The other day I had a tax planning meeting with a client who is a brilliant physician. As we began to discuss his finances, I was struck by an incongruity that I have noticed in many of my doctor clients. I came to realize that all of the skills they employ to keep their patients healthy - observant, intelligent, collaborative, detail oriented, good listeners, and effective – are not being used to keep their business and personal finances healthy. There is a disconnect between the level of care they show their patients and the level of care they show their practice and personal finances.
I am not suggesting that all doctors, at all times, are poor managers of their practices and finances. I have many clients who are doing just fine. However, I have found there are 5 common financial mistakes that doctors make at one time or another.
1. NOT KEEPING UP WITH THE FINANCIALS OF THEIR PRACTICE ON A REGULAR BASIS
It is completely understandable that, given the patient workload and the time spent on HIPAA compliance, doctors have little time left in the day to oversee the finances of their practices. Unfortunately, when correct and trustworthy financial information is needed, the doctors may not be able to rely on its accuracy, leaving them unable to make informed decisions. Physicians should consider hiring professional, knowledgeable bookkeeping staff in house or employing to accountant to take care of this for them.
2. DOCTORS INVEST WITHOUT DOING THEIR HOMEWORK
Doctors seem to be fair game for people or companies looking for investors. Some may be sound investments, some may not. Often the physicians are promised high yield, and rarely does it end up that way. I am not saying that all investments are bad investments, but investments made without careful planning could trigger unintended tax consequences – and that is a bad thing. It gets even worse when the physicians choose to invest through their practices. This could cause, not only damaging tax issues, it could also lead to legal problems. I am not saying don’t invest, but do so with the right investments, at the right time, and in the right way for the best tax benefits. Doctors would be wise to consult with their CPAs, lawyers and or financial wealth managers before handing over any money. Those professionals have the skills and knowledge to evaluate the investment in relation to the financial, tax, and legal standing of the doctor.
3. DOCTORS DON’T TAKE FULL ADVANTAGE OF THEIR RETIREMENT PLAN
I have found that physicians do not take full advantage of some of the things sitting right in front of them: in this case, fully maximizing their retirement plan, if they even have one at all. Time and time again doctors have told me that they have no need to max out their 401(k) since they are saving additional money elsewhere. They fail to understand the tax benefits the retirement plan provides.
4. DOCTORS ARE MYOPIC WHEN IT COMES TO THEIR FINANCES
Many doctors don’t take a holistic approach to their capital. They divide their finances into two unrelated buckets: practice and personal, and never the twain shall meet. Both need to be looked at as one single financial unit because each has an impact on the other. Doing so will help clarify issues and provide a true assessment of the bottom line
5. NO END GOAL IN SIGHT
If you don’t know where you want to be, it is rather difficult to create a path to get there. I am always prodding my clients about their end goal. A good many doctors have no idea where they want to be. This leads to either complacency or erraticism: they either do nothing or they do a variety of unrelated, risky ventures to improve their financial standing. Both are equally bad, and both could be avoided if they only had an end game in sight. Talking with a CPA or financial advisor about this will help in setting feasible goals and the actions needed to get there.
Everyone makes mistakes and many are rather benign. However, when dealing with your financial well being, the fewer the mistakes the better.
For additional information on this topic, contact Erick Cutler at 214-635-2541.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.