Step 1: Outline your Financial Goals
Every plan in life starts with defining clear objectives/goals and financial planning is no different. You need to explicitly lay out your financial aspirations and where you see yourself personally/financially in the future. Retirement planning is a key part of this step as you will require income when you stop working. Few physicians can rely on a pension in retirement and consequently must self-fund their retirement years, which requires accumulated assets. You need to consider what age you want to retire and how much you will require on a yearly basis to support your desired lifestyle. You then need to determine how many years you will be relying on your retirement funds and how inflation will affect your yearly income needs.
You will also have many other goals that need to be planned for (i.e. buying a house, sending kids to school, etc), which will also need to be considered.
Step 2: Understand your Debt Obligations
High debt load is the key reason why many financial goals remain unfulfilled for a number of physicians. Compound interest on debt can make it difficult to get on top of. Be it educational debt, lifestyle debt, mortgages or loans, debt needs to be managed from the outset. This involves establishing a realistic repayment plan within the context of addressing your other important financial goals. It’s possible to pay off debt efficiently, save/invest some of your earnings, and enjoy a lifestyle you love, with a dedicated plan and a clear sense of your wants versus your needs.
Step 3: Pay Yourself First-Automate
While income streams grow, there is an obvious temptation to spend more on your desired lifestyle. With increased expenses, physicians are vulnerable to cash-flow imbalance and potentially sacrificing their own personal savings and future goals in an effort to pay off bills and avoid further debt. Automating your savings to ensure a portion of your income automatically goes towards your retirement plan and other financial goals is an important strategy to utilize to ensure you will be able to achieve your goals and retire when you want with the funds you require.
Step 4: Plan Your Investments
As savings accumulate, it is important to ensure they have the opportunity to grow. Many physicians have large amounts of funds sitting in their bank accounts, uninvested, either because of analysis paralysis or because they haven’t had a chance to allocate it to an investment account. Understanding your time horizon, risk tolerance, ensuring you are properly diversified, and minimizing unnecessary fees are all necessary factors to consider in optimizing your potential for investment returns. It’s also important to maximize tax efficiency by utilizing registered investment vehicles such as TFSA/RRSP/RESP and to consider whether incorporation is right for your personal circumstances.
Step 5: Estate Planning
Whether you decide to help the next generation(s) of your family, your community, or otherwise create an enduring legacy, you will require a well laid out plan to do so. Wills and
estate plans must be kept up to date and revised with any significant life event and over time as your assets accumulate. Ensure they are kept in a secure, dedicated location that your loved ones are privy to so that they will be accessible to the people who will need them when you are gone.
Arya Health was founded by physicians and we too struggle with financial planning and education. It's never too late to start planning for your future and while these steps just scratch the surface, they are a reminder of the importance of taking hold of your financial plans. We hope you find them helpful along your financial path.
Financial planning is an involved process that requires dedicated effort and ongoing attention. Whether you take this on yourself or outsource to a trusted and fiduciary professional, make sure it is at the forefront of your mind and properly optimized on an ongoing basis. Your future self will thank you.
Physicians Wealth Advisory is committed to helping Canadian Physicians at all stages of career achieve financial health and realize their vision for their future. To learn how they can help you optimize your financial health, feel free to contact them.
Arya EHR is an electronic health record system built by physicians for physicians. Used across Canada, it helps clinics manage their patient records simply, intuitively, and efficiently. The technology used in providing healthcare is antiquated, slow, overly complex, and overpriced. Arya’s philosophy is to build technology for physicians that is beautiful, intuitive, easy to use, saves you headaches and saves you money.
Physician Wealth Advisory is a part of Canaccord Genuity Corporation. The comments and opinions expressed in this newsletter are solely the work of Arya Health, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this newsletter, is for general information only, does not constitute legal or tax advice, and the author (or name of IA and/or team name) does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability.
CANACCORD GENUITY WEALTH MANAGEMENT IS A DIVISION OF CANACCORD GENUITY CORP., MEMBER-CANADIAN INVESTOR PROTECTION FUND AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA (IIROC).