The economic aftermath of COVID-19 and the current zone of rampant inflation have exposed the progressive ownership of the business of medicine to big stakeholders such as the government, hospitals, insurance groups, private equity groups, and big pharma.
The large ramp-up of resources and personnel associated with COVID-19 burdened the healthcare system over the past few years, and the financial effects were dire, even with a government bailout. Due to this, many health systems have emerged from these difficult times with a weary workforce and the need to make financial cuts and budget changes. Those cuts eventually roll down to each of us in medicine, including doctors. If you are employed by a large corporation you are particularly familiar with the refrain of “no margin, no mission”.
On top of this, I don’t have to remind you of how the downturn in the stock market has affected your net worth and your overall financial health.
Ultimately each of these forces converges to affect your finances and possibly negatively affect your financial well-being.
Here Are Some Tips For Managing The Economic Downturn:
1. Diversify Your Income Streams
Every doctor should have multiple streams of income in their home as a strategy for wisely growing their net worth as well as recession-proofing their life.
Those income streams should include active, passive, and retained income
- Your Primary Job and complimentary Side Hustles represent your active income and require your time and presence.
- Real Estate and Stocks power your passive income channels and don’t typically require your time and presence.
- Owning your PC and channeling your professional income through it will allow you to optimize your retained income. and doesn’t require any additional time or work.
By proactively managing your diverse income streams you will arrive at financial freedom faster
When you choose to work for one employer, you have boxed yourself in. When increasing your active income channels through side jobs, and also adding in passive income, you significantly increase the number of sources for income to arrive in your home. These sources of income can help your home weather economic downturns.
2. Start A Business-And Start With Your Own PC
Small businesses create income and tax-advantaged channels that help your household finances in many ways.
The most important business that you could start is your professional corporation (PC).
The road to earning the right to form your medical professional corporation is both costly and difficult. It turns out that this small business power is one of the most valuable assets associated with acquiring your medical license, board certification, and professional skills. It unlocks multiple channels to efficiently add income to your household.
Both medical contractors & traditional employees are proxying their small business powers to their employer in exchange for a predictable paycheck. This leads one to forgo forming a PC due to your belief that PCs are associated only with a private practice and have little utility for the modern doctor whether you receive your income as a W-2 or 1099 sole proprietor.
It turns out this is a myth, both about your primary professional services as well as your side jobs. Starting a PC at the beginning of your professional life is one of the most important steps you could ever make to secure your control over your professional life.
It is unwise to work hard to earn an asset that you so easily give up as you enter the healthcare workforce.
PCs can be tightly associated with private practice and independent medical care.
Instead, what I am talking about is a modern version that is more of a virtual corporation that houses your intangible and tangible professional assets and in particular allows you to parse out your professional services, knowledge, and expertise in an increasingly diverse healthcare economy. This is now a global economy that is not constrained by local physicality but can now connect you to people and organizations who value your knowledge anywhere in the world. In many regards, traditional boundaries are being broken down.
In this context, your PC is not a brick-and-mortar business (private practice) but rather a virtual container for your professional life. Your PC or Private Corporation is uniquely yours and is unlike any other in the world due to your personal and professional skills and interests.
This uniqueness is in contrast to the commoditized view that employers often have of you. They see you as an interchangeable asset that they own. The truth is that your professional services can be parsed out to them, but it doesn’t have to be an all-or-nothing business relationship.
3. Purge Non-Necessary spending
Understandably in a doctor’s home, there can be some debate about what spending is necessary or not. Your spouse and children could view this differently than you. The point is that our high income can create unaccountable financial liberties for our dependents. You earn, they spend.
Now may be a good time to take a deeper look at your monthly expenditures in several categories, and then have a family meeting to discuss what is essential and what is not.
Here are some suggested household spending areas to evaluate:
- Outsourced Services: Nanny, Housekeeping, Lawn Maintenance, Food services, Laundry, Dry Cleaning, Transportation
- Education: Private school fees, school related technology, educational experiences-trips, College-Graduate tuition, housing & food, 529 plans
- Health and Wellness: Virtual or Club based workout memberships-subscriptions, personal trainers, mental health counseling, food-meal subscription services, Country Club membership.
