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The Vision Of A Community For Empowering Micro-Business Physicians

The Vision Of A Community For Empowering Micro-Business Physicians

Sep 23, 2023

 

My Dream, My Passion

My dream is to empower every physician with the knowledge and skills to establish their own micro-corporation as the foundational step towards preserving their professional autonomy.

With the power you have earned through your professional license, you don’t have to passively enter the marketplace as an individual and resign yourself to accepting the high burnout rate associated with traditional employment. This co-dependent work relationship is characterized by control, and ultimately, business owners have control over you as an employee. This is not a fulfilling way to live as a professional, and you have so much more potential! Instead, you can actively choose a better path that will enable you to thrive.

Self-employment through a micro-corporation offers you greater control over your life and can greatly benefit your personal and financial well-being. By entering the marketplace as a micro-business instead of an individual, you can effectively preserve your autonomy.

When you add the support and empowerment of like-minded doctors who come together in a community, it adds a greater power and inspiration to the entire process.

My vision for our SimpliMD community is this:

To inspire every US physician to empower themselves as a micro-business within the marketplace.

Imagine the Possibilities

It is time to ignite a movement within our physician tribe that helps each and every one of you see what is possible.

Avoiding burnout is possible, but it requires more than just wishful thinking. You cannot simply rely on luck to avoid becoming a victim of systemic burnout, as the odds are stacked against you (1 in 2), nor can you cannot depend on your employer to provide you with meaningful solutions. Instead, each of us needs to band together to take back control of our healthcare.

The system is rigged against us, and now is the time to rise up and take control of our future.

Imagine a future where you are not dependent on an employer or third parties, but instead, you can practice medicine with the professional autonomy you have earned. This means truly helping patients and enjoying the lifestyle you have always envisioned.

We Need To Band Together and Invite Others to Join

You are one of over 2000 doctors who are currently part of our SimpliMD community. Thank you for joining me on this empowering journey for our profession!

Today, I am reaching out to you for your help because I have a vision to grow our community to 10,000 members over the next year. Why? Because there is power, momentum, and inspiration in numbers when it comes to changing the mindset of doctors.

Yes, I know 10,000 members is a big, hairy, audacious goal. However, I firmly believe it is possible because doctors across the country are exhausted and frustrated with the current insanity of traditional employment. They are actively seeking solutions and answers.

Sadly, young doctors who have recently completed their training often have limited knowledge of what lies ahead for them, as they are often pushed into employment without fully understanding the implications.

Knowledge is power.

Every doctor needs to know that they have options beyond traditional employment.

You might be wondering about our plan to get this message out and grow our community five-fold in one year. Will we buy a bunch of email lists, create clever lead magnets, or pay a media company to assist us?

Nope, simply put, I want to do it with YOUR help.

No matter where you are on your micro-business journey, being connected to our SimpliMD community empowers you with valuable knowledge. Our stream of content consistently keeps you informed and equipped, hopefully empowering you to thrive!

Now is the time for you to share your knowledge and empower your physician friends who may be lacking business literacy and are unaware of what they are missing out on.

I Need Your Help

The reality is that physicians have a deep respect for and listen to their colleagues, particularly those who possess similar knowledge and expertise. This mutual understanding forms the foundation of effective collaboration among doctors. The secret lies in one doctor sharing trusted professional solutions with another doctor.

The most effective way to grow our community is by reaching out to YOUR professional peer network and inviting them to join us in our valuable community. There aren’t many strings attached or any fancy affiliate links involved.

The first step is to invite others to join our movement by signing up to receive our regular emails that will provide information and inspiration about physician own micro-corporations. You can easily do this by sharing the following link: https://www.simplimd.com/doctorvirtualcommunity

As an added bonus, when they sign up, they can also download my best-selling book“Doctor Incorporated: Stop The Insanity of Traditional Employment and Preserve Your Professional Autonomy” for FREE here. (Yes you can download it too)

Please send them the links to our virtual community and the free book. Encourage them to join you in our community!

But wait there is more! If you send out 5 or more invitations to your peers, just email me at tod@simplimd.com and I will send you the link for a FREE annual membership to SimpliMD worth $2500.

By the way, I would like to suggest that you become a SimpliMD member and then sign up to become an affiliate before sending out your invitations because it could be financially advantageous for you.

To ensure the best experience for my affiliates, I prefer you to become members first. As an added incentive, I’m pleased to offer you a 50% off coupon for your membership here. Simply use the code “MEMBERSHIP50” at checkout.

I invite you to take your next step now by committing to become a member of our SimpliMD community now.

The Mission

Now let’s come back to exploring my dream of our community being one that empowers and supports physicians everywhere in their micro-business endeavors.

Imagine a community where physicians who own micro-businesses come together to share their experiences, challenges, and triumphs. This community would serve as a safe haven where doctors can find resources, advice, and inspiration to navigate the often turbulent waters of running micro-corporations that intersect with their lives as healthcare professionals.

It is a mission born out of my personal experience that there is a hidden professional space for doctors that needs exposed.

Our Mission at SimpliMD is to inform, inspire, and support physicians to flourish through micro-business competency, which in turn will empower doctors to thrive in their roles as both healers and entrepreneurs.

In the upcoming weeks, I will delve deeper into this mission for our SimpliMD community and thoroughly review the Roadmap for achieving this mission and vision.

Following that, I will examine what I refer to as the SimpliMD Way—a set of 9 practices that are critical to flourishing as micro-business owners in the marketplace.

I look forward to having you join me and help shape the future of our micro-business community.

The Minimalist Doctor-How To Thrive Today

The Minimalist Doctor-How To Thrive Today

Aug 4, 2023

Minimalism is a design and lifestyle philosophy that emphasizes simplicity, functionality, and the use of minimal elements to create a visually appealing and functional space. It is characterized by a pared-down aesthetic that focuses on clean lines, neutral colors, and the elimination of unnecessary elements.

Minimalism also refers to a lifestyle that promotes a simpler way of living, focusing on reducing clutter, prioritizing experiences over material possessions, and simplifying one’s daily routine. The goal is to live with less and to focus on what is truly essential, allowing for greater clarity, focus, and a sense of calm.

