Money Meets Medicine Podcast
MMM 88: Do Doctors Really Need Emergency Funds?
Physician turnover is high, specifically after the first 2-5 years of training. With doctors changing jobs so often, it is important to establish an emergency fund early on (and to consider the cost of leaving a job in medicine).
So today we wanted to dive into why everyone, including us, says you need an emergency fund, where you should put that money, what to use it for, and what NOT to use it for. We are also going to do some real talk on doing the math BEFORE you decide to either change jobs or leave medicine altogether.
Why Would Doctors Need An Emergency Fund?
Emergency funds are used for exactly that- emergencies. But a lot of doctors do not think through this process. You lose your job or have a family need where you have to change jobs. Doctors changing jobs in the first 3-5 years after training is very high. So how much to have and what to use your emergency fund for is something doctors need to be thinking through sooner.
What Is The Purpose of Emergency Fund for Doctors?
Emergency funds are a popular topic in the personal finance space because everyone should have one. We are included in the group that believes emergency funds are very important and a must have.
There are three main points you need to understand about emergency funds for doctors. First, emergency funds should always be easy to access. These funds should also be in a seperate account from your main checking account. Your emergency funds should be left alone!
Why? Because emergency funds for doctors are to provide peace of mind and cover is a true emergency. Think about the recent pandemic and what it taught physicians about the importance of being prepared for the unknown financially.
Before the pandemic, Ryan really encouraged people to put at least 3 months of their salary in their emergency fund. That was challenging for people, but turns out doctors needed. Doctors now realize that their income can change and they need to have an emergency fund.
What Doctors Should Not Do With Emergency Funds
Let’s talk about why your emergency fund should be easily accessible and where it should not be. Doctors often say, “but shouldn’t this money be invested?” No! You should not keep your emergency fund invested in the market. If things get terrible and you need to pull money out, okay. But that is not the purpose of your investments. Pulling funds should for an emergency be easily accessible.
Your investments, your primary checking account, savings for specific regular life events (vacations, home renovations, etc.), and your emergency funds should be separate. Doctors should keep their emergency funds different from everything else, and they should not be touched.
What Costs Doctors Should Consider Before Changing Jobs
One of the main reasons doctors end up using their emergency funds is to change jobs. This is because they do not realize all of the actual costs of leaving a career in medicine.
When doctors consider changing jobs, there are obvious costs, such as how many months a doctor might go without a paycheck. Or maybe you need to get specific credentials (which can take months).
There are also the not-so-obvious costs of changing jobs, and that is what we want to focus on today.
Most people in the Alpha Coaching Experience are thinking about changing jobs because they are burnt out, and we basically help them find balance within medicine (and if they really want outside of medicine).
One of the first topics we always discuss is why they want to leave their current job and what it looks like to do that. When we take a look at all of the costs, doctors in ACE are often surprised by costs they didn’t realize they would have. These costs are in their contract, which most did not read.
First, they discover the contract has a cost-share in it. Or it has a non-compete. Their contract normally has something about the cost of leaving. For example, it might take them $250,000 to get out of their contract.
By the way, if you are not familiar with your contract, you need to email your HR department right now and get a copy of your contract and read it.
The other major cost that doctors discover is something called tail insurance.
Tail insurance coverage is an interesting topic because most doctors don’t know this is a thing. (By the way, ask the question is my tail covered if I leave?) In other words, if your employer is not covering for things that happened while you worked after that you go (think malpractice suits), then you need to cover that insurance yourself. And that can be costly; sometimes, it can be twice the cost.
Medscape of 2019 reports numbers of $10,000 – $90,000 that you would need to pay to cover your tail insurance if your employer does not cover this once you leave. There may also be terms in your contract, such as, “after five years, we will pay your tail insurance.” Which seems straightforward, but say you are in year three and you just want out because you are burnt out and can’t imagine staying. Then you can start thinking about different ways to try to cover this tail insurance. Potentially your new employer will cover it? Potentially you have enough savings? But sometimes, you just get stuck in the job.
Ryan once had a pair of doctors that moved an hour and a half away but didn’t look at their contract before moving and looking at leaving. Ends up for the couple, each would have to pay $50,000 per year for their tail insurance. They also did not have any savings to cover this insurance (no emergency fund), so they were stuck communicating an hour and a half to work for years until they met their contract terms.
Emergency Fund & Tail Insurance Take-Aways for Doctors
Doctors need to save 3-6 months of expenses in their emergency fund. Your emergency fund should be zero until your personal debt is gone. Then build up your emergency fund. You shouldn’t have an emergency fund if you have an emergency to be paying down (for example, credit card debt).
Before you change jobs, make sure you understand the actual costs. Here’s an example. Say you need to change careers because maybe the family is moving.
Tail insurance generally costs approximately 200% of the expiring claims-made premium. For instance, let’s say your annual premium is $10,000. Then your tail coverage would cost around $20,000.
Cost of Changing Jobs:
- Moving Cost = $10,000
- Health-care coverage for a month = $1500 for COBRA
- Tail-insurance (avg = $21,000 for specialist x 2) = $42,000
- $500,000 @8% = $40,000
- Emergency Fund 3-6 months ($15,000 per month x 3) = $45,000
With this example, you would need access to $138,000. And look at the costs here. Can you NOT have any of these costs? No.
So if you are thinking about changing jobs, you need to think ahead and in a more holistic fashion. You can not just turn your notice in and figure it out. There are a lot of things as doctors that you need to consider BEFORE you are completely burnt out.
And if you are starting to reach burnout and considering leaving medicine, consider coaching and how it can help you fall back in love with medicine, how coaching can help you develop a money plan and mindset to practice medicine the way you want to, and not because you have to. The Alpha Coaching Experience can help. The waitlist for the next session is open now.
Doctors need to think ahead about what they want in their life and career. Consider all of the costs for changing jobs before you might be ready to go and consider all of your options to fall back in love with medicine before you decide to leave for good.
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