FEATURE ›› FINANCE

Learn to MANAGE YOUR MONEY Now

Make your personal finances a priority now – and always.

BY WILLIAM J. LYNOTT

If you’re like many physicians, you keep a more watchful eye on the fiscal health of your practice than on your personal financial affairs — and that’s not a good idea. These are two separate challenges; both need and deserve your best efforts.

“It’s not at all unusual to see professionals and small business owners doing an excellent job with their operating statements and cash flow while failing to manage their earnings skillfully,” says financial consultant Robert Morse, New York. There’s no better time than the present to review your personal financial health and your plans for a secure future.

Here are a few guidelines for running a financial checkup.

1 NEVER LET ANY OF YOUR MONEY LIE IDLE

Open a money market account at your bank. Then ask the bank to link your new account to your checking account so you can transfer money between them by phone or online.

From that point on, never make a direct deposit into your checking account. Make all deposits into the money market account where they will immediately begin earning interest. While interest on money market accounts is low, it’s a temporary situation, and money market accounts will always pay more interest than checking accounts.

Transfer money online or over the phone to the checking account only as needed to cover the checks you write. The banks have made this technique so easy to use that there’s no longer any reason not to use it.

2 SAVE MONEY BY PAYING BILLS ONLINE

While you’re talking with your bank, ask about online bill paying. With the cost of postage at nearly 50 cents for each check mailed plus the time and expense for buying and writing checks, paying bills electronically will save you time and money.

3 DON’T RUSH TO PAY BILLS

There’s good reason why checks are slow to come in when people owe you money — because hanging on to cash as long as possible keeps that money available to draw interest.

That’s why it’s important for you to set up a system to pay your bills just before they’re due. This step will help you move toward more profitable cash management.

4 MAXIMIZE YOUR TAX-DEFERRED RETIREMENT ACCOUNT EARLY

“Don’t wait until tax filing time to fund your retirement account each year,” says CPA, Carol I. Katz, Baltimore. “Making the maximum allowable deposits into your 401(k) or IRA account as early in the year as possible not only reduces your tax load, it adds months to the tax-deferred compounding of your investment.”

If you’re not in a position to make the maximum allowable contribution, making the highest contribution that finances will permit is a wise move from both tax and investment points of view.

5 LET YOUR COMPUTER HELP MANAGE YOUR PERSONAL FINANCES

You’re probably using sophisticated software to handle finances in your practice. The same kind of assistance is available to help with your personal finances. Financial software such as Quicken, Money, or other programs are infinitely easier to use than they were just a few years ago. More importantly, they teach you in dramatic fashion how much you can benefit from a sensible money management system for your personal finances.

6 NEVER FORGET TAXES

If you’re like most professionals, you probably think of every dollar as being the same as every other dollar. In truth, there are two kinds of dollars: before-tax dollars and after-tax dollars.

After-tax dollars are real dollars; when you spend them, each one is worth 100 cents. Before-tax dollars are quite different. While they may look the same on paper, a before-tax dollar is something of an illusion; it’s worth less than 100 cents. How much less depends on your tax bracket and how well you do your homework.

That’s why working with your accountant to minimize your tax burden is so important.

7 DON’T FOLLOW THE HERD

Most financial professionals agree that investment in stocks is a necessity for building a solid financial future in our modern economy.

When it comes to investing in the stock market, human nature likes to play tricks on us. When the market is reaching new peaks, we can’t wait to jump in. When it stumbles and falls, we stop investing, or worse, we start selling. As a result, the typical investor tends to buy high and sell low — exactly the opposite strategy needed for profitable investing.

It’s best to have a long-term investment strategy and stick to it during the market’s inevitable ups and downs.

8 DON’T TRY TO TIME THE MARKET

“It’s better to invest regularly, without regard for the general condition of the economy or the direction of the stock market,” says Darrell J. Canby, CPA/CFP, President Canby Financial Advisors, Natick, Mass.

“Timing the market, trying to determine the best time to buy specific stocks, rarely works,” he says. “You might get lucky once in a while, but your luck isn’t likely to last.”

Waiting for stocks to hit “bottom” before you buy or hit their peak before you sell has long since proven to be a loser’s game. Select stocks or mutual funds on the basis of sound fundamentals.

9 DON’T NEGLECT ASSET ALLOCATION

In the minds of many financial advisors, allocating your assets skillfully among the various classes of investments is more important than your selection of individual stocks or mutual funds.

When you start investing, should you have 10% of your portfolio in stocks, or should it be 80% or 90%? What about the rest? Should you invest the balance in bonds and CDs, or should you stuff it under the mattress?

For people investing over the long-term (10 years or longer) some advisors suggest a balance of 60% stocks, 30% bonds, and 10% cash or cash equivalents. For really long periods, say a young physician just starting in practice, as much as 80% or 90% in stocks might be appropriate.

Chances are that your bank or brokerage firm has published guidelines for asset allocation in differing circumstances. In the end, however, the choice is yours. No one knows your investment goals and your tolerance for risk as well as you do.

Once you establish the right asset allocation for your circumstances, it’s important to re-balance at least once a year.

“Quite often people invest and then never make any changes,” says Seth Ingersol, President, Premier Wealth Management Group, Tempe, Ariz. “Certain sectors of the market obviously perform better or worse than others at given times. This can alter your allocation mix to a level that may not be appropriate given your timeframe and risk for tolerance. The days of letting investments sit and never addressing them again are likely over.”

NO TIME LIKE THE PRESENT

How much money we earn is the yardstick by which many of us measure financial success. For those in the know, however, earnings are only one-half of the money equation. Equally important is the manner in which we manage those earnings. Making the right money decisions is an essential ingredient in the recipe for long-term financial success. Now is the time to sharpen up your personal money management skills. NRP

Mr. Lynott is a freelance writer who specializes in business management as well as personal and business finance. Visit www.blynott.com for more information.