In essence, minimalism is about stripping away the excess in order to create a more intentional and meaningful way of living. It encourages us to reevaluate our priorities, eliminate distractions, and focus on what truly matters in our lives.

The Influence of Minimalism on the Mindset of Doctors

There are a lot of social, psychological, and economic forces that led to the massive shift from doctors going into private practice to doctors choosing employment. Minimizing financial risks and minimizing the complexity of managing a medical practice are very important mindsets that influence doctors’ decisions about how they will choose to practice medicine.

Thus choosing employment with its financial incentives for loan repayment and where you receive a predictable paycheck based on your autonomously driven productivity cadence makes perfect sense. No business to manage, no employees to oversee, no medical office to pay off, and no group practice/shareholders to wring your hands over.

You show up to work, do your job, collect a paycheck then get full control over organizing your non-work lifestyle.

Employment checks all the minimalist boxes.

It’s why I chose this route many years ago.

The Ugly Underbelly of Employment

But as I discovered, and as many of have also experienced, there are serious consequences to the traditional employment path and it’s not as calming as you had hoped for.

Employment essentially means the corporation that you work for has control over you. Professionals like doctors need and thrive on autonomy. When your autonomy is gradually eroded by the constraints of corporate policies, procedures, and processes—it negatively affects your well-being. Your job becomes a grind, and when your employer begins to “crack the whip” to make you go faster, work harder, and “not be a low performer”—you begin to feel the pressure all the more. They explain to you there are financial incentives within your compensation formula for working harder, doing more, and meeting the quality metrics—thus working harder for them—ultimately benefits you.

In the end, you will begin to see that you are a business asset that have invested in, like a piece of medical equipment. They will see you impersonally in this light, and their focus is to get the best ROI possible on that investment. Thus running the “business machine” a little longer, faster, and harder just makes sense—cause it leads to more revenue for them.

This is where your light bulb goes off. Indeed you are a mini-business and it’s why the large corporation chose to employ you in the first place. Their upfront investment in you to pay off your loans was like purchasing a piece of small business equipment. Your professional services generate three-fold revenue for their enterprise:

  • Direct patient care

  • Downstream system revenue for your indirect care

  • Minable data in the EHR

As time goes on, they will hold you accountable as to why your direct patient care in your clinical setting is “losing so much money”. Never mind it’s because they have translocated your cost center into an accountant’s shuffling of the cards to the downstream enterprise. Thus you will always “lose money” at your clinical space—it’s just a matter of how much. And they will remind you that “just seeing one more patient/day” will help reduce their losses.

And then they will ask you to do “just a few more clicks of the mouse” on each patient so that “you get credit for the quality data”. Never mind that an increasing proportion of your time is spent doing this mind-numbing computer work that distances you even further from the actual patient. Coming back to point number one, the extra time to do this will make it more difficult to see more patients, making you horribly inefficient. They won’t be able to “staff you up” to support this EHR clerical work, nor to help your clinical efficiency—because they are losing too much money in the clinic—and this extra expense does not fit in the budget.

Suddenly you will feel trapped and drowning in their revenue-creating matrix, feeling the pressure to earn their deep investment in you—all while feeling less valued personally by them.

Then there is the lifestyle that you have created around this job, location, compensation, and family life. These will all additively make it increasingly difficult to make any job changes. You will feel stuck and hopeless—searching for resiliency interventions that allow you to more easily tolerate a job that makes you feel unappreciated and unloved.

So you will find that your efforts to embrace the minimalist architecture of the modern physician’s life come at an expense

You Have Options

Before you dutifully enroll in your employer’s physician wellness program and start doing your yoga and mindfulness training that is aimed at normalizing the pain of working as an employee. Please know that you have other options.

Employment Lite

Employment lite is the minimalist version of employment. You operate an individual professional micro-corporation. You then contract your services to your employer as a long-term independent contractor via what is called a PSA. This is called “employment lite” and is becoming increasingly popular among both doctors and employers.

As a contractor, your expenses don’t involve a building, employees, and medical equipment. Think of this like a version of a minimalist doctor who still interfaces with the traditional medical system—but does it efficiently with little overhead.

This is the route that I took professionally and it has been the best decision I ever made. I chronicle it in my book “Doctor Incorporated: Stop The Insanity of Traditional Employment and Preserve Your Professional Autonomy”. Grab a copy on Amazon, or can learn more about employment lite at SimpliMD where they help doctors with this process

Of course, the ultimate minimalist doctor will set up a professional micro-corporation and then use their skills to provide direct patient care—completely bypassing 3rd parties—while doing it in a virtual office space.

The Micro Medical Practice Option

This space is part of a growing network of primary care and specialty doctors who have “gone off the grid” and provide care directly to patients based on a cash-fee schedule.

If you imagine a virtual professional micro-corporation on one end of the spectrum as a minimalist medical practice—basically using their contracted employer’s space, equipment, and employees—and all professional business expenses are personal to your provision of professional services.

Then imagine on the other end of the spectrum, a full-service private practice clinic whose business expenses include retail space-building, employees, equipment, management, etc.

Doctors who choose “off the grid” direct care medical practices can land anywhere between these two ends of the spectrum—from virtual practice to fully present in a singular location.

There are lots of options here—from a mobile medical clinic—with your vehicle outfitted to basically having a mobile clinic that allows you to do both virtual, at-home car, or parked in a public parking lot somewhere—allowing patients to come to you. It’s kinda like the “food truck” idea applied to medicine. Low overhead, and high mobility/visibility.

Some doctors don’t want the everyday costs of leasing/owning a building for clinical space, thus they will cooperatively lease a medical space for “x” % of use per month. Depending on the type of clinical work you do, this allows you to comfortably have a location to examine and do medical care that is specific to your specialty (including available medical equipment) at a much lower expense.

As a minimalist doctor, you can operate your medical practice efficiently by following these tips:

  1. Keep it simple: Simplify your practice by minimizing unnecessary paperwork and adopting a streamlined approach to patient care. You can use technology to automate administrative tasks and focus on patient care.

  2. Reduce overhead costs: Keep your overhead costs low by sharing office space, using cloud-based software, and buying used medical equipment. This will allow you to focus on providing high-quality patient care without breaking the bank.

