By Lauren Pearson, CFP
“If you want something done … give it to a busy woman.”
We have all heard that as professional women, right? Now, who has the time to add in the concept of building wealth for yourself or your family in addition to everything else you’ve already been asked to run with.
Well, 95 percent of women end up as the financial head of household, which means, we have to be good with money and, spoiler alert, many of us already are. We just aren’t connecting the dots, because we don’t have the time to focus on it.
As we talk to our clients who are female physicians, we find a few commonalities that we will share with you.
First and foremost, you are your wealth event. Compare that to our entrepreneurial clients who are used to living off very little and then have a sudden wealth event via the sale of a business. Instead, your wealth is accumulated over time, and often the slow increases in pay lead to what we call “spending creep.”
Let me show you what we mean: let’s say you get out of residency and are making $450,000 per year in a practice, then each year you get a $10,000 - $20,000 increase in pay as your practice grows. Take $20,000 and divide it by 24 pay periods and take out taxes, that’s only about $500 per pay period or $250 per week. What do people typically do with an additional $250 per week? They spend it.
If you look at the cumulative effect of spending creep, over a five-year time period that amounts to thousands of spending creep which can really erode your financial plan - without you even noticing it.
At Somerset, a private wealth practice, we focus on helping clients reverse or avoid this spending creep by having intentional conversations about lifestyle goals. It’s good to enjoy your hard-earned income, but we want there to be plenty to enjoy post-career as well.
Second, broadly speaking, we find that female physicians have excellent market temperament. You don’t try to control what you can’t control, i.e., the stock market. This is extremely helpful as you are building wealth and is honestly a distinct advantage for you.
Last, but not least, our female physician clients are often very good with money when the path is clear. Once we communicate a plan to help them accumulate wealth over time, they stick to it, and then are not tethered to their practice indefinitely. The opportunity to pull back from the workload and enjoy the fruits of your labor is so rewarding and worth building a plan to ensure.
Because you are busy professionals (and sometimes busy working moms too), it is important to be aware of these three things:
First, be very careful with life insurance. It is a critical part of a complete financial plan, but many younger physicians seem to often be over-insured with unnecessary policies.
Second, choose to work with a Certified Financial Planner. They have to assume fiduciary duties which means they are required to put your interests ahead of their own.
Third, know how much you spend. Your annual spend (or burn rate) is a “magic number” for any wealth planning you may do now or in your future. So much hinges on this number, and it is essential that you have clarity on it.
Lauren Pearson, CFP is the Managing Director of Somerset Advisory, a full service wealth management firm with clients across the southeast.