Let’s be honest… we all love learning from other people’s financial mistakes. It is like a slow-motion car accident. You just can’t take your eyes away. Money mistakes are going to happen, and we are going to discuss a few common financial mistakes that doctors make.
Common Financial Mistakes Doctors Make
Lisha and I have both made our share of financial mistakes, and some of them are very common and might resonate with you. Lisha was determined to change the world after graduation at the age of 22. She decided to move to DC and get a job changing the world. Her father tried to reason with her, but she was determined. After moving, getting a job with a small income, and paying rent for the first time in her life, she realized he was right. She couldn’t afford to pay her bills and get groceries, and that was with a roommate!
Her father had paid for her room and board at Duke, so this was all new to her. She got to the point where she had to call her dad and asked for his help. He bailed her out this time but told her she would need to get a second job. While this was a shock to her, she realized he was right, got a job working nights and weekends, and was able to pay her bills. This is the year she grew up and became an adult. The big lesson learned here was that she couldn’t always afford the things she wanted.
My Money Mistakes
Lisha isn’t the only one who makes money mistakes. I learned the hard way that not being intentional with your money and having blind faith will end up hurting you. I always had blind faith that things would work out, but never thought about how that would happen. Student loans really hurt me while I was a busy resident. All I knew about my student loans was that I would sign the forbearance form and it would go away for a year. I didn’t realize that the interest was compounding. My student loans went from $150,000 to $300,000 because of the interest.
I am an action-oriented, quick decision-making person. I spend money too quickly before I figure out the ins and outs of it. I recently made a money mistake with a car purchase. As most of you know, I am a car guy. I found a Porsche Boxster that I have been wanting and paid Carvana for it. Carvana is notorious for delaying delivery and I was originally told a week for delivery, then I received a text saying it would be an additional week, which was expected. What I didn’t expect was the next text saying that it would be an additional three weeks for delivery!
I had spent $60,000 on this car and they couldn’t guarantee delivery four weeks after. I wanted my money back and it took two weeks to process the refund. Once that was processed, they sent a check. Once you have the check and deposit it into your bank it can take a while for the check to clear. If I had done the research before pulling the trigger, I wouldn’t have been in the position of waiting almost a month to have the refund amount in my account.
While I was waiting for my refund, I found another, better Porsche Boxster GTS for about the same cost. I dipped into savings and caused unnecessary financial stress because I didn’t do the research on the front end. As you can see, you can know a lot about money and still make stupid decisions! The only kind of mistake that is bad is the one you don’t learn from.
Are You Too Trusting?
Another common financial mistake is trusting others to take care of you when it comes to your money and trusting the financial industry. Disability insurance is a must for a physician. As a 4th year medical student, I was convinced, by who I thought was a trustworthy guy, to apply for disability insurance. I ended up getting denied from Northwest Mutual because of a few medical issues.
There is a guaranteed standard issue policy that exists in training with no medical exam that I should have waited for. Because I trusted this person to look out for my best interest and he didn’t, I cannot get disability insurance. Insurance agents make money off selling policies to you. As a 4th year medical student without an income, I had no business applying for disability insurance. I had blind faith that people will do right for me. The more I have learned about the financial industry, the more I believe that if you don’t know anything about money, you are going to be taken to the woodshed by them.
While you don’t have to do it all yourself, you do need to know enough about money to know if you are getting good advice. Using a financial advisor is fine, but you need to know if they are helping you, or not. You must have an insurance agent to get insurance, but make sure they are trustworthy. When Lisha applied for disability insurance her agent asked every question that she could possibly be denied before submitting the application. The agent definitely matters. I only recommend one on my website because that is who I trust.
Financial Negotiations
Negotiations aren’t something you’ll learn in school, but it is a skill you need as a physician. Lisha had a problem with not being paid what she was worth. She would avoid confrontation and tell herself it would be ok because she is a good person, and it would work out. This would end in resentment and not wanting to do the job because she didn’t negotiate better.
