The medical profession is unique. Doctors have spent years in school, pre-med, and residency. As a medical professional, you are now responsible for managing the health of your patients, clinical, administrative duties, and coordinating with other physicians. Trying to find time in your calendar for medical research and advances, you have a full plate, that it may become easy to overlook your financial health. Some of the doctors we work with make the worst patients because they often ignore their well-placed advice. “If you don’t look after this now, you will pay later.”
Three Core Areas of A Practice
Creating a successful roadmap for your financial health can be broken down into three critical areas of focus. The first is creating a roadmap to achieve financial security in your working years, then your retirement. The second is to maintain wellness: This includes regular “check-ups” and meetings with your advisor to keep your financial plan on track. Finally, schedule appointments for the year in advance to review your goals and objectives. You should always assign a time frame and cost to the goal you have set out.
Urgent Care for you and your family
As you care for your patients’ physical health, the first step in managing your financial health is to gather your data. The cash flow data you will require is Pre-Tax income, expenses, housing, family, insurance, taxes, investments, and goals, both personal and financial. During your lifetime, there will be changes, needed adjustments, and perhaps unexpected expenditures that will impact your holistic financial plan. Be proactive and put certain pieces in place early.
- Set Up a TFSA (Tax-Free Savings Plan): As a young accumulator of wealth, one of the most important financial concepts to understand is the power of compound interest. Start early,
and contribute often, is one of the most impactful components of your holistic financial plan. Pay yourself first; a recommended guideline is ten percent minimum of your pre-tax income. The difference between being “A Have or A Have Not” is why you should always pay yourself first. It is essential that your savings either defer or reduce taxes while growing your nest egg. An RRSP and a TFSA are a perfect place to start. Lastly, identify and plan how to fund and sustain your financial goals: Paying off debt, saving for retirement, educational expenses, purchasing a home, or saving for a much-needed vacation.
- Plan Monthly Cash-Flow: Identify fixed monthly fixed costs and discretionary expenses for you, your family, and your practice. Establish emergency funds for unexpected costs equal to a recommended six months of living expenses to run your household in the event of an unforeseen event.
- Debt: Calculate your student debt, mortgage, credit card, loans, and any other debts you may have. It may be wise to consolidate all high-interest debt, other than your mortgage, as they are usually low interest. It is important to remember that compounding debt has the opposite effect of wealth management growth.
- Evaluate Risk: There are many types of risks, including:
- Market risk: Risk vs reward. Complete a thorough risk tolerance and needs assessment with your advisor to determine your suitability. The objective is to create a balance that will provide growth for you while minimizing market volatility. Your wealth accumulation plan should be in alignment with your goals. Diversification of portfolios you will provide fixed income safety, liquidity, and equity, which will drive growth over the period selected. It is essential to know that bonds have an “Inverse” relationship to the rise and fall of interest rates.
- Business Risk: Malpractice, a fallout with colleagues, unforeseen death of a business partner. You should always have a Buy-Sell, ShareHolder’s Agreement, and funding in place. Insurance is the most cost-effective solution for covering business risk. A thorough needs analysis should always be completed before implementation to determine coverage, suitability, and affordability.
- Personal catastrophic risk: Ensure that you have Life, Disability, both Std & Ltd, Critical Illness, and Ltc. It is essential to ensure that your insurance covers future earning years. A thorough needs analysis should always be completed before implementation to determine coverage, suitability, and affordability.
Maintaining Wellness requires vigilance
Review your financial plan annually, semi-annually, and, or when there is a material change in your situation such as marriage, the addition of a child, an unforeseen health event, death, separation, divorce, or changes in your medical practice.
Your review should include:
- Wealth Management review: Ensure your asset allocation is suitable for your given goals and objectives. Portfolios should be re-balanced, adjusted if necessary, and always review the
prospectuses with your advisor.
- Retirement Planning: Canadians are living longer, which increases the chances of losing a spouse, possible failure of health, which will require a larger nest-egg of assets to support
themselves during their retirement years. A full analysis of cash flow, personal needs for both fixed & discretionary expenses included in the retirement plan. The draw-down of investment income should be stress-tested. A typical number is 4-6%, not including inflation, but adjusted yearly. This process will provide peace of mind knowing how long your money will last.
- Insurance Planning: Complete a thorough insurance discovery to ensure all personal Life, Disability, CI, LTC, and business insurance is adequate. A beneficiary audit should be provided
yearly, as this can have unintended consequences.
- Estate Planning: This aspect, in our opinion, is the most critical aspect of planning. Your wills, Poa’s, Directives should be five years current and then reviewed every two years. If one were to pass without these documents, you would be declared “Intestate,” meaning you had no instructions in place; hence, the courts would step in. It is an important decision when designating an Executor / Executrix and appointing a designate for your POA and Medical Directives. Always use a Family Law Barrister when preparing these documents.
- Estate Tax Planning: Not all assets are treated or taxed equally upon death. If you intend to provide a fair and equitable division of your assets, you should consult with your CPA, Financial Advisor, and lawyer before drafting the documents. Non-Reg investments have different taxation characteristics vs Registered assets. If you pass on, and you have a surviving spouse, your assets will roll over to him/her, unless otherwise specified in your legal documents.
- Lifestyle / Legacy Planning: While many like to give an inheritance while they are alive, you should always consult with your advisors before doing so. If you are planning to transfer
your practice, you may have competing interests. Some may want to carry on in your footsteps, some may not, hence planning well in advance is recommended.
- Long-Term Care Need: Should failure of health become an issue for either you or your spouse, how will you fund the cost of long term care? Long Term Care Insurance, Critical
Care Insurance, Your Retirement nest-egg, reverse mortgage, or sell other assets? There are cost-effective solutions available in many cases providing you are pro-active, relatively healthy, and can qualify. “If you don’t look after this now, you will pay later.”
- Housing Needs: Do you downsize, renovate to meet the specified need, buy, sell, or rent?
- Multi-Generational Financial Planning: Work with your parents to make sure they are making adequate plans for their later years. Speak with your children to ensure they are working toward financial independence and intelligence.
Four Key Takeaways
Financial security requires an investment of time and effort, something in short supply for busy physicians. Having a trusted advisor can add up to three percent (3%) increase in your wealth management portfolio over time. Three percent compounded over a twenty or thirty-years will enhance your retirement nest-egg. Work with a trusted advisor, create a plan, Start early, contribute often, and stay engaged. You will glad you did. Summary of steps to managing your financial health:
- Begin planning or, at a minimum, saving early. Understand the retirement options that are available to you.
- Cover your risks: business, life, and disability.
- Review your roadmap periodically and after all material or life-changing events.
- Coordinate your investment, retirement, tax, and estate plans to ensure desired results. Resources: Please visit https://financialcare1.com/faq/ for more information https://financialcare1.com/financial-planning-advice-for-mds-and-the-professional/