So in our last two posts on Financial Plans, we discussed:
1.) Forming an Objective seen in this post.
2.) We then described forming a personal financial plan in this post.
Today, we are going to review Financial Plans of actual Healthcare Professionals.
First and foremost, I want to thank all that sent me their financial plans. I assure you getting someone’s financial plan is no easy feat. Most people are very protective over sensitive matters such as how much they earn. Many of the individuals included in this post are friends/colleagues that did a favor for me. While their identifies will remain anonymous, most of them truly believe that we need to start being transparent about these matters. The reason they have opened up about their personal finances is because they believe it will help equip you the reader/student learn how to set yourself up for knocking down your objectives and ultimately financial success.
Recall, as I had suggested all of you to write down your Objective and time frame including Gross Pay then Fixed and Variable Expenses by line-item. All of the professionals’ financial plans are formatted like this below:
Business
Administrator
Here is an example of a guy that is wanting to start a business in two years. However, he realizes that in order to start-up the business, he must have $50,000 in capital in two years. No easy feat. As others that have objectives that require a lot of capital, wrenching down expenses is crucial. This is a good friend of mine and this example is from not too long ago. He has actually started up the company, and was able to ratchet down his costs even more than budget so that he came out saving the $50,000 two months earlier than planned.
Clinical
Doctor of Physical Therapy
This is an example of a young person making pretty great income at their age. I know this individual well, and they follow Dave Ramsey’s debt-free lifestyle. He got married two years before he landed his job, and wanted to pay off his student loans aggressively. His budget shows an aggressive approach investing 20% of his income into student loan payoff will yield him only two years before he can pay off all his student debt.
His rationale is that he will never be able to find an investment that will yield him greater than 6.8%, which is his interest rate for student loans. So he figures his best investment is to pay off debt. I want you to realize that paying off debt can be seen as an investment strategy. In later articles we will discuss different forms of investing and investing strategies.
Nursing
This person is making fairly a solid income for their age. Their budget appears to be pretty sound. I think there would need to be some changes in the wedding allocation as they will be $600 short by the two year horizon with wedding at $600/month ($7200 x 2 years = $14,400). This person has a lot of potential to accumulate wealth if they control their expenses reallocate their budget more aggressively to pay off student debt earlier and start investing aggressively. We will discuss investing further in this book. Realize that at 28, this individual has a solid 35 year time horizon for wealth-generation.
Physician Assistant
Now here is an example of great budgeting. This individual is on track to have $966,000 by the time they get to 65 years of age when they plan to retire. I know this individual well and she makes her money work for her. She would not disclose how much she has saved up to date, but I assure you it is greatly over the $34,000 needed to get her over the $1.0M mark.
This individual is actively putting nearly 46% of her earnings into retirement. While, not all of us can do this, this is what we need to strive for. Given that the individual lives within her means and by looking at the budget, you would think she lives a rather frugal lifestyle. I assure you that is not the case. She has a modest discretionary fund and has $3600 for vacations a year. Likely, more than you and I!
If she can continue living within her means, she will be quite wealthy at retirement.
I have worked with many Nurse Practitioners and many have similar income structures +/- 20%. You can utilize this budget as an example for your own.
Neurosurgeon
After talking with this Neurosurgeon, he disclosed that he was using a Financial Advisor but had not included the cost of the Advisor in this plan. Many professionals utilize the help of an Advisor. However, I will say just this, there are good advisors and bad advisors. Do your due diligence before picking up a financial advisor. I believe that information is at our fingertips and everything you want to learn about personal finance/investing can be found on the internet. I am a strong proponent of Bogleheads, an investing forum.
Looking at the Neurosurgeon’s financial plan, I wonder if he can cut back on his living expenses to increase the rate of saving for his objective. For example items like Car/Gas expensive seems really high. He is saving nearly 20% of his gross for retirement purposes which is really good, too. I would be a bit more aggressive at his stage (closing in on retirement) and decreasing living expenses. I also wonder how much money he could save if he applied some of the common principles as opposed to paying a financial advisor. We’ll talk about if a financial advisor is right for you, their cost structures a little bit later.
Pediatrician
I notice that this individual is living very tight in terms of variable expenses. They don’t go out often and splurge money, which is great given their objective. This individual has a bit of an interesting story. They used to reside in a large metropolitan city in the East Coast. Given her debt load, her and her husband decided to do something drastic. Their dream was to have a home in the next few years so they moved to a rural city where the cost of living was nearly 30% less than in the city.
For her, living on a tight budget had never been an issue since they had to on the East coast. However, their lifestyle has changed for the better by relocating.
My only takeaway point is that I think this individual is doing well in terms of saving for a mortgage. If they maintain this budget, they will be more just over $60,000, or $10,000 over their objective of a $50,000 down payment for a mortgage in the three year horizon.
I think however, that this individual should be a bit more conscious about retirement. With a horizon of 25 more years of working before retirement, they should consider this being a focus and reallocating their budget once they achieve the mortgage down payment.
It is critical to realize that this is not a static process. Once objectives are completed, move on to other goals and reallocate your budget.
Medical Resident
I have advised this indivdual to live somewhere cheaper. Now depending on where you live, $750/mo may leave you in the hub of murder capital, so there can be variability here. I would also advise tightening up the discretionary items like entertainment and miscellaneous into retirement/investment. If this individual could ratchet down those two items, they are sitting on nearly $400+/month on retirement, not shabby at all that early in the game (29 years of age). Also, I want you to notice that this individual will need to control every expense that they can. “Going all out” is crazy, they barely have any available cash for investment or on-hand cash after the month. Getting wealth involves pinching your dollar, but also having available capital when the right investment comes.
Take a look at some of these tables. Study them. One day you may be like one of these professionals and many of you have or will have similar objectives as these individuals. Realize to be successful financially, requires a well-mapped financial plan along with a realistic objective.
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