In this episode, hosted by Aaron Theilade with special guest Jeff Blain, we discuss the importance of financial planning for physicians and their families.
You’re listening to The Financial Literacy Podcast, brought to you by MD Financial Management.
Canada’s only national financial services firm dedicated to helping physicians and their families with their unique financial needs.
AT: Hey there, listeners! Thanks for joining us today for this episode of The Financial Literacy Podcast. I’m Aaron Theilade. It’s amazing to be here hosting today as we talk about the importance of financial planning for physicians and their families. And as usual, we’re bringing you some expert insight with a very special guest. Welcome Jeff Blain. Thanks for being here today, Jeff.
JB: Thanks for having me Aaron. I’m so glad to get the chance to talk about financial planning, and hopefully give the listeners some tips for starting their plan. Or, if they have a plan, some new strategies they may not have considered before.
AT: That’s great! Well, on that note, let’s get started. And I guess the best way to do that is to talk about why financial planning is important, particularly for physician households.
JB: Well, firstly, a financial plan is important, regardless of your occupation. Everyone has financial goals, whether it’s for your education, for your family, or for retirement. And if you have a clear understanding of both your current financial situation and how to grow your savings, you are far more likely to reach your goals.
Now, for physicians early in their career, reaching these goals may appear to be daunting because they have unique challenges when it comes to their finances; the main one often being debt.
Physicians, after their training and for the first several years of their career, might have to deal with incredibly large amounts of debt, and many struggle to find ways to save.
But the good news is that there are many strategies that physicians can use to stay on track with their saving while also paying down their debt. And talking to a financial advisor, like an MD advisor, will help them take advantage of tax-saving opportunities and special programs available specifically for physicians.
AT: Absolutely. And I’m sure there are other advantages to having a financial plan, beyond reaching your financial goals.
JB: Oh, for sure. I mean, taking care of your finances is an important part of self-care. If your finances are keeping you up at night, figuratively or literally, that’s going to take a toll on your physical and mental health. Having a financial plan helps you shape your lifestyle in a way that makes you happy and doesn’t stretch beyond your means so you can avoid stressing yourself out to the point of burnout.
There might also a lot of feelings of shame or embarrassment that come with financial difficulties, and one of the ways we often see this presented is when people hide their finances from their loved ones. Maybe they have a secret credit card or have a separate bank account that their spouse doesn’t know about to hide some of the debt they have accumulated. But keeping secrets is never really a good idea for your finances or your relationships.
Talking to a financial advisor and having a financial plan can help you learn how to communicate about your finances, feel more in control, and make financial decisions with confidence. This will also result in stronger, more trusting relationships.
AT: Communication is a big component of financial success. But I think the main issue for a lot of people is that they don’t know where to start the conversation. They are not sure what financial planning is supposed to look like. So, what should clients expect, and does financial planning look different for physicians?
JB: So, obviously, every individual’s financial plan is going to look different based on their goals, but typically a financial planner takes a holistic approach to a client's financial circumstances. Then based on your goals, they would evaluate which areas the client should prioritize.
Since physician’s finances often look very different, so do their financial plans.
For example, like we mentioned before, physicians experience debt differently and for a much longer period of time. So, at the beginning of their career, their financial planning is likely going to be focused on debt management. In those circumstances, the advisor is going to evaluate all their debt, see what sort of cashflow they have, and look for repayment aid and strategies that would work best for them. Then, if possible, they could look for saving and investing opportunities.
Other areas that a financial planner will look at are investment management and tax planning. These areas might take different priorities for physicians than non-physicians, because physicians also have a lot of opportunities to save money through careful management of their taxes, especially if they are incorporated. And these extra savings could then be allocated towards investments that they will need to fund goals such as retirement.
AT: Right, because most physicians don’t receive a pension.
