The acronym H.E.N.R.Y stands for “High Earner, Not Rich Yet”. This term was first coined by Fortune Magazine in a 2003 article and it describes a demographic that earns a significant income, but whose net worth is small or even negative. Que medical professionals. In a matter of months, a graduating medical student can land a job paying well into the six figures. This high income provides a tremendous opportunity to jump start their financial planning and move toward a life of financial independence. However, there are particular challenges that young medical professionals face which, if not addressed appropriately, could cause them to squander away these early years of plenty.
Where Did That Money Go?
Four monthly memberships, two quick Venmo payments to a friend, multiple taps from their mobile wallet – the automation of bill pay can create a large challenge for H.E.N.R.Y.s. The technology we have today is amazing, but it can also get many users in trouble if they are not paying careful attention. This automation greatly increases the user’s chances of losing track of expenses. As medical professionals adjust to a significant income increase, it is critical that they know exactly what is coming in and going out – their income and expenses. As automatic bill pay and cashless transactions become more and more mainstream, so has the technology used to automatically track expenses. Software such as mint.com or quicken are excellent tools to fight ‘automated’ fire with fire. Once a young professional has a firm understanding of where their dollars are going, electronically or otherwise, they may then begin to build a spending plan.
You’re Not Rich…Yet!
Some young medical professions fall into trouble when they believe that a high income means they are automatically ‘rich’, and can therefore spend lavishly. This mistake lies in the fact that they often use income as the plumb line for defining wealth, rather than net worth. A large income can be a tool for building wealth, but only if it’s used correctly. “How should it be used?” a curious H.E.N.R.Y. might ask. Well, start paying down debt and saving for the future. The average medical student graduates with $250,000 in student loans – so, they need to develop a plan for tackling this debt aggressively. The plan should include exploring options to consolidate and refinance the loans to a lower interest rate. Working with someone who specializes in the student loan world could save a young doctor, nurse or nurse practitioner tens of thousands of dollars over the course of their repayment plan.
Protect Your Greatest Financial Asset
The most important financial asset a medical professional has is themselves. They undergo years of rigorous study and training to acquire the knowledge and skills specific to their area of practice and are rewarded for their trained skill set with high incomes. The earning power of these H.E.N.R.Y.s is a tremendous asset and losing that income is their greatest financial liability. Someone in their 20’s or 30’s rarely thinks about experiencing a life altering disability, but it is a possibility to be taken seriously. It is critical that medical professionals have appropriate long-term disability insurance to protect against an event that would prevent them from doing their unique job. The insurance should be designed specifically for medical professionals and be priced competitively. Additionally, if the medical professional has a family, life insurance should be acquired to replace his or her income and provide for the family in the event they die prematurely. The world of insurance can be quite daunting, so it’s important to acquire this insurance through someone who knows the industry well and who has the client’s best interest in mind.
Life is busy. The demands of work alone require a significant amount of time and energy in nearly every profession, but especially in the field of medicine. If managing personal finances doesn’t interest a young medical professional, they should find a trusted financial planner to help put all the pieces of the puzzle together. Ideally, this person would be someone who works specifically with medical professionals and therefore has the blueprint for managing the challenges specific to their vocation. Any financial advisor under consideration should be a Certified Financial Planner (CFP®) who is held to a strict fiduciary standard – meaning they are legally obligated to act in your best interest.
Adam Day is a Wealth Management Advisor at Wealthquest – a Cincinnati based financial planning and wealth management firm that offers a full range of financial services under one roof, for one simple fee.