As a doctor, your salary is on par with some of the most prestigious professionals worldwide. What you do with your paycheck determines your future, though.
You’ve heard of physicians who retire with a hefty nest egg and those who go bankrupt midway through their careers. You’d rather be the first kind, which means you must maximize your savings.
The key is in your financial planning steps. Experts suggest your portfolio includes asset protection and streams of income-building avenues, which you can accomplish with these four tips.
1. Knock Out Your Debt
Many people think they need to have a healthy savings account first, then tackle their debt. From a financial standpoint, the opposite is better. If your income is stable, paying off your interest-bearing debt is a better use of your resources.
Skeptical? You’re not alone. Let’s look at the math and prove to you why you should knock out your debt before building your savings.
Make a list of all your bills that have interest accruing. If you log in to your account for each of them, it will show you the APR (annual percentage rate) you’re paying on those bills, as well as how much you’ll pay in interest by the time the loan/credit card is paid off.
Doing the Math
The average American has over $57,000 in debt at any given time between mortgages, car payments, credit cards, and student loans. We’ll start simple and break down a $1,000 credit card payment with a 19.99% APR using this credit card payment calculator.
Doing the math, if you were to make minimum payments of 4% ($40) on your card, it would take 74 months to pay off, and you’d pay over $560 in interest.
Increasing the monthly payment to $100 instead of putting the extra $60 into savings makes a big difference. You’ll have the whole card paid off in 32 months and only pay $185 in interest, saving $375 in interest fees.
How much could that $60 earn you sitting in a savings account for 32 months? According to this savings calculator, a savings account with a 7% return will earn you $184 in that time (2.7 years).
Now, do the same math for all your interest-bearing loans and see how paying them off instead of putting money into savings can make you money.
2. Start Saving ASAP
Notice that we didn’t say, “Start saving young.” Yes, the earlier you start, the better. But if you’re pretty far into your career and you’re just realizing the importance of building your savings, it’s not too late.
Get those interest-laden debts paid off, and then start putting what you had been paying toward bills into your savings account and portfolio. Since the money was going to debt anyway, you won’t miss it.
3. Build a Diverse Portfolio
You’ve heard the saying, “Don’t put all your eggs in one basket.” This is particularly true when it comes to finances, as evidenced by the past Great Depression and the dot.com bubble. No matter how exciting a possible venture looks, never use it as your sole investment.
Your portfolio should have a mix of asset protection and revenue-bearing accounts, such as:
- Cash/Cash equivalents
- Insurance policies
Yes, insurance policies are an aspect of your portfolio. They won’t earn you revenue, but the right coverage protects your assets in an expensive emergency.
4. Check Your Insurance Policies
When was the last time you reviewed your insurance policies? If it’s like your credit card bill, you probably haven’t looked at it since you first took out the plan. If so, you could be paying on a policy that hurts you instead of maximizing your savings, especially if you’ve had life changes since the insurance began.
Look at the coverage in all of your policies. Is it enough to take care of your family, health, and assets? Is it too much? Decide what you need, then compare what you’re paying to the average rate for each of them. You may be better off adding extra coverage to limit your personal liability.
Chances are, you have the basic policies: health, auto, and life insurance. As a physician, you should also carry disability insurance. Physicians Thrive explains the different types of coverage offered by top insurers and why this protection is essential for doctors.
Paying on insurance policies can seem like a waste of money that could be going into your savings. But when something happens, like a car accident or a catastrophic health event, that policy is the buffer between your expenses and your assets.
Ready to maximize your savings? Start by paying off your debt, then sock those payments into a diverse financial portfolio. Ensure your asset protection in the form of insurance policies are in order, and you’re on track to a healthy nest egg and happy retirement.