Last updated: 02/28/2024

Financial missteps from high-earning individuals, like doctors, can be especially costly. Do you struggle to manage your finances or want to improve your money habits? Or are you looking for additional ways to maximize your income and retirement savings? Here are 17 money mistakes doctors and other high earners can make and how to avoid them.

17 Money Mistakes of High Earners and High-Net-Worth Individuals

1. Failing to protect assets adequately 

General estate plans (e.g., wills, trusts, POAs, etc.) are good to have in place, but preparing for other possible situations, specifically personal or professional divorce, is essential for high earners and high-net-worth individuals. Divorce can get expensive, especially when large sums of assets are involved. Alimony, child support, and moving and homeownership expenses can add up quickly, not to mention the possibility of splitting half your assets with your ex-partner. An estate planning attorney can help with a prenuptial agreement and other asset protection methods after marriage. Professional divorce with a business partner or practice adds another layer of complexity to planning. Enlist the help of a business attorney when creating contracts and structuring your business to help protect yourself from issues down the line.

2. Failing to manage debt 

Debt management is a delicate balance. Failing to pay down student loans or other debt can set you back financially, as can putting all your efforts toward paying down your student loans while failing to start saving for your other life goals and retirement. Create a debt repayment strategy that also accounts for cash flow to keep you out of debt while you’re repaying.

3. Not judiciously deciding when to loan money 

If, who, and how much you lend is incredibly personal, and we wouldn’t presume to tell you not to if you feel responsible or inclined to do so. Because loaning money to family and friends can be a recipe for disaster, take caution when loaning money and give without expecting Either way—if you are or are not repaid—you’re less likely to be disappointed and may preserve the relationship better.

4. Overspending

Physicians may have added pressure to “live like a doctor,” spending to keep up with Dr. Jones. This can include spending too much money on a house or buying a house that’s too large for your needs—an easy way to become “house poor.” Setting and sticking to a budget is unglamorous but can pay dividends in terms of your financial health.

5. Not starting to save early enough and not ramping up savings 

Because of physicians’ extensive education and training period, they don’t start earning at their full potential until 5–15 years later than others, and saving for big life goals and retirement often takes the back burner to managing basic finances and paying down student loans—at least for the first few years into their careers. Start saving—anything—right out of school, even if it’s $5 a month. Then, aim to start saving 15–20% (or more) of your salary as you get older and your career progresses. Try to have buckets for short- and long-term goals, emergencies, and retirement.

6. Failing to plan for taxes 

Higher earnings equate to a higher tax bill. Lowering your taxable income now and/or saving taxes in retirement with your retirement accounts is a smart money move. Educate yourself on Backdoor Roth IRA conversions to determine if they’re a good fit for you, and consult a tax professional who may be able to find additional tax deductions for you throughout the year and at tax time.

7. Failing to purchase the proper insurance 

Life, disability, home and auto, umbrella, and malpractice insurance is likely all valuable to purchase to protect your assets, estate, wealth, family, and career.

8. Not keeping the pulse on your financial health 

Treat your personal finances as you would treat your business finances. Stay involved and aware of where your money is going and what it is doing inside investments and other savings vehicles, even if you’re working with a financial or investment advisor.

9. Spending too much money too early in your career 

The raise from resident to doctor is significant—from an average of $64,000 in residency to $265,000 for PCPs and $382,000 for specialists on average. The temptation to increase your spending immediately as your salary increases may be strong. Building wealth often means deferring gratification (i.e., spending money on wants vs. needs), living below your means, and maximizing saving and debt management with the majority of your income—at least until your student loans and other debt are paid off.

10. Not working with financial professionals 

A 2023 Doximity poll indicated that only 53% of physicians currently work with a financial/investment advisor. A good financial team, generally including a tax professional/accountant, financial or investment advisor, and financial planner, can be a trusted partner, sounding board, and your CFO. Shifting your money management to professionals allows you to spend more time on your professional responsibilities and personal life.

11. Not using retirement accounts properly

Maximizing your savings into retirement accounts, including employer-sponsored ones with employer matching, can help you better prepare for retirement, build a nest egg, and lower your taxable income. Allowing the default investment strategies in your retirement accounts without evaluating all your options and what’s best for your situation may leave money on the table—or put more in fees in the pocket of your plan administrator.

12. Improperly investing 

From angel investing to buying and investing large amounts of money into one stock to buying into exotic or private investments geared toward accredited investors, certain investments carry significantly more risk. Long-term investing strategies mean capitalizing on bull markets and having the strength of mind to stay the course during downturns. Navigating these alone means you often need advanced knowledge and skills to manage your money and investments, as improperly investing can be costly, even if you avoid the riskier investments at the start of this section.

13. Financial illiteracy 

Just as you likely stay on top of news and advancements related to your field and medicine in general, maintaining a certain level of financial literacy is crucial to making your money work for you. This literacy level is personal to you—meaning you decide how involved you want to be in the ins and outs of your finances—but a certain base knowledge level is important. Understand basic budgeting, financial concepts, and the investment and savings vehicles available to and in use by you at a minimum. Additionally, good money habits are skills, and the more you learn and practice, the better you’re likely to become at managing your finances.

