Whenever I discuss matters of money and business with medical students and residents, I‘m surprised by the responses: “Zilch, nothing,” or “Are you kidding?”  Sadly, our doctors-in-training still receive little to no education in this arena.

There’s a stigma surrounding physicians and money, based largely on fact, which has become a beacon for all sorts of disingenuous, exploitive people who view doctors as over-stuffed pinatas, belly-full of money, ready to be bludgeoned and drained.

This stigma is epitomized by the adage — and no doubt many of you may have heard this: that “MD” really means “Money Dumb.”  Unfortunately, this is a truism for many doctors.

Following has been my financial guidance not only for docs-to-be, but for my own children and any other young person willing to lend an ear on matters of money:

First of all, you must personally take ownership of your own financial well-being.  Nobody will do this for you.  Financial well-being depends on wealth-building, and the game of wealth-building requires sound strategy — you must play good offense and good defense.  Good offense is working hard to earn a good income.  Good defense is even more important—save regularly, invest prudently, don’t overspend and avoid debt as much as possible.  Doctor’s for the most part play good offense.  It’s the lack or complete absence of defense that kills them.

Every dollar you save goes to work for you.  Think of each dollar saved as an employee, one that works for you 24/7, who never sleeps, never takes a break.  That employee is earning you money while you’re sleeping, working, sipping margaritas on the beach or sitting on the can.  Accumulate enough of these little employees, and they’ll eventually finance your entire lifestyle.

Albert Einstein and Warren Buffet extolled the wonders of compound interest.  The former said it is “the eighth wonder of the world.”  The latter used this powerful concept over the long-term to become one of the richest people in the world.

Compounding growth is wonderfully logarithmic.  Take advantage of this early, save and invest your money regularly and watch it to blossom like an epidemic.

The key is to buy real assets.  Think of an asset as a business that does not require your presence, does not require additional work on your part to generate money.  The best investments are one’s where you’ve done the due-diligence beforehand, afterwards freeing your time for more meaningful pursuits.  Once you buy it, you ought to forget about it.  Think long-term.  The asset should work for you, and not you for it.  You’re already working hard enough as a doc — don’t add more unnecessary work.

Don’t include “false assets,” such as jewelry, artwork, and collectibles such as your “rare” Beanie Baby collection in your personal balance sheet; you’ll only create a false sense of security by artificially inflating your net worth.  Besides, if you were in dire straits, are you really willing to part with heirloom jewelry or hock your Beanie Baby collection for pennies on the dollar?  Think of these items as personal belongings and not assets.  Likewise, don’t include cars, boats, electronic toys, etc., since they continually devalue.  They’re more like liabilities anyway, as they aren’t making but continually costing you money.

Warren Buffet said you’re better off investing in an index fund.  Yes, coming from the value investor who chooses his stocks carefully, Buffet believes the average investor is better off with low-cost index funds.  You’re broadly diversified over a large swath of companies and thus do not need to do a ton of research nor hover over the investment diligently afterwards.  And index funds are a good way to start.

Start now, when you’re young, even if you have a mountain of student loans.  Save and invest regularly and let the power of compounding work for you.  Even as little as $50 or $100 a month into an index fund will lead to an enormous nest egg over time.  This approach, known as dollar-cost averaging, avoids market-timing and buying too much when stock prices are giddily high, a trap into which many investors fall.  Saving and investing regularly is part of your defensive play.

The other arm of your defensive strategy is to control spending and limit additional debt.  As their careers blossom and they’re playing good offense by making money, doctors often fall into the trap of overspending, buying obnoxiously large “dream” homes, expensive cars, vacation homes, fancy boats, etc.  It’s a financial death-trap.  These will continually drain you of money, forcing you to work harder or longer.  Do you really want that?

Americans, in general, save little compared to other industrialized nations.  In some years the average U.S. savings rates were negative, meaning we spent more than we were earning!   In my early years of practice, I saved 10% of my gross income even though I had over $150,000 (1990s dollars) in student loans.  I put most of my money towards loans but still saved regularly, spread over retirement and non-retirement accounts and investment accounts for my two young kids.  Tough times for certain, but doable.   This was a balance of saving and debt-reduction.  Once the loans were paid, the savings rate went up to 25 to 35% of gross.

You can do this too.  Control your spending and realize many of our “needs” are actually “wants,” the danger being the more a “want” is satisfied, it becomes a “need,” which then becomes a habit, and habits are hard to break.

Over time your balance sheet improves as your assets grow and your liabilities diminish, and you’ll find your investments are generating substantial cash.  You can then buy luxuries.  Keep in mind many first-generation millionaires bought luxuries after they’d become wealthy.  And often they avoided luxury items even after accumulating millions in net worth — they simply weren’t interested in that type of lifestyle.  Don’t fall into the trap in which many Americans find themselves — buying into a luxurious lifestyle before they’re wealthy, with interest-costing debt, working harder to generate more money to sustain that lifestyle.  Don’t be a slave to luxury, for the quality of your life will suffer accordingly.

Besides, luxury is really not the ultimate goal of wealth-building.  There will come a time when you’ve amassed enough money where supporting yourself and your family is no longer the primary purpose of work.  This peace of mind can be wonderfully liberating.  Your reasons for work (or not to work) are agreeably changed and your quality of life enhanced.

Don’t find yourself in the “money dumb” society.  Naturally, learning about business, investing and money requires time invested on the front-end, but the returns are multiplied on the back-side.  You’ve done this already for your medical education, having spent tremendous time and treasure and enduring years of delayed gratification.  Don’t blow it now by squandering money and not properly securing your financial future.  Use that same discipline, that same grit, and determination that got you to where you are now to improve your financial IQ.  In doing so, you will find your way towards a richly rewarding future.

Randall S. Fong is an otolaryngologist and can be reached at his self-titled site, Randall S. Fong, as well as his blog.

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