Author: SmartMoneyMD

Trialing FIRE during a pandemic?

Trialing FIRE during a pandemic?

With the ongoing COVID-19 pandemic in Q1 and Q2 2020, many businesses have been forced to furlough or even lay off employees.  The government is slowly implementing rollouts to help medical practices weather any lost business, but none of this is likely to be sufficient to replace the revenue that was lost before worldwide economic disruption.  Many employed physicians are taking salary cuts, owing to the essential cessation of elective treatments and office visits until further notice.  The bottom line is that everyone is getting hit hard, except for maybe those essential businesses that are jam-packed with customers.

Disrupting the routine
Many physicians are being furloughed by their employers simply because there isn’t enough work to be done.  Are people having fewer hospital admissions?  While the real answer to this conundrum probably isn’t too straightforward, this change has been tough both financially and psychologically.  Just ask anyone who recently retired from their jobs after several decades of grinding away.  How do they fill their time? How many hobbies can one simply adopt and how can someone just switch gears suddenly? 

We can always play pretend until the real thing happens

Getting furloughed is a huge problem if you are dependent upon your job for income and survival.  Just speak to anyone who has ever been laid off and has a family to feed and debt to be repaid.  For this reason alone, all new medical graduates should strive to build a financial buffer in case income stream is disrupted.  This also means that even if their first job out of residency doesn’t live up to their expectations, they need to strategize a Plan B while maximizing their savings.  It is always best to develop good financial habits before financial turmoil.

Transitioning to early retirement
If you have been furloughed and are nearing financial independence, now is the best time to test the waters.  You’ve saved up your entire career thus far, but how are you going to pay your bills? There are plenty of options to withdraw from your net worth, but ultimately it depends on how you can minimize your tax bill:

  • Early withdrawal from 401k or IRAs
  • Cash out dividends only
  • Sell stocks or bonds
  • Real estate income 

This is not a one-size-fit-all game plan. Some people have a spouse who may have income or provide health insurance coverage.  But if you are furloughed, now is the time to assess your exit strategy.  
Pandemic simply an impetus to improve financially?The fortunate aspect of being in the medical field is that we are always needed.  Broken bones need to be repaired.  Heart disease needs to be treated.  The bulk of healthcare will re-emerge when the dust settles.  We might end up practicing medicine in an entirely different manner, our incomes might go down, but we still possess a useful still.

Those doctors who are furloughed or taking a pay cut during the pandemic will hopefully be brought back and be busier than before.  But just remember that getting your job back is no excuse to ignore your finances.  Consider all of this a wake-up call.  Use this opportunity to get yourself in a stronger financial situation. 

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Furloughed physicians during the COVID-19 pandemic

Furloughed physicians during the COVID-19 pandemic

Unemployment is at its relative peak in recent U.S. history, as of March 2020.  Non-essential businesses are being asked by local governments to close.  Most restaurants have closed their dining areas and resorted to delivery and carry-out orders only.  Those who are fortunate enough to work at home can remain employed.  Hospital-based physicians, on the other hand, are now in critically short supply.  Several New York City medical schools are now allowing some of its medical students to graduate early simply to help out on the wards.  Current critical care and emergency room physicians, as well as critical nursing staff are stretched thin—many of working longer shifts and spending less time with their families.  

Some physicians have self-quarantined from their families to minimize risk of disease transmission.  Imagine showering the hospital at the end of your shift before going home or having a part of your home cordoned off.  Critical times call for critical measures.

The opposite side of the spectrum
Now there are plenty of physicians who are not on the front lines, namely those who work in elective treatment settings.  You guys know who you are, and there’s no denying the facts:

  • Family practice physicians who specialize in medical spas, and laser fat removal.
  • Anesthesiologists who run infusion clinics—think plasma or vitamin infusions, not disease-altering treatments like chemotherapy or immunomodulators.
  • LASIK surgeons
  • Plastic surgeons specializing in purely cosmetic treatments.
  • Dermatologists who specialize in boutique, cosmetic practices.
  • Otolaryngologists who specialize in cosmetic rhinoplasty. 
  • Physicians who run CBD or medical marijuana dispensaries (elective or non-elective depending on your opinion).

If there are any physicians out there who have medical businesses that are considered elective or non-essential that I’ve left out, please mention in the comments?

