Ensuring a Healthy Financial Future: You Have Options

Last Updated on August 8, 2022 by Laura Turner

Maintaining a healthy diet. Keeping up with routine medical appointments. Getting a good night’s sleep. Science repeatedly demonstrates that these fundamental practices can ward off disease and increase longevity. As a medical student, you’re no doubt already steeped in the data.

But some of the journal articles you’ve read don’t make the connection between physical health and financial health. Consider these statistics:

• Those who live from paycheck to paycheck may not have the means to shop for fresh, healthy foods, which are growing more expensive every day. Grocery store prices rose by 1% in February 2022 alone and by 7.9% just a year ago. Produce was one of the hardest-hit categories, rising twice as much as other grocery product categories.

• Nearly one out of four Americans avoid going to the doctor, due to rising medical costs. They’re skipping routine exams and blood work and not taking their medicines as prescribed to save money, even if they carry health insurance.

• The number of Americans who work two or more jobs to make ends meet is also increasing. Some even hold down two full-time jobs, particularly when they can work remotely. It’s tough to maintain good sleeping habits with so demanding a work schedule.

Financial Stress Increases Health Vulnerability

We know that any kind of stress increases your chances of falling ill. Patients are more at risk for cardiac problems, inflammatory diseases, and mental health issues, for example. Unfortunately, people experiencing stress are more likely to turn to unhealthy coping habits like overeating, consuming excess alcohol, and using drugs to escape. And that only compounds their problems.

Financial stress is one of the most commonly-cited categories of stress overall. According to one study, 64% of respondents reported experiencing financial stress. That cuts across all demographics but women and members of Gen Z appear to be afflicted in greater numbers. Minority communities are at greater risk, as well. The pandemic only exacerbated the disparity, with minorities experiencing more frequent job losses.

All of these data underscore that financial stress is a serious social issue—one that physicians, health insurers, legislators, and families should be focused on solving. But bringing it down to the personal level for a moment, how do you prevent yourself from becoming part of these statistics? The answer is two-fold: financial literacy and financial planning.

The Dangers of Financial Illiteracy

It’s a cruel irony. People who don’t have or don’t know a lot about money, unfortunately, often wind up spending more of it than necessary. They make financial mistakes, like neglecting to save for financial emergencies and running up expensive credit card debt. Most students graduate high school—and even college—without having taken a single course in personal finance. Only 21 states mandate finance classes in high school. The implications aren’t difficult to imagine. If you can’t balance a checkbook, you’re more likely to get dinged with bounced check fees. If you don’t understand compound interest, you can’t anticipate what carrying debt will do to your credit card balances. How about you? Did you take a personal finance class in high school or college? How well would you do on a basic financial literacy test? You might want to try taking one.

Why We Avoid the “I” Word

For many people, one of the more difficult financial concepts to grasp is investing. When to start investing, what to invest in, and how much to invest are all questions that face beginning investors. You probably know what it’s like to be afraid of asking questions—medical school can be pretty intimidating.

As a mom and as a manager, I’ve always emphasized this point: the only stupid question is the one you’re afraid to ask. But when it comes to investing, many people are paralyzed by what they don’t know. Some don’t pursue investing because they can’t frame the questions they want to ask. Or perhaps they don’t have safe role models to turn to. This is another area where minority populations suffer. They’re underserved by the banking industry, which can serve as a great resource for financial advice.

In a nutshell, it comes down to this. Start investing when you’re young. That gives your investments time to grow. Start by investing in companies and industries that interest you—you’re more likely to take an active role in tracking your investments. And invest as much as you can genuinely afford to. As a percentage of your income and depending on your financial circumstances, that figure may change throughout your life. While you’re still paying off your student loans, you may not be able to earmark much for investing and that’s okay. But there are plenty of investment options that don’t require you to commit much. You can try one of those round-up style personal finance apps and invest just a penny with each $3.99 energy drink you buy. It’s a good idea to get into the habit of investing, even if your deposits into your investment accounts are tiny. You’ll already be in the groove once you’re able to start investing larger amounts. You’ll also get used to the inevitable ups and downs of investment markets when the stakes are low, which will help you grow more comfortable with risk.