JB: Exactly, so they have to fund their retirement on their own. This means that they tend to need more focus on the retirement portion of their financial plan. They have to start saving and investing as early as possible, which can be difficult when balanced with managing debt later into their career. So, a financial advisor will discuss with them when they are aiming to retire and how much you will need to save to keep up with your lifestyle during retirement and then they will help you set up the accounts and programs that will provide you with the most growth for your savings.
And then, of course, there are certain elements of financial planning for your family’s benefit, like making sure you have proper insurance in case of illness or death and having your affairs in order so that your loved ones are taken care of when you’re gone.
So, like I said, these are all aspects that everyone should be thinking about, but physicians have unique needs and unique timeline when it comes to their finances, so having an advisor who knows how to prioritize, and plan based on those need makes a huge difference to their financial success and security.
AT: No doubt. Now, I just briefly want to touch on something that you mentioned when you were talking about tax planning and incorporating your practice. Incorporating isn’t always necessary but doing so can have a big impact on your financial plan. Can you talk a little bit about that?
JB: Yes, absolutely. So, self-employed physicians can find opportunities to save on their tax bill by incorporating their practice. Incorporating is a process in which you create a separate legal entity that would now own your practice, so you are technically no longer self-employed, but an employee and shareholder of this corporation. This allows physicians to hold a portion of their earnings in their corporation, where it is taxed at a lower rate than if it were taxed outside the corporation.
However, incorporating can be an expensive process, so again, talk to your advisor to see if the benefits make sense to your particular circumstances and then determine if incorporating will be worth it for you.
AT: Right. Now, we’ve mentioned a few times when it might be a good idea to talk to your advisor before making decisions. I think it’s important to remind our listeners that meeting with a financial advisor and coming up with a financial plan isn’t a one-time thing. You will regularly be checking in to adjust or change or add to your financial goals as your situations change over time.
JB: Yes, one hundred percent. Your relationship with your financial advisor is a very important one, and one that’s going to follow you over the course of your life as you plan for all of those big milestones like buying a house, and starting a family, and getting ready for retirement. So, look for advisors that make you feel comfortable and that really understand where you’re coming from and where you want to go.
Which is why it’s amazing that physicians and their families have resources like MD that specialize in their unique needs.
AT: Very well put. So, let’s get into what a client can expect once they’ve decided to seek the help of a financial advisor. What does the process of setting up a meeting look like?
JB: Well, usually you could call or visit your financial institution to make an appointment with an advisor. But since Covid, most financial planning services have moved online.
This actually has a number of advantages since virtual appointments allow more flexibility for a lot of people. You don’t have to worry about being late for your appointment or finding a sitter for your kids because you’re at home. Plus, most of your financial records are kept at home, so if you ever have to reference something, you don’t have to worry about getting back to your advisor later, you have all your information on hand.
Now if you are a physician or a family member of a physician interested in speaking to an MD advisor, scheduling an appointment is really simple. You can schedule an appointment online by clicking the “Talk to an Advisor” button on the Financial Planning page of the MD website.
And if you aren’t already an MD client, that’s totally ok. You just have to provide some basic personal info, and then someone will reach out to you to schedule an appointment. And since MD knows that a physician’s lifestyle can be hectic, they are super flexible and will do their best to find a time that works for you and your family.
AT: That’s great. Quick and easy. Now, let’s say for example, I’m just finishing up medical school, preparing for residency, and my partner and I want to start growing our family. We know that it’s going to require some financial sacrifices, but we would rather not wait in case becoming parents becomes more difficult later.
We should be able to get by pretty well on my partner’s salary, but haven’t seen much growth in our savings, so we are looking to an advisor to help us find ways to save more efficiently given our changing circumstances.
How might an advisor go about assessing our situation and what are some strategies they might recommend?
JB: Hmm, let’s see.
Well, first off, if you are starting your residency, you can look forward to an increase in cash flow from your new salary. Even if you choose to dedicate this to beginning to pay down your med school debt, it’s a relief on some of the financial responsibility of your partner’s salary. They’re going to need that extra spending room to cover the expenses of the new baby. Depending on your salary, an advisor might suggest that you consider splitting your income between debt payments and savings.