  3. Outsource non-medical tasks: Consider outsourcing non-medical tasks, such as billing and accounting, to third-party companies that specialize in those areas. This will allow you to focus on patient care while leaving the administrative tasks to the experts.

  4. Maximize patient education: Focus on educating your patients about their health and preventive care. This can help reduce the need for expensive medical interventions and keep your practice running efficiently.

  5. Use telemedicine: Consider incorporating telemedicine into your practice to provide remote consultations and follow-up care. This can save time and money for both you and your patients and can be especially useful for patients who have difficulty traveling to your office.

The Minimalist Doctor demonstrates that minimalism extends beyond decluttering physical spaces; it is a powerful philosophy that can revolutionize the way healthcare professionals thrive in their personal and professional lives. By simplifying work-life balance, streamlining medical practices, and adopting mindful patient care, they find purpose, satisfaction, and fulfillment in an increasingly complex world. Through minimalism, The Minimalist Doctor is not only a healer but also an advocate for a more conscious, purposeful, and sustainable approach to life and medicine.

Check out our membership resources at SimpliMD that help empower you to thrive as an autonomous minimalist physician.

The Self-Employed Physician’s Guide To Determining Their Salary

The Self-Employed Physician’s Guide To Determining Their Salary

Jun 30, 2023

How Much Should You Pay Yourself?

What Is The Value Of Your Services?

In my last post, I discussed the importance of getting paid what you are worth. This is a critical concept to understand whether you are an employee, or whether you are self-employed as a small business owner/ independent contractor. Knowing the value of your professional services to others is an essential feature of negotiating a fair-market-value contract.

How Much To Pay Yourself?

In response to my post, a self-employed physician from California asked the question:

What if you own the business and pay yourself?

This is a fantastic question whether you are in traditional private practice, or a single-member professional corporation. Each of the small business owners has to decide how much to pay themself.

I am going to answer this self-employed doctor’s question from the perspective of the single-member professional corporation owner who is working as an independent contractor in a primary job via what is called an employment lite agreement. It’s what I do, so I can speak to it from a personal perspective.

Your Professional Micro-Corporation Will Be Paid

First, understand that your compensation for your professional services will be paid to your professional corporation in this contractual arrangement. The value of that compensation is essentially the same whether you are employed or a contractor. Also, understand that the total value is not just the salary/comp formula but also includes benefits and professional fees.

Put another way the labor expenses for employed doctors include their salary/compensation formula + benefits +retirement contributions +professional fees like malpractice insurance. This represents your total value and expense to your employer.

When you either start with a fresh employment lite agreement or convert from a traditional employee to an employment lite agreement it is important to know that your professional micro-corporation should be paid the equivalent total fair market total value labor expense as the employed doctor. This “grossed up” number is important because your micro-corporation will be responsible to pay for your retirement, benefits, and professional fees like malpractice insurance.

In the end, what an employer pays you for your professional services should be the same whether you have a traditional employment contract or an employment lite contract. Locums are a whole different thing and will cost employers more than both of these contractual arrangements.

Much like a traditional employee, you will want to maximize the Fair Market Value of your employment lite contract—which was the point of my last post. I encourage you to reach out to Contract Diagnostics to complete their Compensation Rx for only $297 to find out your true value.

As a professional micro-business owner, you may also have additional side job incomes that contribute to your primary job compensation. Just like any small business, generating revenue is a critical feature of a healthy business and therefore having diversified revenue sources/contracts is always helpful.

How Much Should You Pay Yourself?

For the single-member professional micro-corporation owner, once you have a relatively predictable value for your annual corporate revenue (based on FMV contracts), this is where the fun begins—especially if you are a high-income earner like a doctor.

This is one of the elements that sets you apart from the rest of the single-member small business owners in America—their income can be less predictable and they are always working towards stabilizing and growing their revenue. As a physician, your professional micro-corporation has a very predictable high revenue based on your FMV contract, but it also lacks scalability due to it being a single-member corporation that is completely dependent on you alone. In the end, you as an individual doctor can only do so much work. Therefore your professional corporation will usually have a ceiling on its potential revenue.

Savvy doctors who really begin to understand their business powers will use their high income, professional skills & earned assets to create an enterprise of active and passive income sources and businesses that eventually create additional income sources—that don’t require your time or presence—and thus brake the scalability barrier of your micro-corporation. In essence, they will master how to make their money work for them. This is why my enterprise is made up of 9 businesses and not just my PC.

The Fun

The “fun” for the self-employed physician in his/her single-member corporation is figuring out how to get as much of your earnings/corporate revenue into your household in the most tax-efficient manner. Unlike your traditionally employed peers whose earnings are filtered through the highly taxed W-2 channel—you have options.

As a micro-corporation owner, your household income will arrive to you via 4 basic channels as noted below.

You will note your salary is just one of those 4 channels. It is typically the largest of the 4 and thus it is the most important —and the good news is that you get to decide the amount!

I can’t over-emphasize this 4 channel concept enough to you:

small business owners understand all 4 of these cash flow channels and use each to wisely get dollars into their homes in the most tax-advantaged manner.

Your paycheck is just one of the sources of these dollars to your household.

This is in contrast to traditional employees, whose paycheck and ERISA-limited retirement contributions reflect the total household value of their work. Typically these doctors pay a much larger percentage of their earnings to taxes than self-employed doctors.

Reverse Engineering

Because the earnings for your PC are relatively predictable based on FMV, you have the power to determine your salary and the dollar value of the other sources of household money—through what I call a reverse engineering process.

The reverse engineering process requires you to know two important numbers:

  • Your annual household expenses/spending. Although I believe in budgets, at a minimum every doctor should know how much they are spending each year-including all loan and credit card payments. This number is the minimum value that you should set your salary at.

  • Your IRS-compliant lowest “reasonable salary”. This represents the range of income that the IRS expects a doctor in your specialty to make each year. If you pay yourself less than this amount, the IRS is more likely to audit you out of concern that you are trying to evade taxes. The “sweet spot” for lowering your taxes as a doctor is to keep your reasonable salary as low as possible.

    As a self-employed doctor, understanding the concept of a “reasonable salary” defined by the IRS can significantly impact your tax liabilities. By ensuring that you are paying yourself the lowest reasonable salary, you can effectively lower your payroll taxes and maximize your business’s financial potential.

