The White Coat Investor's Financial Boot Camp

1. Protect Your Greatest Asset: Your Ability to Earn

Disability insurance is something that anyone who is working but has not yet achieved financial independence needs.

Insure your income. As a high-earning professional, your ability to generate income is your most valuable asset. Disability insurance protects this asset by providing income if you become unable to work due to illness or injury. Aim for a policy that covers 60-70% of your income, with an "own-occupation" definition of disability specific to your specialty.

Key policy features:

• Own-occupation definition
• Non-cancelable and guaranteed renewable
• Cost of living adjustment rider
• Future increase option rider
• Residual/partial disability coverage

Don't rely solely on employer-provided coverage, as it may be insufficient or have limitations. Purchase an individual policy early in your career when you're healthy and rates are lower. Review and update coverage periodically as your income grows.

2. Insure Against Life's Uncertainties

Disability insurance gives you an income to live on if you become so disabled that you can no longer work.

Protect your dependents. Term life insurance is crucial if anyone relies on your income. Calculate your needs based on replacing your income, paying off debts, and funding future expenses like education. Avoid whole life insurance, which is usually an expensive and unnecessary combination of insurance and investment.

Insurance priorities:

1. Disability insurance
2. Term life insurance
3. Health insurance
4. Property and liability insurance (homeowners/renters, auto, umbrella)

Purchase insurance based on actual needs, not fear or sales pressure. Regularly review and adjust coverage as your life circumstances change. Remember that insurance is meant to protect against catastrophic losses, not minor inconveniences.

3. Master Your Spending to Build Wealth

A spending plan is simply a prior decision to spend consciously.

Live below your means. The key to building wealth is not just earning a high income, but consistently spending less than you earn. Create a written spending plan (budget) that aligns with your values and financial goals. Aim to save 20% or more of your gross income for retirement, in addition to other savings goals.

Effective budgeting strategies:

• Track spending for 1-3 months to understand your habits
• Use the "Pay Yourself First" method for savings
• Automate bill payments and savings contributions
• Use separate accounts for different spending categories
• Review and adjust your plan regularly

Avoid lifestyle inflation, especially early in your career. Consider "living like a resident" for 2-5 years after training to rapidly build wealth and pay off debt. Focus on reducing your largest expenses (housing, transportation) for the biggest impact.

4. Conquer Student Loans Strategically

The only way to eliminate your loans (outside of forgiveness) is to throw massive sums of money at them each month.

Develop a repayment plan. Understand your loan types, interest rates, and repayment options. For federal loans, consider income-driven repayment plans during training and the potential for Public Service Loan Forgiveness (PSLF) if working for a non-profit. If not pursuing PSLF, refinance to lower interest rates when possible and commit to aggressive repayment.

Student loan strategies:

• During training: Use income-driven repayment (e.g., REPAYE)
• If pursuing PSLF: Make qualifying payments, certify employment annually
• If not pursuing PSLF: Refinance to lower rates, pay off aggressively
• Consider the financial impact of additional training (e.g., fellowship)

Treat paying off student loans as a financial emergency. Consider living like a resident for 2-5 years after training to rapidly eliminate this debt and free up cash flow for other financial goals.

5. Maximize Tax-Advantaged Retirement Accounts

Investing in retirement accounts lowers your tax burden, boosts investment returns, facilitates estate planning, and provides asset protection.

Prioritize tax-advantaged savings. Take full advantage of retirement accounts to reduce taxes, grow wealth faster, and protect assets. Contribute at least enough to get any employer match, then work towards maxing out available accounts. Understand the differences between tax-deferred (traditional) and tax-free (Roth) accounts to optimize your strategy.

Retirement account hierarchy:

1. 401(k)/403(b) up to employer match
2. Health Savings Account (HSA) if eligible
3. Backdoor Roth IRA
4. Max out 401(k)/403(b)
5. 457(b) plan if available
6. Taxable investing

Use the Backdoor Roth IRA strategy if your income exceeds direct contribution limits. Consider a Solo 401(k) if you have self-employment income. Don't neglect spousal contributions if applicable.