These are the medical businesses that are likely to be closed at this point.  As healthcare workers, we need to do our part in conserving supplies and personal protective equipment (PPE) for those who need it.  Patients also need to be aware that by not seeking non-essential services, they are helping out the social distancing goal.

Are the ancillary physicians unemployed?
Physician business owners who care for non-urgent conditions are experiencing a dip in business across the board, if they aren’t completely closed for business.  This means no income and tough decisions whether to furlough staff or lay them off completely.  There are certain governmental acts like the CARES Act to help out small businesses, but there is still is substantial financial sting for everyone. We currently do not know the extent that COVID-19 will impact businesses.

You might also like: Financial serenity in the midst of turmoil

Physicians who are employed by hospitals or medical groups are experiencing financial woes as well.  Some hospitals are covering the physician’s salaries despite the decrease in business.  Others are reducing salaries accordingly or coercing its physicians to “cash out” their PTO.  Some groups have even closed departments until further notice and laying off all of its employees.  Ouch.

Early retirement would be nice right now.

How to survive financially without income
Now would have been a great time to be financially independent.  Your medical practice was simply a source for ancillary income, and now you can realize early retirement. End of story.
Most of us do not have the luxury to call it quits.  Some of us still have loans, mortgages, child tuition, and other bills to pay.  Now is best time to reassess our savings, expenses, and modify our financial strategy. Are you having difficulty making payments?  Can you end your lease on your luxury vehicle early? What about consolidating some bills using those zero-percentage interest balance transfer offers you get every week? These are decisions that I hope no doctor or high-income professional will ever have to make, but an economic crisis is a good enough reason to try to improve our financial situation. Once the dust settles, we will be in a better spot than before.

What financial strategies are you implementing to weather the financial downturn?

Financial serenity in the midst of turmoil

Financial serenity in the midst of turmoil

As of March 2020, the COVID-19 pandemic is still ramping up in the United States.  Testing measures are slowly ramping up, so we’ll be expecting more of a jump in affected individuals over the next few weeks.  It’s important for all of us to do our part and limit the rate of transmission so our healthcare facilities do not become overwhelmed.

Obviously the stock market and economy is taking a nosedive.  Some people might even say that it’s a bottomless pit.  Will it be the worst in history? Does that even matter?  The healthcare sector will always need doctors, but this doesn’t mean that our incomes won’t take a beating.  Many of us still have loans, mortgages, and bills to pay.  The 10% drop in our investments will hopefully recover by the time we retire, but the red down arrows on our statements still hurts.  However, now is the time for us to reassess our financial plan and ensure that we are making appropriate choices.

Focus on what you can control
Remember, I’s and O’s—that’s all there is to it. Renal function, net worth…it’s one of the same.  You can control how much you spend.  This is where having a recurring monthly lawn bill of $1000 (yes, that is more common than you think), cellphone and internet bill of $600, and $150 per dog grooming bill is going to start hurting you.  Sure, it is doable if you have multiple income streams from your rental properties, but what if your tenants start to default on rent? What if your plastic surgery aesthetic center drops its volume by 90%?

Find peace in world of turmoil.

This is where ultra-savers butt heads with the ultra-earners.  There are people who would prefer to clip coupons rather than find ways to increase income to get rich.  Guess what? You could do both.  Sometimes there are no coupons in the weekly mail, but there is someone waiting to give you their money.  When no one is waiting to give you their money, clipping coupons is the only option.
Now is a good time to assess what our expenses are and decide how modifying them would impact our daily lives or our financial future.  I dislike nitpicking on details that might not make a long-term difference, but many of us are also working in the front lines are also at greatest risk of developing illness from our jobs.  If we are sick and can’t do our jobs we will not have an income.  It would behoove us to reduce our recurring costs in the short-term if that will provide a sturdier financial buffer.

Stick to your financial plan
When a large percentage of your investments go to pot, it’s normal to want to change the plan.  However, selling your stocks at the bottom of the market or selling your real estate in a buyer’s market is the easiest way to lose the long game.  There is no reason to sell low unless you are cash-strapped and have no other way to pay your bills.  The more level-headed approach when there is global financial downturn is to review your financial plan.  Now is the time to rebalance your portfolio if the change exceeds your thresholds.  If you don’t have a financial plan, now is the best time to create one!  If your tenants are asking for deferred payments, figure out what is reasonable in order to make the situation work.  You don’t want them to default, but you also don’t want to go bankrupt being a nice guy. 

