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By Dr. David Edward Marcinko MBA MEd

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It has been said that most ordinary people should have at least three to six months of living expenses (not including taxes) in a cash-equivalent 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.  

However, the situation might not be the same for physicians in today’s harsh economic climate. 

The New Realities

Now, some physician-focused financial advisors, financial planners and Certified Medical Planners™ suggest even more reserve fund savings; up to two years. That’s because many factors come into play when determining how much a particular doctor’s family should have.

For example: 

• Does the family have one income or two? If the doctor is in a dual-income family with stable incomes and they live on a single income, the need for a liquid reserve is less.  
• How stable is the doctor’s income source? If a sole provider with an unstable income who spends all of the income each month, the need for a liquid cash reserve is high. 
• Does the doctor own the practice, work in a clinic, medical group, hospital or healthcare system? In other words – employee (less control) or employer (more control). 
• What is the doctor’s medical specialty and how has managed care penetrated his locale, or affected her focus? What about a DO, DDS/DMD or DPM, etc.
• How does the family use its income each month; does it have a saver, spender, or investor mentality?  
• Does the family anticipate the possibility of large expenses occurring in the future (medical practice start-up costs or practice purchase; children, medical school student debts; auto or home loans; and/or liability suits, etc)?  
• Pan physician lifestyle?

The Past 

In the ancient past, a doctor may have opted for a nine-twelve month reserve if the need for security was high – and a six-to-nine month reserve if the need for security was low. But today, even more may be needed.  How about 15-18 months, or more? Perhaps even 24 months!

So, the following questions may be helpful in determining the amount of reserve needed by the physician: 

1. How long would it take you to find another job in your medical specialty if you suddenly found yourself unemployed – same for your spouse?

2. Would you have to relocate – same for your spouse? 

3. How much do you spend each month on fixed or discretionary expenses and would you be willing to lower your monthly expenses if you were unemployed? 

Assessment

Once the amount of reserve is determined, the doctor should use the appropriate investment vehicles for the funds. 

At minimum, the reserve should be invested in a money market fund. For larger reserves, an ultra-short-term bond fund might be appropriate for amounts over three-six months. While even larger reserves might be kept in a short term bond fund depending on interest rates and trends. 

So, what do the initials M.D. really mean? … More Dough!

How much reserve do you have and where is it stashed?

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