    The IRS has specific guidelines in place to determine what constitutes a reasonable salary for self-employed individuals, including doctors. This determination takes into account factors such as the nature of your medical practice, your level of experience and expertise, industry standards, and the amount of time and effort you dedicate to your business.

    By adhering to these guidelines and paying yourself a reasonable salary, you can demonstrate to the IRS that you are not attempting to evade taxes or artificially reduce your income. This not only helps you stay compliant with tax regulations but also provides solid documentation in case of an audit.

The reverse engineering process also ideally should include an evaluation of which tax entity for your professional corporation will provide your household with the maximum tax-advantaged dollars in each of the 4 channels.

Let me emphasize this is highly individualized for every doctor—and includes multiple factors including specialty, income, fringe benefit needs, family structure, assets, and other passive/active income. The complexity of this is why I recommend an agency like SimpliMD help you with this process—they have a team of legal, accounting, and business professionals who can provide you with an objective analysis of this for a reasonable fee. This What-If Tax planning worksheet provides extremely valuable data in a side-by-side analysis like this example.

You can schedule a free business coaching meeting with them here to begin exploring this.

For the sake of simplicity, let me walk you through some of the general concepts within the framework of an S-Corp vs a C-Corp for your professional micro-corporation.

Most doctors as single-member professional corporations will choose S-Corp taxation, but again this is very individualized and worth of analysis with a reputable agency like SimpliMD.

Physician Self-Employed Salary in Their Micro-Corporation: S Corp vs. C Corp

When establishing a micro-corporation as a self-employed physician, choosing the right corporate structure is crucial. The decision between an S corporation (S corp) and a C corporation (C corp) can have significant implications for how you pay yourself a salary. I am going to explore the differences between these two structures and discuss how they affect the determination of your salary as a self-employed physician.

  1. Understanding the S Corporation (S Corp): An S corporation is a pass-through entity that allows profits and losses to flow directly to the shareholders’ personal tax returns. In an S corp, the owners, known as shareholders, can pay themselves a reasonable salary as employees and receive additional income through distributions. These distributions are generally not subject to self-employment taxes, providing potential tax advantages.

  2. The C Corporation (C Corp) Option: A C corporation is a separate legal entity responsible for its taxes and liabilities. As a self-employed physician operating as a C corp, you would become an employee of the corporation. This means you would receive a salary, subject to income tax and payroll taxes, including Social Security and Medicare taxes. Any profits retained within the corporation are taxed at the corporate level. When distributing profits to shareholders, they may be subject to additional taxes, such as qualified dividend rates.

  3. Salary Determination for S Corporations: In an S corp, the IRS requires that shareholders who provide services to the corporation receive “reasonable compensation” for their work. The salary should be commensurate with the services provided and comparable to what a non-owner employee in a similar role would earn. Setting an unreasonably low salary and distributing most of the profits as dividends may attract scrutiny from the IRS. A reasonable salary helps ensure compliance and reduces the risk of audits.

  4. Salary Determination for C Corporations: As an employee of a C corp, your salary would be determined based on industry standards, your qualifications, and the specific services you provide. Unlike an S corp, there is no requirement for the salary to be “reasonable” in relation to the work performed. However, it is essential to ensure that the salary is justifiable and aligned with market rates to avoid potential tax issues or challenges in the event of an IRS audit.

  5. Tax Considerations: Both S corporations and C corporations have distinct tax considerations. In an S corp, the portion of profits distributed as dividends to shareholders is generally not subject to self-employment taxes. This means potential savings on Social Security and Medicare taxes. However, the salary portion is subject to payroll taxes.

    In a C corp, both salary and dividends are subject to taxes. The salary portion is subject to income tax and payroll taxes, including Social Security and Medicare taxes. Dividends received by shareholders are subject to taxation at the individual level, potentially at qualified dividend rates.

It’s important to consult with a tax professional or accountant specializing in physician finances to ensure compliance with tax laws and make informed decisions about your salary and overall tax strategy.

The 60/40 Rule

An important concept that is used for a physician who owns a single-member professional corporation taxed as an S-Corp is the 60/40 rule. This rule, which refers to the allocation of income between salary and distributions, can significantly impact your tax obligations and overall profitability.

The 60/40 rule states that as a physician S-Corp owner, you should allocate at least 60% of your PC’s revenue as a reasonable salary and no more than 40% as distributions. This allocation is based on the IRS guidelines aimed at preventing excessive tax avoidance through misclassification of income.

By adhering to this rule, you can ensure that you are properly compensating yourself for the services you provide while minimizing your tax liability. Allocating a reasonable salary demonstrates that you are paying yourself in line with industry standards and avoids potential audits or penalties from the IRS.

Moreover, following the 60/40 rule allows you to take advantage of potential tax savings. By keeping a portion of your income as distributions, which are subject to lower self-employment taxes compared to salaries, you can optimize your overall tax burden.

It is important to note that every physician’s situation may differ based on factors such as specialty, location, practice size, and personal financial goals. Consulting with a qualified accountant or financial advisor who specializes in physician S-Corps can provide valuable guidance tailored to your specific circumstances.

Understanding and implementing the 60/40 rule is essential for physician S-Corp owners seeking financial success. By appropriately allocating income between salary and distributions, you can ensure compliance with IRS guidelines while maximizing tax savings. Seek professional advice to navigate this complex area effectively and make informed decisions regarding your finances.

Example

If you were a physician currently earning $500,000 as a traditional employee you would pay W-2 taxes on all of that $500,000 income minus any itemized deductions.

If your PC was paid that same $500,000 (assume for the sake of this example that the benefits, professional expenses, and retirement costs are the cost neutral for both doctors), this doctor’s household income would arrive via:

  • 60% Salary: $300,000 as W-2 income

  • 40% Business Channels

    • Tax Advantaged Household Income/Expenses: $80,000

    • Tax Deferred Retirement Plan: $70,000

    • Business Distributions: $50,000

The W-2 tax burden for the physician as a professional micro-corporation will be significantly less than if they chose to be a traditional employee with only $300,000 being subjected to payroll taxes versus $500,000.

And in the end, the 4 channels of cash flow into dollars for the doctor as a professional micro-corporation will result in a 10-15% retention of the earnings in comparison to the traditional employee.

