One of the main stressors for a large segment of those working in the healthcare industry as well as most other Americans is financial insecurity, ranging from worries about paying the bills to questions about saving for retirement. But with proper planning and a dose of discipline, money woes are usually treatable and often preventable.
Our team, which has served the financial needs of many members of the medical community for nearly a dozen years, has developed a Top 10 list of money management practices to promote financial wellbeing. And with April being Financial Literacy Month, it is a perfect time to review some proven methods that should help improve most people's financial outlook.
- Live below your income level. This is not only the most important tip on this list, but also the hardest to maintain. Establish a household cash flow target and track expenses by using a program such as Quicken that can keep your lifestyle in focus and prevent cash from slipping through your fingers. Pay off student loans and focus on maximizing retirement savings before purchasing luxury items.
- Create an emergency fund to cover up to 12 months of household expenses and keep the money in a savings account or short-term CDs. The interest will not be much, but the goal is liquidity to avoid exposure to the market in case you need to access your money in the middle of an economic recession. You can also protect yourself by adding an umbrella liability rider to your home and auto insurance policies. This is relatively inexpensive and helps protect you in the event you are sued due to an auto accident or if someone is hurt on your property. It is even more important if you have children, pets, a swimming pool, boat or other recreational equipment that others may use.
- Make sure you have the proper amount of life insurance. Begin with term insurance that is convertible to whole life. The conversion choice allows you to maintain insurability while giving you the option of turning the insurance policy into an investment vehicle that could provide a source of tax-free income during retirement.
- For young physicians, the most important asset is their income and the best way to protect earning potential is through long-term disability insurance. There are many different varieties of LTD so be aware of how your policy works and if it is an "Own Occupation" or "Any Occupation" contract. The latter will typically quit paying the benefit as soon as you are able to earn a living even if that means you are in a different line of work or earning a lower wage.
It is also important to know who is paying the LTD premiums. If it is coming out of your paycheck, the benefits are tax-free. If your employer is paying, the payments could be taxable as ordinary income.
- Take advantage of company matches on funds you contribute to a retirement plan. Try to contribute the maximum each year. This "free money" will help reduce your total taxable income and maximize the effects of compounding returns. For 2017, the maximum 401(k) contribution limits are $18,000 and an additional $6,000 in catch-up contributions for those over the age of 50.
- Be disciplined when it comes to debt reduction. Focus on paying down student loan debt within a 5- to 7-year time period.
- If you have young children, consider using a 529 plan to fund a portion of their expected college expenses. This money will grow tax-free as long as the distributions are used for qualified educational expenses. Visit www.savingforcollege.com to learn more.
- Once your loans are paid off and the 529 plans are funded, pay yourself the same amount each month that you previously allocated for those expenses. This money should be placed in a taxable brokerage account for long-term growth and savings that can be used during retirement.
- Work until at least age 65. If you have been disciplined with your finances, you may be in a great position to slow down your workload at 60 or 62 and work at a reduced income or case load until 65. If possible, delay Social Security Income for as long as possible. Each year you wait to take your benefits, payments grow by a guaranteed 8 percent (this is capped at age 70).
- Work with an estate attorney to have the following documents in place: Last Will and Testament, Living Will, Financial Power of Attorney, and Healthcare Power of Attorney. These documents will ensure that all aspects of your life and estate are handled in a pre-determined manor.
A great way to put this plan in place is by enlisting the help of a Certified Financial Planner. These professionals can answer any questions related to your unique financial situation and help create a strategy that addresses your needs. Schedule annual financial checkups to review your plan, make adjustments and set new objectives.
This article was written for West Tennessee Medical News by a financial team from First Tennessee Bank (FTB). They are:
Doug Edwards, FTB Advisors, vice president and Certified Financial Planner; Ben Nicol, FTB Advisors vice president and financial advisor; and Margaret Yancey, FTB senior vice president and private banker.