Financial Planning Basics

Financial Planning Basics

When it comes to financial matters, doctors make many mistakes. A common factor underlying the mistakes is lack of planning. Like most consumers, doctors make financial decisions in ad hoc or arbitrary fashion. Consider a typical scenario: A young resident learns from a colleague that disability insurance coverage is important. She engages in some hasty research and settles on a policy. A year later that same resident scrambles to secure life insurance. A year after that she goes through a similar rush to open a 529 College Savings plan for her child. Each decision is made in a vacuum. Our fatigued resident fights random financial brush fires instead of following a comprehensive plan. One outcome is that she’s constantly under stress, wondering when the next financial need will suddenly arise, straining her meager income and depriving her of much needed sleep. Another outcome is that she may spend too much money on one financial product and not have enough left for other needs. 

The obvious solution is to equip that resident (and ourselves) with a comprehensive understanding of personal finance, within an organized financial planning framework.

Financial planning is a well understood process consisting of distinct components which are described here. Along with those components you will also find a Financial Planning Checklist. 

Over the years you'll encounter many distractions, each of which will tempt you to abandon your financial plan in favor of more speculative, less disciplined approaches. To stay on a constructive path, keep the following axioms and imperatives in mind:

  1. Accumulate Diverse Assets
  2. Minimize Debts
  3. Live Within or Below Your Means
  4. Your Most Valuable Asset is Earning Capacity
  5. Your Most Precious Resource is Time
  6. Your Greatest Enemy is Procrastination
  7. Understand the Time Value of Money
  8. Reduce Fees
  9. Your Biggest Dangers Lurk Within
  10. Involve Your Spouse or Partner

Heeding these will serve you well over a lifetime of financial decisions.