Summary

Determining your salary as a self-employed physician involves a thoughtful analysis of your financial health, personal needs, market conditions, long-term goals, and tax entity options. By considering these factors, seeking professional guidance, and continuously evaluating your financial situation, you can establish a fair and sustainable salary structure that aligns with your expertise and aspirations.

Consulting with professionals who specialize in physician finances can provide valuable insights and help you make informed decisions based on your specific circumstances. Ultimately, the choice between an S corp and a C corp should consider both tax implications and the long-term goals of your personal and professional life.

 

Ten Personal Finance Habits That Create Wealth

Ten Personal Finance Habits That Create Wealth

Jun 10, 2023

Building and maintaining financial wealth is an important part of ensuring a secure future. Financial habits such as budgeting, investing, and saving are essential for creating and preserving wealth. By understanding the basics of personal finance and implementing smart financial habits, individuals can make their money work for them and become financially independent. In this article, we will discuss the financial habits that create wealth so you can apply them in your own life to start building your own financial security.

Creating New Habits

Creating new habits can be a difficult process, especially when it comes to financial habits. We can all agree that our current habits are not always the best. It takes time and effort to build new and better habits that will help us improve our financial situation. But with a few simple steps, anyone can create new financial habits that will last for years to come.

Foundationally you have to set goals and determine the outcomes you want to achieve with your new habit. Moving forward, you have to find ways to make these goals achievable by breaking them down into smaller chunks.

You then move on to implementing these changes into our daily lives, forming new routines and sticking with them until they become ingrained in us. Finally, you need to track your progress along the way and make sure that you stay motivated throughout this journey of creating new financial habits.

The following are critical habits that will help you arrive at financial independence.

1. Create a plan for your finances

It all begins with a plan.

Just like a business plan and budget is essential for the success of your micro-business, so is formulating a personal-family spending plan. That is because it will allow you to connect your short-term and long-term goals to your financial habits.

A financial plan that includes a spending plan will take some effort on your part. Think of this like you are making a home-made pizza and each of these are the ingredients you must source to make your masterpiece. By putting these in place it will remove a lot of the stress associated with unstructured personal finances.

Let’s agree at the beginning of this conversation to use the terms budget & spending plan interchangeably as I walk through these tips. There are differences between the two, as I discussed in my last post, but whatever you call your plan, the bottom line is that you need a plan.

A budget can be a powerful tool, helping you to save money and stay on track with your goals. Your first step is acknowledging you need an annual budget or spending plan. In my previous post “Dare to Dream”, I outlined a recommended process on how to integrate your short and long-term goals into the budget. The prudent plastic surgeon provides a nice example of his personal financial plan for a young doctor if you want a template.

Start With 50-30-20

Have you ever wanted to budget your finances but don’t know where to start? The 50-30-20 budgeting method is a great way to get started. This method splits your income into three parts and can help you save money and live within your means. The 50-30-20 budgeting rule suggests that you should spend 50% of your income on necessities, 30% on discretionary items, and 20% on savings or investments. With your high income, I suggest saving 30% of your income and using 20% on discretionary items.

First, you need to determine what your monthly income is from all sources. This will help you decide what your monthly expenses should be. Next, make sure that your monthly expenses are less than your monthly income. If they are not, then adjust them accordingly. Finally, make sure that all of the items in your budget are realistic and achievable for you and your family’s lifestyle. An affluent lifestyle connected to consumerism for doctors and their family members is one of the biggest budget killers and sadly can lead to paycheck-to-paycheck living regardless of how much money you make

2. Track your spending habits

Track your spending habits is a phrase that has become more and more popular in recent years. With the rise of online shopping and the convenience of buying anything at any time, it is important to be aware of where your money is going. There are many different approaches to tracking your spending habits, but I am going to highlight an easy app that can help you keep tabs on your money. The old fashion way is to scour your bank statements to monitor where all of your money flows each month. Your expenses fall into 3 broad categories: Fixed expenses, Adjustable expenses, and Debts. As you might guess fixed expenses and debts come like waves each month, whereas adjustable expenses are more irregular and less predictable. By the way, I am a big fan of automating savings/retirement funding as a fixed expense, rather than treating it like an adjustable expense.

The automated method for doing this is available through multiple sources like Mint, YNAB, Every Dollar, and Personal Capital. For a brief review of each check out this link from NerdWallet. I love using personal capital for tracking my net worth and it’s free.

You can use Mint and other apps to track all of your financial information from credit cards and loans to investments and budgets. It also allows you to see what kind of impact certain expenses have on your finances, such as how much you spend on groceries each month or how much you spend on clothes each year. It’s just a matter of connecting your spending sources to the app in order for the analysis and monitoring to happen automatically. Understanding where your money is going every month is a very important part of managing your finances.

3. Use a spreadsheet to create your spending plan

A spreadsheet is a great tool for budgeting. It’s simple and easy to use and you can use it on your computer, tablet, or phone.

A spreadsheet is a great way to create a budget because it’s quick and easy to use. You can organize your budget in columns with different categories and then add the costs of each category in rows below the column.

The first step is to list all of your income sources in one row at the top of the spreadsheet. Add up what you make from each source, including bonuses and other sources of income such as rental incomes or dividends from stocks or bonds that you own.

Next, list all your expenses in one row at the bottom of the spreadsheet. Include every single cost that you have – rent, utilities, groceries, car insurance – everything! Then subtract your total expenses from your total income to see how much money you have left over for saving or spending on things like entertainment or travel.

There are many sources for budget spreadsheets. You can find them on the internet or you can create your own. The most popular sources for budget spreadsheets are Google Sheets and Microsoft Excel.

Google Sheets is the easiest to use since it is a free service and does not require any downloads. It also has a great user interface that makes it easy to use and understand. Microsoft Excel is more complicated than Google Sheets but it is more powerful in terms of what it can do with numbers, charts, graphs, and formulas.

4. Set up automatic payments

There are many ways to set up automatic payments. You can do it through your bank, for example. If you have a credit card, you can set up automatic payments through your credit card company. There are also online payment processors that allow you to make automatic payments from your checking account.

