This post is Part 2 of the two part Personal Finance for Pharmacists series of articles. In Part 1 of this series, we looked at lowering Student Loan Debt and shopping for Personal Health Insurance on the open market.
Part 1 can be found here.
TOP 5 FINANCIAL CHECK POINTS FOR PHARMACISTS
- Student Loan Debt
- Personal Health Insurance
- Disability/Life/Liability Insurance
- Low Cost Index Fund Investing
- Budget Software
3. Disability/Life/Liability Insurance
Many pharmacist may already have disability insurance and life insurance, some may not. If you are the main earner in your household, you may want to look into getting disability and term life insurance. I’m not talking about Afflac, I’m referring to a long-term disability and term life insurance company such as Northwestern Mutual.
Long-term disability insurance will replace 60-70% of your salary after 90 days that you have been out of work. This means that you will have to have AT LEAST 3 months wages put back to cover your expenses in case of an emergency where you will no longer be able to work.
Term life insurance should be around 7-10 times your annual salary. You may not need it if you don’t have a spouse or dependents that are relying on your income.
Be very careful to know the difference between TERM and WHOLE life insurance as WHOLE life insurance is much more expensive and is sometimes sold as a retirement vehicle.
Personally, I would not rely on WHOLE life insurance as an option for retirement savings.
The fees are high, the risk is somewhat high as well, but you are able to accumulate some cash value in the policy.
Many large insurance agencies call their salespeople “financial planners”, but do not be fooled, they are INSURANCE AGENTS.
They will try to push you into whole life insurance, annuities, all different types of investing strategies, but remember these people are not fiduciary advisers. Nor is an annuity or whole life insurance plan a particularly good vehicle for investing in your retirement.
It is one option, but it is not the BEST option for most people.
It is insurance, plain and simple, and unless you have dependent or loved ones that are dependent on your salary, you may not even need it. Once you don’t have any debts, you may not need it. It is truly a very personal decision and one that you should consult a professional before pursuing.
Liability insurance is something that you definitely already have if you are currently working as a pharmacist. If you are going to consult as an independent MTM pharmacist, you may want to consider adding additional protection for your personal assets through setting up a Limited Liability Company (LLC).
I received a liability policy for professional services through my LLC for less than a thousand dollars per year. I also have a commercial policy for the LLC through the same insurance place as we have our home and auto insurance.
You should also check with your current professional liability provider to make sure that you are covered for MTM services.
Watch here for a post on LLC. formation very soon!
4. Low Cost Index Fund Investing
I am a BIG fan of DIY investing. I have two IRA’s (one Roth and one Traditional) and a personal investment account set up through Betterment (affiliate link).
Betterment is currently holding all of my investment accounts and can “keep track” of my husbands 401K if I keep the balance updated.
Our 2018 Financial Goals include paying our property loan down 30%, building the taxable investment account up to 12 months income and saving $400/month for a trip to South Africa in 2019.
After reading The Automatic Millionaire, in a personal finance class in college I became enamored with the world of personal finance and investing.
The investment lingo was the hardest thing for me to wrap my head around at first.
[Side note: I find it interesting that healthcare professionals get a bad wrap for poor communication, but in the world of finance it is seen as being an expert, or more experienced, or better at making money, etc.]
So here are some terms that I’ll give you the quick and dirty definitions for:
- Dollar Cost Averaging: automatically investing the same amount each month to “average” the cost of each share over the course of the year
- Index Fund: a fund that automatically spreads out your investment among the top companies in a certain market
- Low Cost Index Fund: an index fund that has very low fees to use it (aka Vanguard funds)
- Tax Lost Harvesting: the practice of selling some investments at a loss in order to offset the tax burden associated with gains on an investment (capital gains)
- Portfolio Diversification: having a mix of investments (bonds and stocks) in order to minimize risk and maximize returns
- Portfolio Re-balancing: when your investments in a particular area do so well that some needs to be sold off and put into other investments in order to “re-balance” your portfolio to keep you are the correct proportion of stock and bonds
What do I like best about Betterment?
They offer all of the above and its all completely AUTOMATIC (I believe the term is actually Robo-Investing)!
I have been using Betterment since November 2014 and it is by far and above the best option for truly automating your investment accounts. You can save for your retirement, set up goals and graphically see a representation of how your investment is expected to perform over then next half century.
You can set up your allocation based on your risk.
I recommend using the allocation formula
[110 – (your age)] = % of your money that should be invested in stocks
So based on this formula a 30 year old pharmacist should have 80% in stocks and 20% in bonds. You can change this allocation based on whether you prefer to be a little riskier (more heavy in stocks) or less risky (more heavy in bonds).
We also love the goals you can set up in Betterment. We are using our “nest egg” investment account as a general savings account. It is easy to connect to your existing bank and transferring money back and forth can be set up automatically on many of these platforms.
Tax-Loss Harvesting
I’m not 100% sure how to explain this, but it helps decrease capital gains and thus my tax bill. Its something that I would NEVER do if it wasn’t automated.
There are a few other “robo-investers” like Wealth Front also offers the same type of easy to use investing. Also sites like E*Trade and Sharebuilder can also be used to invest in index funds, but they do not offer the automatic Tax Lost Harvesting feature and automatic re-balancing for Portfolio Diversification tools like Betterment and Wealth Front.
5. Budget Software
Just as you would have a profit and loss statement for your business, you should have a profit and loss statement for your family, we use Mint.com to keep track of our expenses.
Mint is a free online budgeting software. It is a secure site where you can view all of your banking, credit card and loan information, but not be able to actually access your money.
Once you get all your banking information, credit cards information and loan information in the software, it will automatically suggest budgets for each category based on your average monthly spending. You can adjust it as needed and can set goals as well.
It even has a retirement estimator as a feature!
Multiple family member can have logins and download the app to on most phones. It is super easy to use and can be set up to send you text messages to alert you of low balances, fees and also your weekly financial summary.
A. Business expert H. James Harrington once said, “Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.”
The first step in improving anything is measuring it. Start improving your financial health today, by simply setting up an account at Mint and spending an hour entering in your bank information. You will thank me for it later, I’ll be waiting.
