Unlocking Financial Freedom: Strategies for Self-Employed Doctors to Achieve Early Retirement

As physicians, we dedicate our lives to caring for others, but it’s crucial to also care for our own financial health. Achieving financial independence (FI) can offer us the freedom to choose how and when we work, allowing for a more fulfilling and balanced life. I reached financial independence last year, which opened the door for me to retire from my day to day primary clinic and begin doing a work that I was passionate about. Today I want to share how you can do the same thing.

The Path to Financial Independence

Financial independence is achieved by:

1. Building enough passive income to cover annual expenses.

2. Amassing a lump sum of savings and investments to cover living expenses through withdrawals.

3. A combination of both.

The target lump sum or FI number is essential to determine how much you need to stop working full-time. It's calculated by dividing your annual household spending by 4% (or multiplying by 25). For example, if your annual spending is $75,000:

FI Number=$75,0000 /.04 = $1,875,000

For most doctors, aiming for an FI number of $5 million is a prudent goal to support an annual lifestyle spending of $200,000. I wrote about this in my blog post The Pentamillionaire Doctor: Your 10-Step SimpliMD Roadmap. This amount allows for a comfortable and fulfilling life, covering all necessary expenses and providing a cushion for unexpected costs. With no liabilities, this target ensures financial security and independence, allowing physicians to enjoy their hard-earned freedom without the stress of financial constraints. Achieving this level of financial independence means you can focus on what truly matters—whether it's continuing to practice medicine on your terms, pursuing other passions, or enjoying a well-deserved retirement..

Net Worth: The Most Important Number to Track

While the FI number provides a goal for financial independence, tracking your net worth is the most important number for long-term financial health. I wrote about this in my Dr. Inc Blog: Net Worth: The Simple Number That Every Physician Should Know. Your net worth is calculated as the difference between your assets and liabilities. In other words:

Net Worth= Total Assets−Total Liabilities

By consistently tracking your net worth, you can gauge your financial progress and make informed decisions.

Always ask yourself, "How will this affect my net worth?" before making any financial or personal decision. This mindset helps you focus on wealth-building and avoid unnecessary expenses that can deplete your assets.

Calculating Your Net Worth

1. List Your Assets: Include all your savings, investments, real estate, retirement accounts, and any other valuable possessions.

2. List Your Liabilities: Include all your debts, such as mortgages, student loans, credit card balances, and other loans.

3. Subtract Liabilities from Assets: The result is your net worth.

For example, if you have $500,000 in assets (home equity, investments, savings) and $200,000 in liabilities (mortgage, student loans), your net worth is:

Net Worth = $500,000−$200,000= $300,000

Real-Life Examples

Unfortunately, not all stories are as positive. Several older doctors in my community are still working into their 70s because they are not financially independent. They missed the opportunity to plan and invest early, and now they have to keep working to make ends meet. Honestly it saddens me to see it unfold. This is a situation we should strive to avoid.

Consider two physicians: Dr. Frugal and Dr. Spender.

Dr. Frugal: Lived a modest lifestyle, drove a used car, and invested a significant portion of her income. She focused on increasing her net worth by minimizing expenses and maximizing savings. By the time she reached her late 40s, she had accumulated a high net worth and achieved financial independence. Dr. Spender: Enjoyed a luxurious lifestyle, frequently bought new cars, and spent extravagantly on vacations and dining. Despite a high income, she saved very little and accumulated significant debt. As a result, her net worth remained low, and she faced financial insecurity, working well into her 70s to make ends meet

This comparison highlights the stark contrast between two approaches to personal finance and their long-term consequences. While both physicians likely earned similar incomes, their financial decisions led to vastly different outcomes. Dr. Frugal's approach demonstrates the power of delayed gratification and disciplined saving. By living below her means and prioritizing investments, she built a strong financial foundation that provided her with options and security later in life. Her strategy aligns with the principles of financial independence, allowing her to potentially retire early or pursue passion projects without financial stress. Conversely, Dr. Spender's case illustrates the pitfalls of lifestyle inflation and the importance of balancing current enjoyment with future stability. Despite her high income, her spending habits prevented wealth accumulation and led to financial vulnerability. This scenario underscores the fact that high income alone does not guarantee financial success; proper management and long-term planning are crucial.

Finding the Balance

Finding the right balance between frugality and enjoying life is critical. Personal preferences play a significant role in determining your financial strategy. Some may prefer a more frugal approach to achieve FI sooner, while others might find a balance that allows for occasional splurges without compromising long-term goals.

Self-Employment: A Faster Path to Financial Independence

Self-employment can accelerate your path to FI by providing greater control over your income and expenses. It also offers the flexibility to choose part-time work if you prefer to coast-FIRE, a term that refers to maintaining part-time work to cover expenses while still enjoying the benefits of FI. That is exactly what I am doing—because I still like helping people with my medical skills.

By forming a micro-corporation, you can enjoy tax advantages, increased income potential, and greater autonomy. This approach can significantly boost your savings rate and help you reach FI faster.

SimpliMD: Your Partner in Financial Independence

At SimpliMD, our mission is to empower physicians to thrive as both healers and entrepreneurs. For only $99, you can become a member and access a wealth of resources designed to guide you toward financial independence. Our products include:

• Books and Blogs: Gain insights from experienced physicians who have successfully achieved FI. I have a bunch of free e-books for you to download here.

• Courses: Learn step-by-step strategies to manage your finances, invest wisely, and grow your micro-corporation.

• Business Coaching: Get personalized advice and mentoring to navigate the complexities of self-employment and financial planning.

Customizing Your Financial Independence Number

The FI number is a great starting point, but it’s important to customize it to fit your personal situation. Consider additional income sources like Social Security, pensions, or part-time work. For instance, if you expect $24,000 per year from Social Security, you can reduce your FI number:

Adjusted FI Number=$75,000−$24,0000.04=$1,275,000

Investing in Income-Producing Assets

Investing in dividend stocks, bonds, real estate, and other income-producing assets can provide a steady income stream. This can reduce your reliance on withdrawals from your investment portfolio, thus lowering your FI number.

For example, if you have a $200,000 dividend portfolio generating $6,000 annually, you can reduce your FI number by $150,000:

The Importance of Planning

Planning for financial independence involves more than just hitting a number. It requires considering healthcare expenses, life expectancy, and your desired lifestyle. By taking a comprehensive approach, you can ensure a secure and comfortable retirement.

One of our SimpliMD partners that I recommend you consider reviewing this is Earned Wealth Management. They work exclusively with doctors, and understand your world and lifestyle preferences! Tell them SimpliMD sent you when you reach out.

Conclusion

Achieving financial independence is a realistic goal for physicians. By taking control of your finances and leveraging the benefits of self-employment, you can secure a future where you work because you want to, not because you have to. Join SimpliMD today as a member and take the first step toward financial freedom by unlocking $2500 in micro-business products.