Automated payments for fixed expenses (including choosing to pay yourself first through your savings and retirement funding) are the best way to go. With your high income, you should have ample financial cushion to do this. I will add that you should be careful setting up automated payments for adjustable spending choices like Netflix and other subscription services will continue to parasitically eat away at your money—long after you have forgotten about them, as I will mention later.

5. Track your progress with an app or website

Budgeting is an important part of our lives. We need to make sure that we have enough money to cover all the expenses that we have, and also save some money for future needs. It is not always easy to keep track of how much money we spend and how much money we earn, which is why many people are using budgeting apps or websites.

A budgeting app can be a great way to keep track of your spending habits and see if you are spending too much on certain items or if you need to cut back on certain areas. These apps will also show you a detailed breakdown of your income and expenses so that you can better plan for the future. Some popular budgeting apps include Mint, YNAB, Mvelopes, Wally and You Need A Budget (YNAB).

Some people prefer using a website instead of an app because they feel like it’s more accessible from any device. Websites like Mint Online Budgeting offer similar features

6. Get rid of the things you don’t need

The first step in managing your expenses is to figure out what you need and what you don’t.

What you need:

-Food and drink

-Clothing and footwear

-Utilities (electricity, gas, water)

-Household items (toiletries, cleaning products)

Getting rid of expenses you don’t need is a good way to save money. You might be surprised by how many unnecessary expenses you have in your life. Here are some tips on how to get rid of them.

1) Cancel unused subscriptions

2) Switch to cheaper phone plans

3) Find cheaper home insurance

4) Cancel gym membership

5) Sell unused items on Craigslist

If you are using a budgeting app like Mint, monitoring your subscription services is built into it. If you want the app to monitor and cancel any of your non-used subscription services you will have to upgrade to mint premium. Rocket Money is a personal finance app that is well known for managing subscription services, and it also has net worth, budgeting, and spending features built into it. I personally tried out this service recently and found it to be very easy to identify some subscriptions that I had forgotten about, and the services were easily canceled for me with one simple click. I will add that much like Mint, you will have to upgrade to a paid premium version to continue after the trial period is over. One fascinating element with Rocket Money was their offer to negotiate a lower rate for my home media and phone plan (in my case Xfinity), and they did it in exchange for a % of the share savings. I accepted their offer, and at the time of writing this, it is still being negotiated. We’ll see what comes of this.

7. Create a savings plan

We all know that saving money is a great way to prepare for future expenses. But for some people, it can be difficult to save when you’re living paycheck to paycheck.

If you have a savings goal in mind, but aren’t sure how much you need to save each month, use the 50/20/30 rule. This rule says that you should spend 50% of your income on necessities like housing and food, 20% on wants like entertainment and shopping, and discretionary items, and 30% on savings. With your high income, choosing to save 30% of your earnings is within your reach-but it starts with having the discipline to create an annual budget and then following it. What you do with those 30% savings is the subject of another blog post. But I do like the white coat investor’s approach with an investment policy statement. This hard-wires your decision trees and allows you to kick back and let your money flow automatically to the right pot.

8. Pay off debt as quickly as possible

Debt is a burden for many people and is especially normative for you in the first half of your career Your conditioned acceptance of living with large debts such as educational loans, large mortgages, fancy cars, and business loans makes it easy to normalize it as part of your personal finances and it makes adding in a host of other consumer debts much easier. Your high income makes you a low risk for loan companies, thus they roll out the red carpet for you. I encourage you to radically eliminate debt from your life by denying it’s “normalcy” and choosing a path that will lead to freedom, autonomy, and independence financially by getting rid of your debt.

There are many different ways to pay off debt, but one of the most common methods is to use a debt snowball.

The debt snowball method is when you prioritize paying off your smallest balances first, then move on to the next smallest balance, and so on. This way you will see progress and it will motivate you to continue with your plan. You should also try not to take out any loans or use credit cards during this time, as it can make it more difficult to get out of debt in the future.

9. Stay motivated by seeing the progress you are making at growing your net worth

One of the most important things that you can do for yourself is to monitor your net worth. There are many reasons why you may want to monitor your net worth and there are many ways that you can do it through the various financial apps that I mentioned previously. Some people also like to track their net worth because they want an idea of how much money they have in comparison to how much debt they owe. This is a way for them to see if they are getting closer or further away from being debt free. There are other people who like tracking their net worth because it gives them an idea of what their retirement savings might look like in the future or when they might be able to retire. I like using the free tools with Personal Capital for tracking my net worth and retirement planning.

10. Understand What your Financial Independence number is.

Doctors are used to a robust lifestyle and will take you some to reach a net worth that will result in you no longer having to work anymore. With the formation of some basic financial habits early in your career, financial independence or financial freedom is reachable for most physicians.

Check out this FI Calculator from the physician on FIRE if you want to see what your number should be, and how close you are to it.

Financial Independence is the basis for the whole FIRE movement. To check out that whole world, I suggest checking out Physician on FIRE for a very down-to-earth and balanced view of this. whole topic.

Financial goals are one of the main reasons why people track their net worth because they have personal and professional goals tied into their finances that they want to achieve.

7 Personal Finance Tips for Physicians for a looming recession

7 Personal Finance Tips for Physicians for a looming recession

Jul 20, 2022

7 Personal Finance Tips for Physicians for a looming recession - Dr. Incorporated

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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7 Personal Finance Tips for Physicians for a looming recession - Dr. Incorporated

Dr. Inc.

Truth – 4 Benefits That Are Not Beneficial

Truth – 4 Benefits That Are Not Beneficial

Nov 20, 2020

Good day, this is Dr. Incorporated bringing you this week’s installment of the Truth About Employed Physicians. I want to thank you for all that you’ve done this week in your job as a physician.

Keep Doing the Right Thing

Regardless of where you’re located in this country, there are so many people who have been benefited from the work that you do taking care of patients every day. I know a lot of those patients don’t often offer their responses of gratitude to you, but I want you to know that as a fellow physician I know the hard work that you do. All those extra hours you put in, the attention to detail, the extra phone calls, the personal efforts that you make to speak to patients one on one to relay information that is very personal and pertinent to them, I want to thank you for that. I’m reminded this week of a patient who called to leave a message for me to express to me their gratitude for the work I’ve been doing with their children. It was a nice message because it wasn’t asking me for anything, it was just simply an expression of their appreciation for the work that I do for them that goes above and beyond the normal call of duty that we have as physicians. I hope maybe you’ve received a note or a verbal response like that from a patient this week. If you haven’t, keep doing the right thing for the right reason and keep working hard to take care of patients the way you’ve been called to. I want to express my gratitude to you for doing that.

