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    Dr. Marcinko is originally from Loyola University MD, Temple University in Philadelphia and the Milton S. Hershey Medical Center in PA; as well as Oglethorpe University and Emory University in Georgia, the Atlanta Hospital & Medical Center; Kellogg-Keller Graduate School of Business and Management in Chicago, and the Aachen City University Hospital, Koln-Germany. He became one of the most innovative global thought leaders in medical business entrepreneurship today by leveraging and adding value with strategies to grow revenues and EBITDA while reducing non-essential expenditures and improving dated operational in-efficiencies.

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    Later, Dr. Marcinko was a vital recruited BOD member of several innovative companies like Physicians Nexus, First Global Financial Advisors and the Physician Services Group Inc; as well as mentor and coach for Deloitte-Touche and other start-up firms in Silicon Valley, CA.

    As a state licensed life, P&C and health insurance agent; and dual SEC registered investment advisor and representative, Marcinko was Founding Dean of the fiduciary and niche focused CERTIFIED MEDICAL PLANNER® chartered professional designation education program; as well as Chief Editor of the three print format HEALTH DICTIONARY SERIES® and online Wiki Project.

    Dr. David E. Marcinko’s professional memberships included: ASHE, AHIMA, ACHE, ACME, ACPE, MGMA, FMMA, FPA and HIMSS. He was a MSFT Beta tester, Google Scholar, “H” Index favorite and one of LinkedIn’s “Top Cited Voices”.

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On Emergency Funds for Physicians

dr-david-marcinko3Cash Reserves Now More Important Than Ever!

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]

CEO: www.MedicalBusinessAdvisors.com

This is a basic question in financial planning circles that has generated much activity in the medical community, of late. Previously considered so mundane – as to be dismissed by some haughty physicians – it has acquired increased urgency with the current financial meltdown.

What Security Level Desired?

Yet, the answer to this question is dependent upon the security level desired by the medical provider and his/her family. Traditionally, financial planners suggested most people with solid employment, and transferrable skills, have at least three months of living expenses (not including taxes) in a reserve fund that is easily accessible (i.e., liquid). The amount needed for a one-month reserve is equal to the amount of expenses for the month, rather than the amount of monthly income. This is because during no-income months – there is no income tax.

The Usual Checklist

We suggest the following questions as helpful in determining the amount of reserve needed by medical professionals:

1. How many incomes do you have in your household?

2. How secure is your current practice, or medical job?

3. Do you have other unrelated sources of income; medically or non-medically related?

4. How long would it take you to find another position in your specialty, if suddenly unemployed? [Hint: Assume one month per ten grand of income; at $150-k annually, this means searching for 15 months].

5. How much money do you spend, and save, each month?

6. Would you be willing [able] to lower your monthly [fixed or variable] expenses, if you were unemployed?

Many Factors to Considerinsurance-book1

But, many other factors come into play when determining how much money a particular physician and his/her family should have on hand. Does the family have one income or two? How stable is this income source? Does the doctor work for himself [managing partner], or is she employed [minority partner, associate, etc]? What kind of firm, company or hospital employs him; private, HMO, MCO, Federal or State entity? Does the family use all of the income each month? What about, life, health, disability or LTC insurance as fringe benefits? Does the family anticipate the possibility of large liability exposures and expenses occurring in the future (i.e., medical school or practice start-up debt, private tuition for the kids, medical expenses, liability suits etc.)? Are you willing to relocate for a new job?

Family Situation Appraisal

If the doctor is in a dual-income family – with stable incomes – and/or lives on a single income – the need for a liquid reserve is minimal; but still much more than for the average layman. On the other hand, if the doctor is a single individual, with an unstable income and she spends everything each month, the need for a liquid cash reserve is higher.

In the previous example, and in the stable past, the doctor may have opted for a six-to-nine month reserve if the need for security was high; and a three-to-six month reserve if the need for security was low. For the last five to seven years however, we have suggested to our medical clients that they expand this reserve cash corpus to 12-24 months; and as a blanket rule of thumb for all medical professionals. Of course, I was roundly criticized for it; until now.

Today, we are suggesting 3-5 years; with considerably less criticism. Cash is power, choice, swagger, potency, freedom and represents options. Acquire it!

Stashing the Cash

Once the amount of reserve is determined, the doctor should consider the appropriate investment vehicles for the reserve fund. At minimum, the reserve should be invested in a money market mutual fund with NAV @ 1.00 USD. Larger income earners may opt for tax-exempt money market mutual funds, as needed.  For larger reserves, an ultra-short term, no-low bond fund, might be appropriate for amounts over three months – in periods of deflation; not so during inflationary periods.

Assessment

Today, we recommend doctors keep 3-5 years of cash-on-hand. Yes, I am aware of the “paradox-of-thrift” conundrum. But, do you want to help the domestic GDP, or your family; you decide? Personally, my own concern is not the macro-economic milieu.

Full disclosure: I am a former insurance agent, registered investment advisor; board certified surgeon and Certified Financial Planner™

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. How stressed out are you, right now? You are sleepless if previously considered cash, as trash.