Now is also the time to negotiate with your creditors too, especially if you are a small business owner.  If you own your medical practice, now is the time to see what your landlord can do for you in times of financial crisis.  As a doctor, you are likely going to be the most reliable tenant the landlord will have.  They should do whatever they can in order to help you out.  Likewise, now is the time to see what loans you can defer, what vendors you can postpone payments (electronic health record, maintenance…etc). 

Ride the wave

The winner is always the last person standing.  Remember that these economic troughs will eventually become a peak.  The game plan is to outlast the trough.  

Stay safe everyone!

Pandemics, hoarding, and the human psyche

Pandemics, hoarding, and the human psyche

Having a level mindset in times of angst is always a good skill to have.  Fortunately in the last century, there have only been a handful of events that have stressed the world’s economy to cause widespread concern.  9/11 is one of those more recent events that come to mind.  Other major natural disaster events like the Haitian earthquake and the tsunami in Japan that resulted in a nuclear power plant meltdown both resulted in significant angst among the region affected.  Those who were not directly impacted (myself included) simply donated to a relief organization or did nothing at all.  Did those events affect the world’s economy? Yes, but not necessarily to the extent that huge numbers of people end up losing their jobs or livelihood.
Fast forward to the year 2020.  The world is talking about COVID-19, a real modern day pandemic.  Perhaps this virus will go down in history as the most widely known and literally widespread infectious disease in the last century.  I’ve medical colleagues who had no clue what MERS did back in 2012, but the severity of COVID-19 has at least made them acknowledge that there is a problem.

FOMO
People, by nature, don’t like missing out on the action.  It doesn’t matter whether the action is free.  If the local ice creamery is giving out free ice cream, you’d bet that there will be a line.  It doesn’t matter if the wait is an hour in the blistering sun—there will be people (myself included) who would consider lining up for it.  Likewise, we’ve all lined up waiting for restaurants too. It doesn’t have to be the newest steakhouse on the block or the newest sushi bar in town either—even fast food chains can have long lines.  Sometimes the allure of long lines actually conveys to customers that the food is worth waiting for.  You be the judge of how long one should wait in line for a good hamburger.

Take a little betadine along with your morning coffee!

The COVID-19 pandemic of 2020
There’s no missing out on COVID-19.  It’s widespread, high contagious, and without direct treatment.  Governments have been rolling out mass testing with various degrees of success.  More importantly, the consensus is to avoid social contact.  This does not decrease the total number of people that will ultimately be infected, but spread out the number of infected individuals over a longer span of time.  By reducing the rate of transmission we can hopefully reduce the burden on the healthcare infrastructure, and hopefully decrease the mortality of disease.

Social distancing implies that we should avoid social gatherings and minimize time out in public spaces. This includes restaurants and even grocery stores.  

How many weeks of toilet paper should one stock up on to weather the novel coronavirus? It’s interesting how panic buying comes into the equation when there is even a hint of scarcity.  Milk, eggs, bread…many of these staple items are now consistently in short supply as of March 2020.  As certain restrictions, social distancing mandates, and quarantines occur, how much people decide to hoard will be fascinating to observe.

What goes on in the human mind

Much research has been conducted on human behavior.  Instinctively we are programmed to survive, even if it means being selfish.  We are definitely seeing instances of selfishness in human behavior during a stressful time in our lives.  We are also seeing acts of selflessness in the world too, with healthcare workers putting their own lives at risk to care for others, and many corporate entities contributing significant resources to supplies and manpower to fight the disease.
It will be interesting to see how the economy and society will play out over the next few months.

Stay safe and wash your hands everyone!

The real financial cost of taking research years in medical school

The real financial cost of taking research years in medical school

About 15% of my medical school class decided to take at least one research year during medical school.  This was in addition to the 8% of the class who enrolled as MD/PhD candidates, the five who already held PhD degrees before enrolling in medical school, and another two that I know of who ended up obtaining a PhD after medical school.  Roughly another 3% spent extra time during residency or fellowship to conduct research.  Based on these figures, one could conclude that my medical school was heavily research oriented.