Employer Benefits

This week’s truth is going to be talking about some of the benefits that we receive from our employers in terms of our employer packages. This week’s truth is:

Truth: There are 4 Employ Benefits That Are Not Beneficial To Physicians

We’re going to take some time today to unpack this a bit more, but those four benefits that I want to highlight this week are

  1. Your Retirement Program(s)
  2. Your CME Benefits
  3. Your Health Insurance
  4. Your Profession Deductions and Tax Strategies

Employment Versus Employment Lite Benefits

I love being an employed physician and I know many of you who are fellow employed physicians feel the same way; there are so many good things about being an employed physician in today’s healthcare environment. But one of the things that I want you to also recognize is that there are things that you give up in the process of choosing to be an employed physician and choosing to accept the benefit programs and packages that your employer offers to you. There are limitations to those, that’s why today we’re going to talk a little bit about those. I will also express to you that what I’ve discovered is that you can choose to remain employed, but by choosing an employee light contract or program as opposed to the traditional employment program, you can maximize some of these benefits. I’m going to elucidate to you today some of the limitations that you have in your traditional employment packages and then contrast that with some of the benefits that you can obtain by transitioning to an employment light type contractor program. I’m not pushing for one way or the other, but I certainly want to make you aware of those limitations.

Retirement Savings

Let’s talk about retirement savings first. It’s important for you to know and understand an acronym called ERISA: the Employment Retirement Income Security Act. This is an act that heavily influences what your employer can offer to you in terms of retirement plans, and it covers most employer-sponsored retirement plans. That includes 401k plans, pensions, deferred compensation, and profit-sharing plans. It does not cover retirement plans set up and administered by government entities and churches such as many of the 403 b plans. It also does not apply to simplified employee pension plans or set plans and it doesn’t apply to individual retirement accounts. But most of you have some sort of 401k or a Roth 401k program that your employer provides, which allows you to maximize savings for retirement and benefit from the tax breaks associated. The reward to you as an employer is by you participating in these programs you Receive tax-free money that goes into these programs. And due to the rising costs of living that exist in our country, etc. These are great programs for you to participate in. And I certainly encourage you to maximize your 401k or Roth 401k program. Contributing to these 401k programs allows you to use pre-tax dollars. Pre-tax monies mean that it flows directly from your paycheck into the plan before the taxes are deducted. As a result of this less of your income ends up getting taxed. The assessment of the tax is at the point of when the funds are removed from the account, which is usually at a lower rate for physicians in particular high-income earners. Right now your effective tax rate is likely to be much higher than it is when you eventually retire. Now, there is a thing called a Roth 401k program on which you can also contribute after-tax money to a 401k program. And after-tax means that the cash flows from your check into the plan after tax deductions. The trade-off of this qualified withdrawal is that you are down the road, you find that these funds are tax-free A Roth 401k plan is a particularly useful tool if you end up in a lower tax bracket after retirement Many physicians find these Roth type programs are really wise to invest in. But here’s the kicker that you need to know and understand: employees are limited by ERISA to the same rules for tax-advantaged savings as it applies to the lowest level employee in their company There’s a maximum of $19,500 that can be placed in these 401k programs and up to $6,000 can be applied if you’re over 50, in addition to the $19,500. These employee ERISA limits are typically not going to lead to enough savings on a pre-tax basis to allow you to reach the retirement lifestyle that you’re used to in your pre-retirement days. This is a little-known fact that basically the amount that your employer is going to be able to maximize with you and your partnership with them will typically only lead to you reaching about 50% of your retirement needs as a physician. This is a critical thing to understand. The bottom line is that your 401k program as a physician is likely to lead to a retirement shortfall.

ERISA Will Lead To A Retirement Shortfall

A lot of physicians don’t realize this, they basically are maximizing their 401 k and stacking away that money, ultimately trusting in the process of accumulating that money that it will lead to a nest egg that will allow them to retire at a level they want. Today’s ERISA caps make it really difficult to reach that goal. It’s also difficult for physicians to often save enough money with after-tax savings to really reach that goal as well. So what’s the solution? employed physicians can work with their financial planners to become super savers. They can work with their employer-sponsored program, typically in a 401k, to bank away as much pre-tax as possible, and then you’re going to augment those post-tax savings in a program that allows you to reach your projected goal.

How to Fix The Shortfall

My recommendation is for you to consider converting to an employee light contract, for you to form your own PC, and to craft an individualized retirement program that allows you to reach your projected needs. When I made this move I was able to restructure my retirement savings from the ERISA limitations of $56,000 pre-tax to nearly a $200,000 pre-tax retirement savings program through a 401k defined benefit plan for my wife and me that nearly increased our retirement program to four times that what I was receiving through my employer and allowed me to more comfortably reach the desired destination that I had in retirement.

Understand Your Situation

This is a pretty big deal for most physicians and the bottom line I want you to understand as an employed physician is that your current employment program for retirement likely will not allow you to reach your desired destination at retirement. I want you to think about this, maybe work with your tax or financial planner to think through more strategically how you can reach the goals that you will have in retirement. Consider bulking this up through the various programs your planner can help you with, or consider transitioning to an employee lite program that allows you to maximize your retirement savings.

CME

The second area that physicians can get frustrated with is CME restrictions. I know many of you are given an X amount of money for CME per year that can range anywhere from $2,000 to $3,000 to $4,000 per year. I know from my prior experience with my employer that those numbers are relatively small. They go on to add additional restrictions to those about where you can travel both inside and outside the country and begin to nitpick at how those CME reimbursement fees are given to you in terms of where you can go and what you can use that money for. It gets to be a source of frustration for many physicians, they find those CME dollars really don’t stretch very far, especially given some trips that physicians like to take to nice locations and staying in nice places–many times taking their family with them on those CME activities.