But, if sitting on a little pile; you should be sleeping like a baby.    

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM) 

Front Matter with Foreword by Jason Dyken MD MBA

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9 Responses

  1. Math Formula and EF Determinations – for Jim

    Conventional wisdom is that we all should have an emergency fund (EF), a chunk of cash (or equivalent) set aside for use when financial trouble strikes. When employment prospects are good, we’ve seen recommendations for EFs as low as three months of salary.

    In times of high unemployment, some recommend EFs as large as one year’s worth of salary.

    http://theincidentaleconomist.com/how-large-ef/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheIncidentalEconomist+%28The+Incidental+Economist+%28Posts%29%29

    Enjoy this follow-up math perspective on EFs.

    Brenda

    Like

  2. You make some great points in this post

    It is certainly best for the physician to be concerned about what is best for herself and her family, as opposed to the GDP. As I have been telling my clients over the past couple years, ideally I would like to see them save money and cut back on spending while the rest of the US population goes back to spending like “drunken sailors”.

    The comment and link above also bring up the important subject of the opportunity cost of holding a large cash position in a money market account. It is also important to remember that a very conservative instrument such as a money market actually trades one set of risks for another. The risk to the principal is very low, but the tradeoff is inflation risk.

    A “three-legged bond stool” composed of high quality short term bonds, high quality intermediate term bonds, and inflation-protected bonds (TIPS) provides a higher level of return as well as stability in a wide range of market conditions. This approach is described in greater detail in this link:

    https://www.savantcapital.com/uploadedFiles/Savant_CMS_Website/Related_PDF_Files/1st%20draft-Savant%20Backstage-3legged%20bond%20stool.pdf

    I recommend a small emergency fund invested in a money market or CD to cover several months of expenses. The remainder of a physician’s portfolio should contain a portion of fixed income, invested using a strategy such as the “three-legged bond stool”.

    Brian J. Knabe MD CMP™ FAAFP
    Savant Capital Management, Inc®.
    190 Buckley Drive
    Rockford, IL 61107
    Tel 815-227-0300
    Fax 815-226-2195
    bknabe@savantcapital.com

    Like

  3. The “Paradox of Thrift” suggests that what is good for me personally [saving and delaying consumption] is not good for the GDP or our country. In fact, it would lead to a severe economic depression if practiced by all.

    Our economy is based on consumerism.

    Hope Hetico RN, MHA
    [Managing Editor]

    Like

  4. Cash Isn’t Trash [Video]

    Dr. Marcinko – The price of security is hurting investors. Or, is it? How can advisors help their clients? Or, can they?

    http://www.financial-planning.com/video/brown-fidelity-cash-not-trash2679564-1.html?ET=financialplanning:e8716:2248552a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=fp_alert_062512

    Bob Brown of Fidelity explains how advisors can find attractive yields.

    Norman

    Like

  5. Cash funds

    Everyone agrees that a rainy day fund is necessary.

    But, beyond the money to cover living expenses for six, nine or 12 months in a separate emergency fund, how much cash should we hold?

    http://www.financial-planning.com/30-days-30-ways-2013/in-client-portfolios-how-much-cash-is-enough-2687054-1.html?ET=financialplanning:e15355:86235a:&st=email&gpt_units=/30Days30Ways/October

    In particular, how much cash should doctors hold in their portfolios? Dr. Marcinko and Dr. Knabe had some good advice above; as well.

    Creighton
    http://www.amazon.com/Financial-Planning-Handbook-Physicians-Advisors/dp/0763745790/ref=sr_1_1?ie=UTF8&s=books&qid=1275315635&sr=1-1

    Like

  6. Why your nest egg needs a cash cache

    Portfolios that include a one-year cash reserve are better able to withstand the impact of taxes, transaction costs and volatility, a new study shows.

    http://money.msn.com/tax-planning/why-your-nest-egg-needs-a-cash-cache

    Dr. Marcinko – A slight movement to your [more cash] opinion.
    Sally
    http://www.amazon.com/Comprehensive-Financial-Planning-Strategies-Advisors/dp/1482240289/ref=sr_1_1?ie=UTF8&qid=1418580820&sr=8-1&keywords=david+marcinko

    Like

  7. Cash beats stocks, bonds for first time in 25 years

    Cash is on track this year to outperform both stocks and bonds, something that hasn’t happened since 1990, according to Bank of America Merrill Lynch.

    And, it might all be down to the notion that central bank-fueled liquidity has peaked.

    http://www.msn.com/en-us/money/markets/cash-beats-stocks-bonds-for-first-time-in-25-years/ar-AAeNE0R?li=AA4Zjn&ocid=U348DHP

    Well, I suppose I’m correct once in a while. After all – even a stopped clock is right twice a day.

    Dr. David E. Marcinko MBA

    Like

  8. SIDE-CAR

    A new “side-car” savings plan proposal reinforces my point:

    http://www.msn.com/en-us/money/savingandinvesting/the-sidecar-plan-that-could-soon-be-attached-to-your-401-k/ar-BBNMLyL?li=BBnbfcN

    Dr. David E. Marcinko MBA

    Like

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