We teach negotiations in Medical Degree Financial University because it is so important. This is a skill set that is required to get paid what you are worth. Practicing with mock interviews and rebuttals helps you look at it from another person’s perspective. Don’t wait to learn how to negotiate, especially if you are a woman physician. Lisha needs to be more prepared in interviews and armed with a lot of data. It is assumed they can pay her less and that she won’t negotiate, but she has learned to be prepared to walk away from a bad deal.
Don’t Do it for Free
Common financial mistakes occur without you even realizing it. Academic physicians are trained to do things for free. Being a panel member or speaking at a conference isn’t something you should be doing for free. I have been contacted to do these things with the assumption that I would cover my own travel expenses and speak for free. The first question that you need to ask is, “What is your budget?”
While it can feel like you should be doing it for free, you are being asked to speak because you know what you are talking about. It took me a while as a people pleaser to realize my worth and to make sure I get paid for speaking engagements.
Diderot Effect
Physicians are affected by the Diderot Effect more often than not. This can be a big money mistake if you aren’t aware of it. It is when you have a sudden influx of new wealth, and you spiral out spending that money without adjusting to the influx first. I was aware of this before my income increased and put rules and guidelines in place for me and my family and was able to avoid this. A lot of people don’t know about it, so can’t avoid it. The best way to beat the Diderot Effect is to live like a resident and give yourself time to adapt to the sudden amount of wealth.
Top Money Mistake Takeaways
As you can see, there are a lot of common financial mistakes that doctors make. It doesn’t mean that you can’t make great financial progress. Be intentional with your money, learn about money, avoid the Diderot Effect, and you can make fewer money mistakes. Today’s thought is that the only true mistake that can be made with money is to not learn from the errors we make.
Subscribe and Share
If you love the show – and want to provide a 5-star review – please go to your podcast player of choice and subscribe, share, and leave a review to help other listeners find The Physician Philosopher Podcast, too!
You might also be interested in…
Following the Financial Crowd
Have you ever left a sporting event, following the crowd, and suddenly realized you were walking the wrong way? What if I told you this phenomenon has a name, and it impacts your money, too?
Understanding our own behavior when it comes to finance is essential because it helps us mitigate wrong-for-us decision making around money. Unless you know these roadblocks exist, you can’t do much to stop them from derailing your financial goals.
Last week, we shared why human behavior matters for our financial lives by taking a look at the first 5 out of 10 psychological phenomena that can (and do) affect your personal finance goals: greed, fear, ego/overconfidence, loss aversion, and analysis paralysis.
This week, we’re diving back into behavioral finance (one of our favorite topics) to share five more types of unchecked human behavior that can sabotage your journey to building the wealth you want.
Greed, FOMO, and Bad Investments
Despite our best intentions, certain emotions can keep us from building wealth. After many years arming physicians with the information they need to achieve financial wellness, I had a significant realization.
Information is one thing – behavior is another.
As the saying goes, money is 80% behavior and only 20% math.
Not only do I want to share important information about personal finance, I also want to help you recognize how certain behaviors can (and do) affect your finances.
Drawing from one of the classic books about investing, let’s go over five common behaviors that could be keeping you from achieving your financial goals.
How Doctors Can Get Good Financial Advice
Many doctors and high-income professionals hire financial advisors for any number of reasons. Either they’re too busy to handle their finances themselves, they don’t really know how to invest, or they want an expert on their side to make sure they’re on the right track.
So allow me to say from the start: I’m not against financial advisors, but I am against doctors (or anyone, really) being overcharged for bad advice.
There’s no shame in asking for help – you just want to get the help you need at a fair price.
You should be equipped enough to vet and evaluate your financial advisor so you’ll know whether they’re working well on your behalf. How can you be as confident as possible they’re acting in your best interest? This episode will help you find out.
Are you ready to live a life you love?
© 2021 The Physician Philosopher | Website by The Good Alliance
0 Comments