Pre-Tax CME Without Limits

What I’ve come to realize is that by forming my own Corporation and engaging in an employment-like contract, I now can travel anywhere I want, where ever there’s an accredited CME afforded to me, and that includes anywhere in the world. So the cost of the trip really becomes a little bit irrelevant to me, and the location of the trip becomes a little bit irrelevant to me in terms of restrictions, and I can really choose along with my wife where we want to go and do our CME. Yes, I do need to take into account the cost of this in terms of the global budget of my corporation, but it really affords me a great deal of freedom to choose to go where I want. There are no financial restrictions to this, my corporation pays all the CME for me with pre-tax dollars, and really turns out to be a great benefit to me.

One of the things I like to do is use a company called Sea Courses out of Canada, to go to some more exotic locations, because they afford a program that includes my spouse and allows her to attend the program for free with me. It’s a nice benefit, in that all the CME expenses are covered through my corporation, but again, my spouse is allowed to attend these with me for free, which is really enjoyable as well. In your current employment structure as a standard, employed physician, as you know, spouses are often not included in those and you have to pay for those out of pocket. There’s still a benefit, and your company is covering a good deal of the overhead associated with that travel and expenses, and adding your spouse in is is a small element, but it’s nice to be able to how’s this all within your own corporation and allow your spouse to come in a covered fashion.

Health Insurance

Let’s talk a little bit about health insurance. The reality is that your employer is asking you to pay more and more the expenses associated with health care From the premiums to the deductibles, more and more of that is being allocated to you. What you’re beginning to realize as physicians is that it really costs a lot to receive health care in this country, even for you as a physician. Man, I can remember 20-25 years ago when I signed up for my first employee contract with our hospital, my little hospital covered virtually all our expenses at the hospital. X-rays, labs, in-patient care, ER care, physician office expenses, everything was covered free. I even had catastrophic coverage on top of that. But those days are gone.

Those are the days of old, no longer do they exist. You have an increasing amount of your paycheck that goes towards health care expenses, and then the deductibles are pretty large as well when it comes to this. One of the things that I’ve found when I reorganized myself into an employee-like contract and form my own PC was that I was able to structure my PC to cover a good portion of my expenses. My own PC covers my private health care insurance for me and my family. That’s a great benefit to me. Yes, this is taxable as a wage in most instances, but it’s a great benefit that I receive through my corporation.

Out of Pocket Healthcare Benefit

My company also pays all my out-of-pocket expenses, including the deductibles. It also provides an HSA program for me that allows me to save pre-tax dollars in an account that can be used as a mini-retirement account in the future. Basically, my out-of-pocket expenses for health care through my own company become very minimal through the combination of these processes, which is much different than you receive in a standard employment benefits package for healthcare, even as a physician.

Professional Deductions and Tax Strategies

The last thing I’ll mention to you is professional deductions and tax strategies. By forming my own PC as an S corporation and employing myself in a PC, I now can unlock many benefits uniquely available to small businesses that are not available to you as an employee of a large healthcare corporation. I will add here that many of the owners and administrators of these large health care corporations are granted the benefits I’m going to mention to you, but as an employee, you are not afforded those benefits.

Lower Marginal Tax Rate

The first I’ll highlight is that you are able to lower your marginal tax rate by lowering your wages. Your household income remains unchanged in a business structure on which your income flows to you through the wages from your own corporation paying you. But now it also flows through the PC or the company’s distributions to you as well. Your total income in your home doesn’t go down, but your own personal wages do go down, which allows you to be taxed at a lower rate, and overall reduces your taxes in your household.

As I mentioned previously, healthcare insurance and health care coverage are greatly improved through a PC or an S Corp.

Employment of Spouse and Children

Number three: You can employ your spouse and children in your corporation. This has many tax advantages as this income is brought into your home. By opening this door, you’re opening the door to enhanced household retirement savings, college savings, and even private school offering coverage for your children.

Home Office Expenses and Dwelling Unit Reimbursement

Number four: there’s a home office expense. Now, this can be a little tricky but done properly. With the advice of your accountant, you can certainly outsource some of the expenses associated with home office expenses. Again, for physicians, this can be a little tricky, I encourage you to work closely with your accountant, but there are some opportunities here. Number 5 is a little-known benefit is that you can also rent your home to your PC. When structured properly, you can rent your own home at fair market value to your PC 14 times per year to be reimbursed to you tax-free. This is called a Dwelling Unit Rental plan that is typically embedded in your corporation through an attorney familiar with the process. The power is that this is reimbursed to you tax-free. This is called a dwelling unit reimbursement program, and it’s a little-known benefit that can amount to a significant tax-free income to you each year when structured properly through your tax attorney or through your tax accountant.

Business Travel Expenses

The sixth benefit is that you can have reimbursement of your business-related travel expenses. You can track your professional related expenses very simply through an app on your phone called MileIQ or others that are similar to it, and then submit those miles for reimbursement through your corporation (note: this can’t be added up in terms of your normal business travel from your home to your office, but for physicians, there’s a lot of traveling that we do, depending on your specialty to provide care at the hospital, your clinic and other locations and this can be tracked through simple apps like MileIQ and then really lead to a significant amount of tax reimbursement to you each year).

Cell Phone and Digital Access

You can also reimburse your own cell phone expenses. And through using these and an accountable plan, you can really outsource an expense out your digital access such as Internet data and cell phones to be reimbursed.

Automobile Expenses

You can also begin a vehicle leasing or depreciation program for your vehicle that is used for company business (medical profession). Depending on how your corporation is organized, you may be able to pass these expenses on through your PC through leasing in a depreciation program that allows you to expense out your vehicles, which is a pretty significant saving.

Larger and More Robust Retirement Programs

And lastly, as I mentioned previously, you can have significant retirement savings through opening your own small business PC and then funneling your retirement accounts in an individual way through those small business plans. In this business model, you can take advantage of maximum IRA, 401K, and qualified plans to help you reach your retirement goals

There are a lot of benefits that you have to be an employed physician. But there are some benefits that don’t favor you in those plans. I encourage you to just take some time to reflect on this and take some time to think about how you might consider individualizing these plans and then maximizing this for yourself and in the future. It’s not as difficult as you might think.

This is a truth that you need to know as an employed physician and I encourage you to think about these things.

I look forward to hearing your thoughts and responses in regard to this and I hope you have a great week. Leave written comments here or leave a voice message at our speak-pipe attached to this blog.