Andrew Wilner, MD, FACP, FAAN, offers his insights on financial planning for locum tenens physicians.

One privilege of working locum tenens is the ability to be your own boss. You decide when, where, and how often to work. In these days of giant corporations running the medical-industrial complex, many physicians find self-employment empowering. However, as wise sages have observed, “With great power comes great responsibility.” Perhaps the most complex task as a self-employed physician is to ensure your financial independence in the future.

Early in my career, I worked as a private practice neurologist and never gave much thought to finance. My paycheck arrived each month with an assortment of deductions. I didn’t know enough to ask questions. When I began working locums, I realized it was my responsibility to make informed financial decisions. Finance isn’t rocket science, but most physicians, including me, received little if any business training in medical school or residency.

After some missteps, I got a handle on my finances. Here are the highlights of what I’ve learned about three essential topics: Compensation, Retirement, and Emergency Fund.* For a more in-depth discussion, check out my new book, “The Locum Life: A Physician’s Guide to Locum Tenens.”

Compensation

Let’s be frank — compensation is critical. While there may be a few locum tenens docs who work for sheer pleasure, most of us need to earn a living. As a locums doc, you’ll usually receive an hourly wage. There may also be overtime, night call, carrying the pager, and holiday pay.

If you’ve chosen a staffing agency like CompHealth, your agent can calculate how those hours translate into a weekly paycheck. Total compensation depends upon how much you work. In the current climate, there’s an excess of locum tenens jobs available. You can work as often as you want.

If the hourly rate isn’t adequate, discuss whether there’s any “wiggle room.” Sometimes there is, and sometimes there isn’t. Once I got a pay increase just by asking. The agent discussed my request with the client and came back with a revised contract. Don’t be shy to ask.

Once you have a salary estimate, see if it meets your expenses (i.e., car payment or lease, entertainment, food, mortgage or rent, student loans, utilities). Noncash benefits include travel to and from the worksite, a place to live, a rental car and malpractice coverage. However, your paycheck does not include deductions for federal and state taxes, retirement, dental, disability, health, or life insurances. It’s your job to budget for these.

Retirement

I think a better word than “retirement” might be “financial independence.” Some physicians love their work so much they never want to retire. A few can’t wait. The goal is to accumulate enough savings to stop working when it suits you.

Achieving financial independence requires knowledge, planning, and discipline. If you are self-motivated (as a locum tenens physician you probably are), you can avail yourself of books and websites that offer financial independence information. Two popular physician-authored blogs that I found helpful are The White Coat Investor and Physician on Fire. Numerous other blogs and podcasts address financial independence.

Many physicians find it helpful to discuss their situation with a financial planner. If you hire one, fee-based financial planners may be more cost-effective than those who work on commission.

Because of the value of compound interest, the sooner you start saving, the sooner you will accumulate enough to retire comfortably. Here’s one practical tip: the US government allows you to create a savings plan called a solo 401(k). As a self-employed individual, you are both employee and employer. As the employee, you can deposit $19,000 per year ($25,000 per year if you are over 50 years old). As the employer, you can add 20% of your income to the 401(k). These retirement contributions reduce your current taxable income.

Once you’ve contributed to your 401(k), how you invest the money is up to you. Stocks and bonds comprise the typical portfolio. When you withdraw the funds during retirement, they will be taxed, but your tax bracket will likely be lower than it is now.

You may also qualify for a Roth IRA or other retirement plan. Tax laws are always changing and unforgivably complex. I rely on a certified public accountant (CPA) whose practice focuses on physicians. (Contact me at my website for a recommendation.)

Emergency fund

While it may be your intention to work 12 months a year, life may get in the way. You or a family member may become ill, limiting your income and increasing expenses. You might have an unexpected addition to the family. Your house might burn down. There might even be a dry spell for jobs, and you might have to wait a month or more to get an assignment.

The possibility of these unplanned events demands “money for a rainy day.” Many financial advisors recommend 3-6 months of expenses in an interest-bearing cash account. Others suggest that an emergency fund be kept in an easily liquidated brokerage account. Discuss this scenario with your financial planner and CPA.

My conclusions

As a self-employed locum tenens physician, you have unrivaled flexibility regarding how often you work and how much you earn. To ensure your financial future, calculate your expenses and work accordingly. Start saving early and maximize retirement plan contributions. Avail yourself of online wisdom and books. Consult professionals such as a CPA and financial planner.

*Disclaimer: I am not a CPA or financial planner. The above advice promises no guarantees or results. Please consult professionals for professional advice.