14. Failing to create a customized, comprehensive financial plan 

Physicians often have complex financial situations, including a late start in earning, high student loan debt, increased professional liability risks, and higher incomes with higher taxes. A comprehensive financial plan customized to your personal and professional situation is crucial to building your wealth.

15. Taking questionable financial advice 

Taking financial advice from peers and other (sometimes shady, misinformed, or unqualified) individuals without getting a second opinion or doing your due diligence is a dangerous road to take. Beware of a get-rich-quick scheme or anything that sounds too good to be true. Also, while your peers can be good sounding boards, it’s highly unlikely that their situation is the same as yours; it may be better to work with someone who can evaluate your entire situation and provide recommendations that align with your goals, needs, and financial details.

16. Holding large amounts of cash 

Make your money work for you, even if you prefer more conservative investments. Holding large portions of your nest egg in cash in accounts paying little to no interest fails to take advantage of compounding interest and other, sometimes greater, market returns—no matter the risk level you’re comfortable with, there’s likely a vehicle that can pay you something on your cash investment.

17. Failing to negotiate employment contracts 

While contract negotiations are normal—and often expected—they are rarely something for which schooling prepares you. Your contract terms generally include your base salary, bonus structure, vacation, working hours, and benefit details. You can enlist a contract review service to help evaluate your employment contract and provide suggestions for negotiation; your financial professional may even be able to assist with this.

Have you fallen into one (or a few) of these money traps? Now is the time to make a change! Work with an advisor who understands physicians’ (and other high earners’) needs and can develop a customized plan for you.

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This blog expresses the author’s views as of the date indicated, are subject to change without notice, and may not be updated.  The information contained within is believed to be from reliable sources.  However, its accurateness, completeness, and the opinions based thereon by the author are not guaranteed – no responsibility is assumed for omissions or errors.  This blog aims to expose you to ideas and financial vehicles that may help you work towards your financial goals. No promises or guarantees are made that you will accomplish such goals. Past performance is no guarantee of future results, and any expected returns or hypothetical projections may not reflect actual future performance or outcomes. All investments involve risk and may lose money. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must evaluate and investigate any investments considered or any investment strategies or recommendations described herein (including the risks and merits thereof), seek professional advice for their particular circumstances, and inform themselves about the tax or other consequences of any investments or services considered.  Investment advisory services are offered through Liberty Wealth Management, LLC (“LWM”), DBA Liberty Group, an SEC-registered investment adviser.  For additional information on LWM or its investment professionals, please visit www.adviserinfo.sec.gov  or contact us directly at 411 30^th Street, 2^nd Floor, Oakland, CA  94609, T: 510-658-1880, F: 510-658-1886,  www.libertygroupllc.com. Registration with the U.S. Securities and Exchange Commission or any state securities authority does not imply a certain level of skill or training.

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 References

Advisory Board. (2018, November 14). The 10 money mistakes doctors keep making (and how to avoid them). https://www.advisory.com/en/daily-briefing/2018/11/14/financial-missteps

Bar-Or, Yuval. (n.d.) Avoid These 17 Physician Money Mistakes. WealthyDoc.org.  https://wealthydoc.org/physician-money-mistakes/

Dahle, James. (2018, October 16). The 10 Biggest Financial Mistakes Doctors Make. ACEPNow. https://www.acepnow.com/article/the-10-biggest-financial-mistakes-doctors-make/

Dahle, James. (2011, November 18.) Top 7 Financial Errors Doctors Make (And How to Avoid Them). The White Coat Investor. https://www.whitecoatinvestor.com/top-7-financial-errors-doctors-make-and-how-to-avoid-them/

Hanson, Bridget. (2021, August 13). The 3 Biggest Financial Mistakes New Doctors Make. Physicians Thrive. https://physiciansthrive.com/financial-planning/new-doctor-mistakes/

Kane, Leslie. (2020, June 24). Medscape Physician Debt and Net Worth Report 2020. Medscape. https://www.medscape.com/slideshow/2020-compensation-debt-worth-6012988#1

Lawal, Adebeshin. (2020, October 1.). Top 10 Financial Mistakes Doctors Make and How to Avoid Them. Stethinvestor. https://medium.com/stethinvestor/top-10-financial-mistakes-doctors-make-and-how-to-avoid-them-9c75e3bb3024

Martin, Keith. (2020, August 7). Medscape Residents Salary & Debt Report 2020. Medscape. https://www.medscape.com/slideshow/2020-residents-salary-debt-report-6013072

Smart Money, MD. (2020, January 15). 10 common doctor financial blunders. KevinMd.com. https://www.kevinmd.com/blog/2020/01/10-common-doctor-financial-blunders.html

StephenNg Financial Group. (n.d.) 5 Financial Mistakes Physicians Make. http://static.fmgsuite.com/media/documents/61a703f9-d622-4795-adbd-7c4c5cf4741c.pdf

Wealthkeel. (n.d.) Top 6 Money Errors Doctors Make. https://wealthkeel.com/blog/top-6-money-errors-doctors-make