And on top of all this, this is typically the only stage in your career when you are receiving a salary and so you might be eligible for paid time off via EI and top-up benefits - so be sure to take advantage of those. Just be aware that maternity or parental leave will extend your residency; so you’ll have to make up the time off - it's best to speak to your residency director about that.
It's also important to note that leave programs specifically in Quebec are different. So again, it's important to speak to your advisor about your personal circumstances.
Which leads into the assessment of your savings. An advisor will look at what types of accounts you have and where you are investing your money.
It’s usually best to limit the number of RRSPs and TFSA accounts you have, and try to keep them all in one institution. It can be tempting to take advantage of special offers and promotions, like higher interest rates on your savings, but too many accounts in too many places can make keeping track of them difficult. Not to mention you could miss noticing sudden significant changes or be unable to see exactly how your money is being distributed amongst various investments.
Your advisor will guide you through how to consolidate your savings accounts and declutter your investment portfolio. This will not only help you keep track of things more easily, but also help you avoid mistakes that could cost you, like overcontributing to your RRSP or TFSA and tax penalties for doing so.
Next, they may evaluate your taxes and look for savings opportunities there. Since you are still in training, incorporating isn’t an option, but you may be eligible for tax deductions through your RRSP contributions. Or maybe the contributions you are currently making aren’t large enough to warrant a significant deduction. Your advisor can examine your cashflow, taking into consideration your new residency salary, and see if your can start to make more significant contributions, or whether it might be a better idea to put a pause on your RRSP and shift those funds somewhere else, like starting RESP for your child.
When you open a new RESP, you contribution is eligible for various government grants, including a standard 20% through the Canadian Education Savings Grant. Plus, if your household income is considered “low” you could receive even more funds. Now, I could go on about how RESPs work and all the requirements, but the main point here is that your advisor will let you know when the best time to shift your funds here will be.
Remember, this isn’t going to be a one-time meeting to fix all your problems Your advisor will keep checking in with you to continue building a clearer picture of your finances as you get closer to your goal. So, for example, one meeting when you’ve decided you want to start your family and need to start getting things organized. Another meeting once you’ve started earning your residency salary and know exactly what your new cash flow looks like. Another when you get closer to your baby’s arrival to make sure you have enough funds in place for any immediate expenses. And so on. It’s a process but your advisor is there to help you every step of the way.
AT: That’s awesome. And I guess that’s a good spot to sort of end things off, but before we let you go, is there any final notes or advice you want to give out listeners?
JB: Sure. I think the main thing I want to get across is that financial planning is a process that is designed to help you. I understand that talking about your financials and the future can be as exciting as it is stressful, and you might feel overwhelmed. But the more you talk about it the more you will learn and understand so that you can begin to feel confident in your financial decisions. And that's the whole goal of this podcast - to empower you with the knowledge of financial literacy.
Also, trust in your advisor as the professional. They know the best resources, accounts, and strategies to create a plan that will help you every step of the way. So, ask lots of questions, reach out when you think you want to make changes to your goals, but most importantly trust that your advisor is looking out for you.
Finally, don’t think that having a financial plan is going to mean that your whole life will revolve around it. Having a financial plan can actually give you more freedom to enjoy all the other aspects of your life outside of your finances because you have a better understanding of where your money is going. And if you need them, your advisor will be there for you every step of the way to help you adjust your plan and stay on track to achieving your goals.
AT: Fantastic. Jeff, I want to thank you again for joining us today. I think you gave our listeners a lot to think about, and a lot of great advice.
JB: Thank you so much. This was such a great experience and I hope I was able to ease some anxieties for some of you future physicians out there. You’re going to be ok. There would be no doctors otherwise.
AT: Exactly. Once again, listeners, thank you for tuning in today. It’s been wonderful getting to host this episode for you. We hope you’ll join us again soon, and until then, best of luck on your financial and professional journeys. Bye!
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