6. Invest Wisely with Low-Cost Index Funds

The vast majority of the return from your portfolio will come from your selected asset allocation, that is, the percentage of the portfolio that goes into the various types of investments (asset classes).

Keep it simple and low-cost. Focus on asset allocation rather than individual security selection. Use low-cost, broadly diversified index funds to capture market returns efficiently. Develop a written investment policy statement outlining your goals, risk tolerance, and asset allocation.

Key investing principles:

• Determine an appropriate stock/bond allocation based on goals and risk tolerance
• Diversify across US and international markets
• Keep costs low (aim for total expense ratios under 0.2%)
• Rebalance periodically to maintain target allocation
• Stay the course during market volatility

Avoid common pitfalls like market timing, active trading, and chasing past performance. Remember that behavior and discipline are more important than complex strategies for long-term success.

7. Safeguard Your Assets and Legacy

The best asset protection plans are simple and relatively inexpensive.

Protect what you've built. Implement basic asset protection strategies to safeguard your wealth from potential lawsuits and creditors. Understand your state's specific laws regarding asset protection. Create an estate plan to ensure your assets are distributed according to your wishes and to minimize taxes and probate costs.

Asset protection strategies:

• Maximize contributions to protected retirement accounts
• Utilize appropriate business structures (e.g., LLCs) for rental properties
• Maintain adequate liability insurance (umbrella policy)
• Consider tenants by the entirety property ownership if married
• Use trusts for estate planning and additional protection

Essential estate planning documents include a will, durable power of attorney, healthcare proxy, and living will. Review and update these documents periodically, especially after major life changes.

8. Correct Past Financial Mistakes

Many doctors have lowered their interest rates by two to five percent.

Learn and move forward. Identify and correct common financial missteps. Don't let past mistakes paralyze you; instead, use them as learning opportunities to improve your financial future. Take action to optimize your current situation and prevent future errors.

Common mistakes to address:

• Evaluate and potentially surrender whole life insurance policies
• Refinance high-interest debt, including student loans
• Reassess investment strategies and fees
• Review and negotiate financial advisor relationships
• Correct suboptimal retirement account usage

Be willing to admit mistakes and take corrective action. Remember that the financial industry often preys on high-income professionals with complex, expensive products. Educate yourself to make informed decisions and seek advice from fiduciary professionals when needed.

9. Plan for Your Children's Education

There is no reason that you or your child needs to borrow for an undergraduate education.

Save strategically for college. Start saving early using tax-advantaged 529 plans. Balance college savings with other financial priorities like retirement and debt repayment. Consider your state's 529 plan for potential tax benefits, but don't hesitate to use plans from other states if they offer better investment options or lower fees.

College savings strategies:

• Start early to leverage compound growth
• Use 529 plans for tax-advantaged growth
• Consider prepaid tuition plans if available and appropriate
• Involve children in the college planning process
• Explore scholarships, grants, and work-study opportunities

Remember that there are many paths to affordable education, including community colleges, in-state public universities, and merit-based scholarships. Don't sacrifice your retirement savings to overfund college accounts.

10. Boost Your Income Ethically

Increasing your income through aggressive negotiation, smart practice management, hard work, and perhaps even a side hustle can aid you in reaching financial independence even earlier.

Maximize your earning potential. While controlling spending is crucial, increasing your income can accelerate wealth-building. Explore ethical ways to boost your earnings within your profession and consider developing additional income streams.

Income-boosting strategies:

• Negotiate employment contracts effectively
• Optimize your clinical efficiency and productivity
• Pursue leadership or administrative roles
• Consider locum tenens or moonlighting opportunities
• Develop non-clinical income sources (e.g., expert witness, consulting, teaching)

Be cautious of opportunities that could jeopardize your primary career or violate ethical standards. Focus on income-boosting activities that align with your skills, interests, and long-term goals. Remember that time is also valuable; balance increased work with quality of life and burnout prevention.

Last updated: July 20, 2024