In my career as a financial advisor, I’ve had the privilege of guiding many physicians and their families along their financial journey. However, during these interactions, I’ve also seen recurring mistakes that can significantly impact one’s financial health. Reflecting upon these experiences, there are five common financial mistakes that I see physicians frequently making. I share these not to admonish (because we are all imperfect and make mistakes with money), but to help you avoid the errors I’ve seen too many others make. As Eleanor Roosevelt once said, “Learn from the mistakes of others. You can’t live long enough to make them all yourself.” Here are the most common mistakes I see that I hope you can avoid.

Failing to Take Full Advantage of Tax-Free and Tax-Advantaged Retirement Accounts

I’ve found that physicians often don’t fully appreciate the true impact of tax-advantaged accounts on retirement savings. For instance, if you have a traditional retirement account like a 403(b), you could be facing a marginal tax rate of 30% to 50%. That means a million dollars in this account could whittle down to only $500,000 after tax. But taking full advantage of these accounts isn’t the only way you can lower your tax bill, so be sure you have a comprehensive tax plan in place.

Not Understanding What Tax Drag Is and How It Hurts You

Oftentimes people neglect to take full advantage of the right retirement accounts, and instead invest in taxable accounts like an individual or joint account. While I appreciate being willing to invest, you also need to understand the pros and cons of where you invest and that taxable accounts are very tax-unfriendly.

In fact, your accounts’ performance can be significantly hampered by taxes, reducing their yearly returns by 2-4%. This decrease primarily arises from the transactions associated with buying and selling stocks within these accounts. It’s crucial to remember that your true metric of success is not merely the gross return on your investments for the year, but the net, after-tax return.

Making Too Many (and Too Expensive) One-Time Purchases

Over the years, I’ve seen how just one unexpected or unaccounted-for purchase can wreak havoc on a budget. I call these the “onesies”: a new roof, a new car, travel, or even a swimming pool. These are usually spur-of-the-moment purchases that aren’t factored into the yearly budget, but they can seriously derail your financial plan. Incorporating potential “onesies” into your budget and comprehensive financial plan could save you a lot of stress and financial strain in the long run.

Neglecting the Importance of Asset Protection

Sadly, I’ve witnessed firsthand how physicians, in just a few years, went from being multimillionaires to being financially devastated all because they didn’t implement basic strategies like life insurance and disability insurance to shield their assets. It’s critical to understand how to safeguard and avoid common asset protection mistakes so you can protect your long-term financial stability.

Making Retirement Goals Without Considering Inflation

Let’s say a physician thinks he needs a million dollars to retire in 20 years. However, due to inflation, the equivalent purchasing power in 20 years might require $1.8 million. This understanding could lead to a more realistic retirement lifestyle, or it could serve as motivation to save and invest more. Either way, you need to be aware of what things will cost in the future (when you expect to purchase them) and plan from there.

Don’t Make These Mistakes Any Longer

By sharing these key insights, I hope to help you avoid the mistakes I see so many physicians make. While many of these financial decisions might seem simple to understand, making smart financial decisions over a lifetime isn’t an easy path. If you would like support in reaching your financial goals, we’d love to help. To schedule a complimentary consultation, call us at 215-393-0700 or email us at hello@handwerkconsulting.com to get started. 

About Derrick

Derrick Handwerk is Family Chief Financial Officer at Handwerk Consulting. His firm offers a variety of financial planning services for physicians and senior medical professionals in the state of Pennsylvania. With 25 years of experience owning, managing, and consulting for privately held businesses and helping medical professionals successfully work toward financial security, Derrick prides himself on maintaining the highest level of client service and approaches his families with integrity. He loves providing clients confidence knowing he’s watching over their financial life like a hawk and is gratified knowing he’s helping change their lives for the better.

Derrick received his MBA from Lehigh University in Bethlehem, PA, and was nominated as a Martindale Business Scholar. He has also been certified as a Certified Wealth Strategist® and received his Wealth Preservation and Asset Protection certification from the Wealth Preservation Institute. He has written hundreds of articles, spoken at numerous conferences and has appeared on several TV shows. Outside of the office, Derrick enjoys spending time with his family at his vacation homes, playing golf, and dining out. To learn more about Derrick, connect with him on LinkedIn. 

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