The Easiest Way to Invest When You’re Working

In 2020, 67% of all employers offered sponsored 401(K) plans—investment vehicles that are managed by professional 401(K) management companies. Some of the more famous 401(K) managers include Charles Schwab, Fidelity, and Vanguard. These accounts are tax-advantaged retirement plans that allow you to invest money without paying taxes on your gains until you withdraw them. The trick is not to begin withdrawing your assets until you retire, at which point you’re likely to be in a lower tax bracket. The IRS levels penalties if you take early distributions from your retirement accounts

As the job market has grown more competitive, employers are increasingly using 401(K) plans as a tool to entice highly qualified candidates to join their companies. And yet, only 65% of employees take advantage of this investment opportunity, which often offers the advantage of matching employer contributions. Over the past ten years, the average 401(K) match has varied between 3% and 5% on deposits up to 6% of your salary. But whatever the match rate and total matching limit, employer 401(K) contributions are free money—that will grow as quickly as your own deposits. So don’t be one of the 35% of employees who don’t invest in their employer-sponsored 401(K) plans! You’d be missing out on the easiest way to increase the amount you invest and your potential gains.

Your Risk Tolerance May Influence Your Investment Choices

Employer-sponsored 401(K) plans offer a wider range of investment choices than ever before. Generally, when you start to participate in one, you’ll be able to select an investor profile, based on the amount of risk you are willing to take with your investments. Some people are naturally risk-averse. You can choose to invest in low-risk asset classes such as stable value funds and government bonds. But your rate of return will be lower than it would be if you were to choose a higher risk category. Most financial advisors will recommend you strike a balance of low-risk and high-risk funds when you are young and move your money to mostly low-risk asset classes as you near retirement.

401(K)s Offer A Full Menu of Investment Classes

If you work for a publicly-traded company, you may be offered the opportunity to invest in your own company. Sometimes it’s an emotional decision to do so. It was for me. I fell in love with the brand I was working on and knew it was well-loved by millions of other consumers, too. I believed my company was well-managed and had a bird’s eye view into its business strategy. So I invested in the corporation that owned the company I worked for. The upshot? The company didn’t perform as well as some of the other investments I had selected. Nonetheless, I held on to my stock for many years—until I left the company ten years later. They say love is blind. But it can also be plain dumb.

Many 401(K)s also offer the option of purchasing stocks and bonds that you select yourself. As a beginning investor, you may want to avoid this option until you have a firm grasp of investment strategy. On the other hand, you can use the self-directed investment option to invest in one or more companies whose values reflect your own or companies that you have reason to believe will grow and prosper. Normally, employers do place some limits around self-directed contributions. Talk with your company’s benefits manager to learn how your particular 401(K) works. 

What’s New in Retirement Investing?

Depending on the radio and TV stations you tune into, you may have heard a lot of commercials about investing retirement funds in precious metals. Some 401(K) plans allow you to invest in mutual funds that include precious metal investments. Some may allow you to stash your retirement funds in precious metal exchange-traded funds (ETFs).

And if you follow the news, you’ve probably also heard about investing in cryptocurrency. There are plenty of rags to riches stories out there—and some riches to rags tales, too. They’re a different animal, for sure. They’re subject to different rules. You’ll typically hold them in a special place called a crypto wallet. So are cryptocurrency exchanges the right place for you to invest?

According to Russ Karban, a Certified Financial Planner® at Savage and Associates with over 30 years of experience providing investment advice to clients, the answer is, it depends. “Very few companies offer the option to invest in cryptocurrencies through their 401(K) plans. Many IRA custodians won’t allow you to hold crypto in your IRA account because they’re not cryptocurrency custodians. You’ll need to find a specialty custodian if you want to put some of your retirement savings in crypto,” he explains.

Karban has seen an uptick in cryptocurrency inquiries from his clients. He offers a balanced view of the opportunity and is sure to discuss the increased risk involved in crypto investing in his client conversations. Depending on where you are in your career—and your life—he encourages all investors to complete the risk tolerance questionnaire your 401(K) manager or other investment advisor provides you at the beginning of your investment relationship. “Some new investors skip that step, perhaps because they’re too busy or they’re just not clear on how they feel about risk.”  If that sounds a little like you, he suggests you may want to look into the Target Date Funds offered by most 401(K) management companies. These funds are designed to adjust your investment allocations as you grow older and have greater assets and adopt an investment strategy that’s gradually less aggressive and more conservative.

Like many financial advisors, Karban advises people who are just beginning their careers to start with the fundamentals of financial planning. Save money in liquid accounts so you’ll be prepared for an emergency. Manage your debt—which most medical students and newly-minted doctors have plenty of—wisely and carefully. Maintaining a great credit score will help you avoid unnecessary expenses like higher mortgage interest rates. And if you’re intimidated by the whole idea of financial planning, he offers these words of encouragement. “You don’t need money experience. You’ll get that along the way. But if you don’t save and invest, you won’t have either—money or experience.” He echoes many of his colleagues in the personal financial advisory world: focus on the basics and get started as soon as you can for your financial future.