The Top 4 Financial Mistakes that Physicians Make (And How to Avoid Them)

As we go through life, we try to make the best possible decisions about our money. Sometimes, though, in spite of our best efforts – we might make a few financial mistakes along the way.

Everyone falls into bad money habits from time to time, and physicians aren’t exempt from this rule. The best thing you can do is to be aware of the money traps or challenges you’re likely going to face and keep an eye out for them. Then, when you come to a crossroads in making financial decisions, you’ll be better prepared to make choices that will positively impact you both now and in the future.

In working with physicians and other young professionals, I see four financial challenges crop up consistently. Let’s take a look, and set you up to successfully avoid them in the future.

#1: Buying Too Much House

Buying a house is often viewed as kind of a right of passage. This is especially true for high-income earners like doctors and other professionals in the medical community. Buying a house that has all the amenities that you want, plenty of space, in a good neighborhood can be a costly venture. It doesn’t help that real estate agents, although they can be helpful, stand to gain a big commission if you purchase more house than you actually need (even if you can afford it).

Even though there’s a temptation to buy a big house, or even just too much house for you and your family, it pays to think small when buying a home. Living below your means could mean a lower down payment, lower monthly mortgage payments, and the ability to knock your mortgage out more quickly – and get out of debt faster as a result.

How to avoid it: Before you go house hunting, sit down with your spouse, partner, or kids, and list out exactly what you’re looking for in a home. Then, divide the list into needs and wants. Finding a home that checks all of your “need” boxes, and maybe a few of the smaller “want” boxes, and is well within your budget, should be the goal.

#2: Buying Too Much Car

How many times have you gone to the car lot “just to look” – and almost gotten talked into a new lease or purchase by the salesperson on the lot? It’s especially tempting to purchase a car that exceeds what you actually need when you look around at colleagues who are driving nice vehicles, or purchasing a new car semi-regularly.

The truth is that a car payment can inhibit a lot of other financial goals you have, like getting out of student loan debt, growing your retirement savings, saving up to start your own practice, or just enjoying the things you love most in life like travel, time with family, or your hobbies.

How to avoid it: There’s nothing wrong with driving a nice car – if you can afford it. A good rule of thumb is to save up for the car of your dreams until you can pay cash for the vehicle. It’s also wise to audit your “dream car” before signing on the dotted line. Do you actually need all the bells and whistles? Have you gone out and test driven other, similar models that may be more cost-effective? Doing a little bit of leg work to make sure you get a car that’s perfect for you and your family, and staying out of debt to do so, is key.

It’s also worthwhile to mention that, whether you’re falling into the trap of buying “too much” car, house, or something else – it’s important to dig deeper to understand the why behind that motivation. Will having more “stuff” actually leave you feeling fulfilled? Or is your cash flow better used making an impact in the lives of your loved ones, supporting your favorite local community organization, or creating a lifestyle of experiences you love?

#3: Refinancing Government Student Loans

Tracking down multiple student loan payments can be a pain, and physicians have more of them than most people. There are hundreds of loan consolidation companies out there, and it feels like several more pop up on the market each week. The solution they’re offering you is appealing: to have one, consolidated loan payment – possibly at a lower rate than you’re currently paying.

As someone who’s a huge advocate for simplifying your finances, I understand why you’d want to consolidate loans! But it’s important to remember that consolidating your federal student loans could disqualify you from repayment programs – like PSLF, or Income-Driven Repayment. You could wind up paying more over time if you consolidate.

How to avoid it: Before making any decisions about consolidating your student loans, talk to a financial planner who specializes in repayment programs for physicians, and how they impact loan consolidation.

#4: Not Understanding PSLF

PSLF sounds like the secret sauce to knocking out your student debt in a reasonable amount of time. You make a predetermined number of qualifying payments, then the government forgives the rest of your loans and you’re free and clear – right?

Not exactly. Don’t make any assumptions about the PSLF program – do your research first!

How to avoid it: Before you assume that PSLF will take care of all your student loans, make sure you double check a few things:

  1. Whether or not you actually qualify for the program
  2. Whether you’ve selected the correct loan repayment program to qualify for PSLF
  3. What paperwork you need to fill out in order to receive loan forgiveness

Don’t Go It Alone

You don’t have to navigate your finances alone – we can help. At Deerfield Financial Advisors, we work with physicians to help create a plan for their student loans, debt repayment, savings, and day-to-day money decisions. Ready to learn more? Contact us today!


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