The majority of medical schools don’t graduate students with such high frequency of extended academic training, and most medical students aren’t going to be interested in a career in research either.  There are plenty of doctors who have a PhD degree who also practice strictly clinical medicine, and many who hold many research grants without ever holding any additional advanced research degrees.  
What isn’t really a surprise but often gets neglected when future doctors make career decisions is how their financial future is impacted by extending their education.

Time is money
We all understand that the longer that we have investments into the market, the more likely it will have time to grow.  This finding has been modeled repeatedly in the financial world—if you invest while in your twenties, you will likely have a greater net worth than your counterpart to only starts in their thirties even if she can save twice as much.  We frontload our Roth IRAs and 401ks for the same reason.
Delaying your career by a few years will likely shorten your overall working career.  All things being equal, this might cut out a few years of your peak income.  This could be perhaps a quarter million dollars for every “lost” year for internists or double that for high-income specialists.  If you consider inflation adjustment, then the absolute difference will be even more.

The argument for taking additional time
Obviously one’s career shouldn’t only be about getting ahead financially, although we’ve all made choices to help improve our own situation in life one way or another.  Ultimately, it is you alone who will determine what you consider to be successful.  

Many students at top research medical centers opt to take additional time to conduct research

Taking a research year during medical school has many benefits, the most important of which is to have dedicated time to reflect what the essence of a particular field has to offer.  There is often limited time during clinical rotations to explore subjects in depth, as we are subjected to tests, presentations, and simply reading condensed summaries on topics at hand.  With limited direction and time, medical students essentially make career-impacting decisions.  I have plenty of coworkers and students who decided to pursue other specialties after spending a year conducting research in another.  What’s the ROI on spending a year to decide what to do with the rest of your life?

Priceless.

Dedicated research in a particular field will also strengthen one’s application for residency.  For some students, this might determine whether they’d enter a high-paying competitive specialty.  In this case, there is a financial advantage to taking additional time to make a career choice.

The bottom line

Clearly there are many roads to Rome.  The end goal in life shouldn’t be to have the biggest bank account either. For such a complex profession such as medicine, the path is not always going to be clear.  The advice that I give my medical students is that we should all be aware of the financial ramifications of our decisions, but we’re also in the business of improving lives.  If it takes an extra year or two for a future doctor to identify what she will be comfortable with doing for the rest of her career, then so be it.

What are your thoughts on taking research years in medicine?

Financial checklist for the holidays – MD edition

Financial checklist for the holidays – MD edition

Happy holidays everyone!  December is typically a time of gathering, relaxation, and gifting.  Aside from the festivities that we participate in this time of year, it is also important to remember that health is the best possible wealth we can possess.  Those of us working in the hospitals have seen the tragedies that can roll into the emergency room, and we are all grateful for those healthcare workers who are on duty when most of the world is at home with their families.  

In keeping with financial angle of this website, here are a few housekeeping items to make note of before we ring in a new year:

Keep receipts of your donations

The amount of bookkeeping needed for non-cash donations like clothing and furniture depends on how much you are giving away.  In general, you should ask for receipts on everything you donate in order to show that the receiving party qualifies as a non-profit or equivalent entity.  Amounts greater than $500 require more substantial proof of donation, like detailed photos, where the items are from, and estimated worth.  Non-cash donations totaling $5000 or more will likely require official appraisal values.

Everyone deserves to have a good time this season!

Cash or cash-equivalent donations can be deducted in full on your tax return, provided that the amount doesn’t exceed a certain percentage of your gross income. 

It’s better to keep good bookkeeping up front—as we all know our memory fades with time!

Get ready to fund your Roth IRA in the new year

Most doctors should be able to front load their Roth IRAs in January.  Remember that the longer that you are invested in the market, the more likely (historically) you will come out ahead.

Fund your 529 account

If you intend to fund a child’s 529 account, do it before the end of the year if you want to have a tax deduction.  If your state doesn’t offer a tax deduction or if you’re using another state’s 529 custodian, then contributions based on tax year will not matter.

Self-employed can finalize 401k contributions

Most self-employed physicians simply contribute up to the maximum 401k limits, but many doctors have full-time employment jobs along with contract or locums work.  Income earned from these ancillary income sources may not necessarily allow for maximum contributions up to the IRS limits. 

That’s it! We hope that all of our readers have a safe and joyous holiday season!

What other financial housekeeping tasks do you complete before the year’s end? 

Photo courtesy of Flickr.