One of my employees recently told me a story about how her now-deceased parents got married in the 1950s and lived in a one-bedroom rental in the suburbs as newlyweds while her father worked full time in a modest-paying management training program and went to NYU part time for his MBA at night. His tuition was paid for by the GI Bill, as he had served in the Army during the Korean War. The three nights per week he went to school, his young wife offered to work overtime at her job as a bank secretary. They met at Grand Central Terminal late those nights, tired and hungry.
The newlywed couple referred to their late-night commuter train rides home as the "gravy train," and so did many of their friends and acquaintances. They called it this because they knew that they were laying the foundation for a future that would not only include eating potatoes for dinner, but meat and gravy as well. They were happy with the journey of struggling to build a life together and not just the final destination, like so many people are.
We realize we all live in a world of instant gratification. However, our first word of financial advice to you is to delay this impulse now so that you can sleep better later on in life.
Too many young doctors (as well as other professionals) are enduring a sleepless marathon of rigorous education, hands-on training, low-paying residencies and other jobs. In turn, they have a tendency to reward themselves with expensive evenings out or vacations they really can’t afford.
Eventually, they find out the hard way that credit card debt can escalate very quickly. And often, it is too late at that point.
We have served many in the medical community over the last 20 years, so we know how grueling a doctor’s training and career can be. But we think that some small part of you must have chosen this career so that, later in life, you could sleep better at night, knowing that what you endured would result in financial security for you and your family.
Providing eventual financial security for your family means that you will need the willpower to say no to the trappings of a "doctor’s lifestyle" (fancy cars, dinners out, expensive homes, etc.) early on in your career when you are still paying off your student loans and are only making a modest salary or starting a practice.
In addition, "riding the gravy train" may mean that you and your spouse or significant other try to avoid being in medical/graduate school, or having a low-paying residency or entry-level job, at the same time.
We know that sometimes this is impossible, but if you can develop a long-term perspective in terms of financial planning, perhaps one of you is willing to delay further schooling or a low-paying "apprenticeship" until the other partner is able to start working a decent-paying, full-time job.
This will help you minimize the burden of the student loans you will have to pay off. If one of you is always working, there is less of a need to borrow money for living expenses in addition to tuition. Fewer student loans translate into less interest paid over time and therefore more wealth accumulation in the long term.
Planning ahead and making these additional sacrifices means you and your partner will be that much closer to having the discretionary income you desire as well as true financial security.
While we are discussing loans, we are not just referring to student loans. For instance, who said you have to purchase your first home by 30 or 35 years of age? If anything, we now believe that home ownership, as an icon of the American Dream, should be reconsidered.
Today’s unprecedented economy means it is much more difficult to bet on real estate as an asset. The real estate "bubble" has burst across much of the country - in part because properties had become artificially overinflated as well as the fact that young doctors, as well as many other people, were able to obtain mortgages for little money down.
For many young doctors and other professionals, the smart choice now may be to rent for a longer period of time before purchasing a home. When you are tempted to do otherwise, just think about my employee’s newlywed parents who grew up in the Depression and were willing to live in a one-bedroom rental for a decade - with a dog, two children and a third on the way - before purchasing their first home.
Another challenge doctors have is that they are often reluctant to ask for help. Perhaps trying to prepare your own taxes, fix a plumbing problem or write your own will may not be truly in your own best interest. Instead, seek out the experts. It is also important to consult the appropriate people when it is finally time to buy a home or when it is time to start up your own medical practice. Doing so may not only spare you angst, but also save you money in the long term.
A long-term vision regarding taxes, finances, legal advice, etc. is also important because addressing the "big picture" is more likely to optimize your wealth over time.
Not all service providers are able to provide the same quality of service to a particular person or family over the course of a lifetime with so many variables potentially changing.
Young physicians may only hire an attorney if they need something right away (like a will) and don’t think through the attorney’s qualifications and whether or not he or she is a good fit for the long term. Other common scenarios include young physicians only buying a financial product or service when a salesperson calls and coerces them into doing so. The end result of this, over time, could be a hackneyed collection of investments lacking any kind of long-term vision or strategy. This approach does not result in true wealth optimization.
Another common mistake that many young doctors make is to think that they are immortal. Instead of spending money taking your spouse and children on expensive vacations, you need to make sure that you have adequate life and long-term disability insurance.
The consequences to your family, should you prematurely die or become disabled and are ill-prepared, would be devastating, both financially and psychologically. Ensure that your spouse does not lose sleep thinking "what if?" and does not needlessly suffer financially if the unexpected does happen.
Riding on the "gravy train" means having a longer-term vision that includes discipline, teamwork, planning for the future, asking the right expert for help at the right time, and having the courage to address the "what ifs" before they actually happen. Doing so will keep you on a steady course and help you avoid many of these common financial problems.
- - - - - - - - -Steven Abernathy is the founder, principal and chairman of The Abernathy Group II. Brian Luster is a principal and co-portfolio manager of the Abernathy Group II. The Abernathy Group II (abbygroup.com) is a Registered Investment Advisor (RIA) and is one of the oldest investment firms in the nation devoted to the medical profession. The Abernathy Group II runs a Growth Fund and a Physician Family Office.