A little-known secret to the average citizen is that many physicians live paycheck to paycheck. Yep, and that risky personal financial strategy has gotten exposed during the economic hurricane called COVID-19.
Physicians are seeing their pay slashed, bonuses withheld, furloughs and termination due to COVID-19 changes. Physicians in specialties that thrive on elective medical care are literally seeing their income drop by 75-100%, all while they try to keep a small business and its employees afloat.
In the midst of this crisis, the emergency fund that the dutiful doc had intended to put away, never happened, due to the tyranny of the urgent. Most of the time, it was put off due to some other consumptive purchase that was a result of unleashing all that pent-up delayed gratification associated with becoming a doctor.
The large monthly cash flow created the illusion of safety. That large check always seemed to keep the ship afloat, and hid the risks that lay under the surface. Some money in the checking account and regular funding of the corporate retirement plan created a sense of security that came with a predictable high income.
The classic 50-25-25 post tax spending plan sounds good in theory. You know 50% goes to fixed expenses, 25% to variable expenses, and 25% to savings. But that the 25% savings always gets pushed to the end of the line, as more pressing bills consume those funds. We assure ourselves, at least we were saving for retirement with a maxed-out corporate plan. Little do we realize that those plans were developed with caps that represent the projected needs of the average worker, not the high-income earner.
We knew that given the size of our student loans, buying the over-leveraged “Doctor’s House” was not the best move, but doggone it, we deserved being able to have something nice. Besides, isn’t a house an investment and not truly an expense? On top of that, the mortgage is tax-deductible, so putting both ideas together, the bigger the better, right?
The new car was affordable when that $90,000 tesla was broken down to the $1100 monthly payments. Why not, you reason, there is enough in the bank each month to cover this. Or even better, just lease the car of your dreams, for $800/month as that is even cheaper than buying. Now get one for both you and your spouse.
Childcare, private school, tutors, college tuition, and such are all part of the family responsibilities that must be kept up if our kids are gonna make it in life. After all, public education may be cheaper, but the best networking and job opportunities come from the top private institutions, right?
Isn’t medicine in America recession-proof? People will always need, want, and demand healthcare in this country, won’t they? Going the employee route or contractor route, all but seals the deal with guaranteed contract money. Most of the contracts have a basement and then are incentivized for productivity bonuses. The bonus money especially feels good, as it strokes our competitive nature.
But then the walls start to erode, as the COVID-19 crisis takes hold. Suddenly financial fragility hits financial turbulence.
Our savings and net worth start to ebb away as the stock market heads into a bear market.
Our productivity goes down due to elective and non-urgent medical care being furloughed for public health safety. There go our bonuses.
Our contract is restructured so that our employer does not go bankrupt, and we are asked to accept lower pay as part of being a good citizen. It feels like we don’t have a choice.
Even worse, we could get terminated in a bear market where physician hiring is being frozen, and delayed for who knows how long. So signing on somewhere else is not a bail-out option.
If we were diversified enough to have a side hustle, those likely have melted away in a broken economy. If you were fortunate to have passive income from real estate holdings, guess what, all those leasers can’t pay their leases due to losing their jobs too. Now you are holding a negative cash flow asset, and the bank still wants its monthly commercial loan paid. Guess who has to come up with that money?
If you are in private practice, you MIGHT have gotten in line early enough to get an SBA loan in order to keep our small business afloat, while you nervously play a game of survival with your staff-employees, and likely aren’t paying yourself.
Now that you are getting a paycheck for half the normal amount, and suddenly those fixed monthly expenditures are extremely tight, and your variable expenses, which your family deem as essential, are now a contentious conversation piece.
It’s tempting to pull out the credit cards, with their $30,000 limits, and the reason that this was just a bad month, next month will be better. So you use this “get out of jail free card” now and simply pay it off next month. Guess what, this pandemic and its economic impact are going to last a while.
Next month, we ask that is the minimum payment on that maxed out 19% interest credit card, and we go to the bank and ask for a personal loan to bail your family out. After all, given our lifetime earning potential, bankers really like to loan doctors money. Besides interest rates are low now, it’s almost like free money. But you discover with everything maxed out in your personal finance, even the banker finds it difficult to figure out what will be the collateral for the loan. He is willing to offer an unsecured loan, but the interest is pretty steep. You have no choice, but to sign and take the money.
And we kick the can down the road further. Saying to ourselves that after the pandemic you are going to look for a new job that will provide a hefty signing bonus that will pay off the private loan.
Then we’ll go back to our normal life, living paycheck to paycheck, but happy as a clam that we are living the good life as doctors.
Doctors, use this interlude to do some personal inventory and break the patterns that have put you in this predicament. You don’t have to go back, you can move forward.
Do two things:
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Change your financial behaviors
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Value yourself enough to not sign another employment agreement that so heavily favors your employer.
Get some help from a physician agency today, from people who understand the physician’s world, and have resources to help you. Check out the resources at White Coat Investors, Physician Philosopher, and SimpliMD just to name a few.
Dr. Inc.
