Financial planning may not be what you think

Financial planning means different things to different people. To some, it may simply mean investments; to others, insurance; to others, a Swiss bank account, and a private jet. We believe that, at its roots, financial planning is simply making smart decisions about your money with your goals in mind. We’ve broken it down into six decisions you need to make about your finances that apply to you now and in the future.

1. You need to make a decision about how you earn money.

As a resident or fellow, this is an easy decision – one that’s already been made for you. You are an employee of the hospital and as such you earn a paycheck and receive a W-2 at the end of the year. Later on, you might earn income outside of your primary job or practice by speaking, endorsing, moonlighting, or consulting. How will you accept this additional income? As a sole proprietor? As an individual? As a corporation?

2. You need to make decisions about how you spend money.

These decisions involve how much you spend. What’s important to spend money on? What’s not important? What are your fixed expenses (mortgage, etc.)? What are your variable expenses (clothing, dining out, charitable giving, etc.)?

3. You need to make decisions about how you save money.

How much do you put into your emergency fund? When should you start saving? How conservative or aggressive are you with your saving habits? Should you put money into your retirement plan or save it elsewhere? Does it make sense to save first, and then pay off debt, or a combination?

4. You need to make a decision about how you borrow money.

Will you pay back your student loans quickly or over a prolonged period? What sort of repayment plan will you sign up for? If you have cash on hand to pay for a car, should you borrow money to pay for the car or use all your cash? What type of mortgage makes the most sense for you, and are the physician-specific mortgage programs an attractive option?

5. You need to make decisions about how you give money.

There are two types of giving: voluntary giving – church, charity, children; and involuntary giving – taxes and fees. How can you maximize one while minimizing the other?

6. You need to make decisions about how to protect your money.

What will happen to you, your family, and your lifestyle in the case of an accident, sickness, death, or lawsuit? How will you prepare for the unforeseeable? Financial planning involves looking at all of the above decisions and their impact on each other – both positively and negatively. The decisions you make in one area of your finances can affect all the other areas of your financial situation – they are all interconnected. Financial planning isn’t simply setting up an IRA, having your taxes done, or buying insurance. These are all important financial decisions, but individually they do not create a financial plan.

Not every financial professional is a financial planner. Do you know the difference?

Although there are only six decisions to make about your finances, this can still be a daunting task. Thankfully there are financial professionals who are able to help equip you to make the best decisions for your scenario.

John Dameron is a financial planner and partner, Spaugh Dameron Tenny. He is the author of the Residents and Fellows Financial Survival Guide. He is a registered representative of and offers securities, investment advisory and financial planning services through MML Investors Services, LLC. Member SIPC (www.sipc.org). 4350 Congress St., Suite 300, Charlotte, NC 28209. Spaugh Dameron Tenny is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. CRN202005-231302

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