- Technology: Any subscription service that is no longer essential whether it be phone, computer, or television based. Do you need streamed television in addition to Netflex, Hulu, Disney Plus, X-Box, and Amazon prime or could you consolidate a few of these for a period of time?
- Food: How many days do you need to “eat out-take out” for breakfast, lunch, or supper? Do you need the meal subscription service, or need a personal chef?
- Travel: For this has naturally gone down due to the pandemic. But take a look at reducing or downsizing your travel schedule in the next 12-18 months as cost saving measure.
- Big Luxury Items: Don’t buy on impulse, ever, but especially now. If you have been waiting to buy a boat, special vehicle, or vacation property, wait til your income returns to its normal state for at least 3-6 months before moving forward on these items. And while you tap the brakes, remember, the best plan to buy large items is with cash, rather than financing them.
- Charitable Giving: You can suspend or reduce this for a period of time if cash flow is down, and then catch it up later in the year.
4. Save Your Money:
Now that you have begun looking at your monthly spending and income, try to save 10% as a starter, on top of your fully funded retirement plans. To do this, you must take it out of your checking account FIRST, or it will be spent on something else. Overall choose to curtail spending and increase saving.
This will move your closer to financial independence, which should be an attainable goal in your 50s, or earlier, depending on how determined you are. Saving money leads to increasing net worth, and net worth is the financial end game that creates freedom for high-income earners.
Financial freedom creates opportunities in both down markets and up markets. A fellow blogger, The Physician Philosopher, re-frames savings into a Wealth Accumulation Rate (WAR) which is inclusive of more than our savings. He recommends 30% for our WAR.
5. Use Your Own Money
Rather than borrowing money from a bank, or using credit cards, look at your assets to see if you can free up cash for your needs. Hopefully, you put aside some money in an Emergency Fund that was meant exactly for this 3-6 month window. You can access your retirement and investment accounts before age 59.5 with some penalties, and you can now use more of your 401k or defined contribution plan for a Loan.
You can consider grabbing some equity from a refinanced house mortgage. You might even have an asset that you want to liquidate for the needed cash, but be careful, it’s truly a buyer’s market right now. Whatever you do, don’t stop funding your personal or corporate retirement plans and HSA.
6. Don’t Gamble In the Stock Market
Bear markets are unnerving no doubt about it. But in a market like this, your best option is to not try to outsmart the market, but rather it is to ride it out. You can do this by staying the course with your investment plan.
Much like a diet, the exact stock portfolio is less important, simply choosing one and sticking with it is the most important step.
You can write your investment policy statement, but here is a suggested portfolio if you are looking to start somewhere:
45% Vanguard Institutional Index Fund
20% Vanguard Mid Cap Index Fund
20% Vanguard Small Cap Index Fund
15% International Stocks
The best way to do this is to automate it monthly and don’t look back or micro-manage it.
I suggest integrating your stock funds into your net worth calculator and enjoying watching it grow over time.
7. Review Your Life Insurance and Estate Plan
Take a few minutes to find your will, life insurance, and estate plan, and then talk through this with your spouse. These financial structures are in place to safeguard your family from disaster, accidents, and significant life changes. They are critical to have in place for each of you. Your disability insurance plan should also be looked at for the same reason, it protects your family due to unforeseen downturns associated with your health.
Certainly don’t panic and try to make up for any losses
Look Back
Finally, as we have come through these last few years, make sure you take a look back. Much like a classic Morbidity and Mortality conference, we must use this unusual period as a learning lab.
Now is the time to, re-evaluate your current contract, and diversify your income source with a mix of active income (primary and side hustles) and passive income.
Ask yourself, how did it feel to be fully controlled by “the man” as a cog in their wheel during a pandemic, and now you are feeling more burned out than ever? Would you prefer more professional freedom? Check out a PC-PSA option, and keep pursuing well-being, balance, and personal and professional freedom.
Dr. Inc. is a practicing family physician, author, blogger, and podcaster. He is not a lawyer, accountant, or financial planner.
This is not personalized financial advice for you and is meant for your general education and entertainment purposes.
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Dr. Inc.
