Although they have substantial education under their belts, doctors aren’t always schooled in financial literacy. Because their income is higher than average, they’re vulnerable to making mistakes in spending, saving, and managing their money.

This lack of knowledge isn’t always because of poor choices. Doctors rarely receive financial education during medical school, and they often graduate burdened with extensive student loan debt. 

Combined with societal expectations of a high-income lifestyle, it’s no wonder physicians make high-dollar mistakes before seeking professional advice. But, armed with this knowledge, you can learn from their actions and avoid these 3 common financial errors.

Mistake #1: Skyrocketing Their Lifestyle

If you were like most med students, you’ve just gone from living a scarcity lifestyle to earning a four-figure or higher paycheck. Understandably, you want to reap the benefits you’ve missed out on during your resident years. However, jumping right into big spending doesn’t give you time to adapt to the disadvantages of a large income.

Lifestyle inflation, or “creep,” happens when you’re trying to keep up with the spending habits of those around you. Other physicians who have been in practice for years may have big houses and fancy cars, but you are just getting started. 

Buying a house or car right now might mean overspending on things you don’t really need, but are stuck paying for, with most of your income going towards your residence or vehicle. Take some time to adjust to your new career and the income it provides. Consider living the middle-class lifestyle for a while and keeping your current car or upgrading to the next level (rather than jumping a few classes). 

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Mistake #2: Not Planning for Taxes

Spending too much of your paycheck leaves you vulnerable to unexpected expenses, like taxes. Since you make more money, you fall into a higher tax bracket. A significant portion of your income could be lost to taxes if you aren’t strategic about deductions and investment accounts.

If you’re working for someone else, you likely have a retirement plan set up for you. Your employer may match your contributions dollar-for-dollar (up to a maximum), so be sure to take advantage of that “free” money. Not only does this increase your retirement investment, but it also reduces your current year’s adjusted gross income. 

Talk to a financial advisor about other ways you can invest, deduct, or charitably contribute to reduce your tax burden before it sneaks up on you.

Mistake #3: Skimping on Insurance

Insurance is one of those expenses we don’t realize we need until we need it. Due to its passive nature in the background and the associated expenses, many doctors prefer to invest in the bare minimum of insurance coverage. This decision can be dangerous for many reasons. 

As you shift into this new, higher-income lifestyle, be cautious not to make these mistakes with insurance:

  • Auto: Taking out the state’s minimum policy. If you’re at fault in a car accident and the injured party finds out you’re a doctor, there’s a good chance they’ll sue (see the “deep-pockets” doctrine). You want to be as protected as possible.
  • Malpractice: While your liability insurance premium may already be hefty, it’s important to have the highest coverage possible and be aware of any gaps. Tail coverage can protect you if you switch insurance carriers.
  • Life: Your employer’s term life insurance coverage probably isn’t enough to handle your new economic status. Look for a whole life insurance policy with a higher death benefit, and watch for exclusions that could affect you and your family. This article by OJM Group explains what exclusions to watch out for in life insurance.

Between these policies, plus your health insurance, general liability, cyberinsurance, and other “must-have” coverages, your expenses may be insurance-heavy. But all of these plans are important — and if you don’t have them when you need them, you’ll see why skimping on insurance is a big mistake for doctors.

Conclusion

From your student loan to your daily expenses, as a doctor, you’ll naturally have a lot of creditors who want their share of your income. The best way to protect your assets is to be informed. Educate yourself financially almost as thoroughly as you did medically. Work with wealth management advisors, and, until you know what you’re getting into, slow down your spending, and you’ll be a physician financial success story.