Mistake #1: Imbalance between spending and savings.
Help physicians understand that for an investor time works like gravity. Explain that an early start on savings is like riding a bike downhill; conversely, a late start means pedaling uphill.
We physicians already get a late start on saving because of our prolonged training period and the burden of medical school debt. After all the years of deprivation, many physicians feel it’s time to live it up once training is over. It’s easy to grow into and spend any level of income.
The evolving field of neuro-economics suggests that biology may play a role in an individual’s propensity to save or spend. Some people are born “spenders” and others are born “savers.” While biology is not destiny, it takes self discipline for spenders to save—and for savers to spend. Discipline is like a muscle, and gets fatigued with prolonged use.
Here are some ways to help physicians save more:
- Automate savings. If they don’t see the money, they will not miss it as much!
- As physicians anticipate a financial windfall—whether it’s an inheritance, the transition from training to a career launch or a higher salary in a new position—suggest they plan to save a high percentage of the increase.
- Help physicians form a clear multi-sensory picture of their desired future. It’s easier to say no to something today when there’s a picture of a brighter tomorrow.
Mistake #2: Getting financial advice from the wrong people.
Physicians have the intelligence to learn to build wealth, just as they can potentially manage any patient with any medical condition.
However, physicians know that patients get better medical outcomes in the hands of specialists.
You are the financial specialist. Surveys show that physicians working with professional financial advisors are most secure about their retirement plan. Only half of physicians do so.
Many physicians turn to their colleagues for financial advice. I think of all the investment opportunities I heard about in the surgeon’s lounge. Most physicians who jumped into these schemes lost money.
One financial advisor says that one of her major jobs is protecting her doctor clients from DDD’s—dumb doctor deals.
Here are steps you can take:
- Invite physicians to ask themselves, “Do I really trust the person who is giving me advice?”
- Invite physicians to ask their colleagues, “Who helps you plan for retirement? What do you like about working with this person?” Hopefully your physician clients say nice things about you!
- Ask physicians, “How will you objectively evaluate investing opportunities?”
Mistake #3: Failing to manage taxes wisely.
You already know that proactive tax management correlates with the ability to build wealth.
You also know that CPA’s work hard to assure that clients minimize their tax burdens in any given year.
You see the bigger picture. You know that taxes will go up, and that contributions to a tax-deferred retirement account will, in fact, be taxed.
Here are steps you can take:
- Suggest to physicians that they work with a team of consultants who see the big tax picture for both today and for tomorrow.
Mistake #4: Failing to protect assets.
Physicians carry insurance on their homes and their cars. They have a medical malpractice policy. They may even insure their smart phones.
Still, many physicians do not insure their most valuable asset: their ability to generate income.
Further, they may not see how the activities of their partners impact their ability to build wealth. When a life partner over-spends, or a business partner commits Medicare fraud, the physician can pay the price.
Here are steps you can take:
- Ask physicians, “Are you prepared for the “what if’s” in life?” In addition to life and disability insurance, encourage physicians to look into an umbrella policy for the home. Have them check with their medical malpractice carrier and see if they are protected for claims arising from social media activity.
- Talk with your client about incorporating—even if they are employed. Ask, “Can you trust your colleagues to do the right thing?”
- Ask physicians, “Do you and your life partner have an agreement about how to manage money that works for both of you? Are you raising financially literate children?”
Mistake #5: Ignoring the human condition.
Nobel laureate Daniel Kahneman studied how people respond to changing markets including the 2002 dot-com bust and real estate boom. He concludes that investors make irrational choices.
Your clients make predictable investing errors. It’s part of the human condition.
If you have ever looked at optical illusions, you know how easy it is to fool the brain. Yet, even after someone proves that we have been tricked, our false perceptions persist.
Here are some of the predictable errors that get in the way of building wealth; you see them every day.
- Loss aversion We will take greater risks to avoid loss than to experience gains. That means investors take risks at the time they should be erring on the side of safety.
- Over and under reactions Investors tend to behave with optimism when the market goes up, and become much more pessimistic when the market goes down.
- Over confidence Investors tend to overestimate their ability to beat the market, and underestimate investing challenges.
- Relativity Investors see the world through the eyes of relative experience. Say to a physician, “Imagine how you would feel if someone gave you a gift card. Now imagine how you would respond if someone gave you two gift cards and took one back. You have the identical outcome is each case, but it feels much different.”
- Spending as a stress management tool Spending creates a positive feeling state through the release of dopamine. The medial pre-frontal cortex of the brain modulates this response. This part of the brain also regulates stress response. Could the growing numbers of physician on the edge of burnout be spending as a stress management tool?
An estimated 5 to 10% of Americans—including physicians — suffer from a shopping or gambling addiction.
Here are steps you can take:
- Invite physicians to observe their investing behaviors. Ask, “When do you fall into these predictable traps, and how can you avoid them?”
- Ask physicians whether they are using spending as a stress management tool. Could they think of other healthier options?
- If you have concerns about a physician’s possible shopping or gambling addiction, suggest they seek help. They are not alone.
You help your clients construct their financial futures. Educate physician prospects about known financial traps, and win the opportunity to help them build true wealth.
© 2015. Vicki Rackner MD. All rights reserved. You are welcome to reproduce this post with the by-line below.
Vicki Rackner MD is an author, speaker and consultant who offers a bridge between the world of medicine and the world of business. She helps businesses acquire physician clients, and she helps physicians run more successful practices. Contact her at (425) 451-3777.