9 Financial Mistakes New Health Professionals Should Avoid in 2023
Congratulations on starting your journey as a new health professional! With this great responsibility comes a hectic schedule, which makes it easy to overlook the importance of managing your finances when you are first getting started. In this guide, you'll learn about the ten financial mistakes new health professionals should avoid to help you build your new health business right from the start.
Before we dive in, did you know as a new health professional, there are different requirements for business registration? Get our free guide, “New Business Guide to Business Registration,” to learn more about registering your business!
Short Summary
Establish a budget, understand income/expenses and set financial goals to make sure you plan for long-term success.
Create sufficient insurance coverage and debt strategies to protect against losses.
Make your retirement savings a priority, invest wisely and stay up to date with personal finance knowledge.
1. Failing to Create a Budget
A common financial mistake new health professionals make is not establishing a budget for their business. Without a clear understanding of your income and expenses, it will be difficult for you to set and reach financial goals. Your business budget can help you plan for big expenses and reduce the month-to-month cash flow burden.
Consulting an industry-specific financial expert like Tyagi Group or an online course like Business Foundations can help you develop a business budget to manage your income and meet short-term and long-term financial goals. It can also help you build an emergency fund, with at least 3 to 6 months' worth of business expenses saved to prepare for slow seasons, unforeseen events and emergencies.
Understanding Income and Expenses
Two of the most important metrics to know as a new health professional are income and expenses. Income is money coming in, and expenses are money going out.
Your income can fluctuate significantly due to seasonal demand, the number of hours you work, and other factors like vacation or how quickly your practice grows. Establishing a budget is vital for you to keep your finances under control. For example, if you work 36 hours per week in peak season and only 20 hours in the low season, you could create a budget to cover your expenses during both periods effectively.
Income is one of many factors that should be considered when creating your budget. You should also look into your costs for running your business, such as rent, utilities, new equipment needed and more. Many health professionals forget to account for unexpected yet very probable expenses.
Setting Financial Goals
Establishing financial goals is vital in achieving and planning for your financial goals. Common examples of financial goals include paying off debt by a specific date, setting up an emergency fund of 3 to 6 months to cover business expenses, and saving a particular amount for retirement.
To achieve these goals, you would have to budget, monitor your expenses, establish automatic savings, and make smart long-term investment decisions for your business. Remember, consulting professional advice from a financial expert or accountant can be invaluable in achieving your financial goals. That's why at Tyagi Group, we include strategy calls in our accounting packages to help you build a plan for financial success! Use this link to book a 20-minute discovery call with us!
2. Overlooking the Need for a Financial Plan
Having a financial plan is very important for the long-term success of your business because it provides a roadmap for making informed financial decisions and setting yourself up for financial stability. A financial plan should include strategies for tackling debt, saving for retirement, and investing wisely.
Prioritizing Spending
Prioritizing spending is a vital part of financial planning. It involves assessing the costs and benefits of each expense and ordering them according to importance. This helps ensure that your essential needs, such as rent and utilities, are met, your credit is safe due to the timely payment of bills, and your financial pressure is reduced as you begin saving for the future.
Addressing Debt Early
Many new health professionals have student debt, and addressing debt early has many advantages, including improving your credit score and financial stability. Creating a budget, managing your debt payments, setting up financial goals, and prioritizing spending are effective strategies for managing your debt. Creating strategies like making extra payments, the avalanche method, which involves making minimum payments on all debt, then using any additional funds to pay off the debt with the highest interest rate, or the debt snowball method, which involves making minimum payments on all debt, then paying off the smallest debts first before moving on to bigger ones, can help pay off debt quickly.
3. Insufficient Insurance Coverage
Insurance coverage is essential for new health professionals, as it protects you from unexpected and accidental events and significant financial losses due to unforeseen costs. Many health professionals need more insurance coverage when they start their careers. So to help you avoid that, let us go through the different types of insurance that may apply to you.
Disability Insurance
Disability insurance provides income replacement if you cannot work due to an unexpected injury or illness and offers financial security. Factors such as specialty, physical risks associated with your work, potential difficulty in returning to your duties fully after a disability, and your average income all contribute to the cost of disability coverage for health professionals. Acquiring disability insurance early in your career can help cover medical bills, living expenses, and other associated costs. The cost for this insurance is also lower the younger you are when purchasing, so you can save in the long term.
Term Life Insurance
Life insurance provides financial support to your beneficiaries by paying out a sum in case of the policyholder's unexpected passing. It is recommended to avoid whole-life insurance and consider obtaining term-life insurance when starting as a new health professional. This is because term life insurance is cheaper than whole life insurance and covers you for a set period, which makes it a less complex product than whole life insurance.
4. Improper Debt Management
Debt management is often the first step to achieving financial freedom for new health professionals with debt like student loans. To tackle your student debt, you can create personalized debt strategies based on factors such as income, cost of living, and others. Managing your debt can significantly impact your long-term financial security and business success.
Personalized Debt Strategies
Formulating personalized debt strategies involves creating debt consolidation plans that consider your financial situation and goals. This may include focusing on high-interest debts first, combining debts, and formulating a feasible repayment plan.
5. Overspending and Lifestyle Creep
Overspending and lifestyle creep can lead to financial stress for many health professionals. Lifestyle creep occurs when your spending increases at the same time as your income, and you tend to spend excessive money on non-essential things. This usually happens when you don't create a budget or business financial plan. Practicing delayed gratification and balancing savings and spending can help prevent overspending and the negative consequences of lifestyle creep and help you grow your business faster. If you earn $1,000 more in sales in a month but spend it all on additional incremental expenses, it may not feel like your income is increasing.
Practicing Delayed Gratification
Delayed gratification involves forgoing immediate rewards to receive more substantial rewards later; this can include saving for six months for the new Dyson Vacuum you want. To practice delayed gratification, consider setting attainable goals, monitoring progress, and rewarding yourself for achieving milestones. It can also mean avoiding reactive spending and understanding the difference between 'nice to have' and 'need to have' expenses. Gradually increasing your lifestyle rather than making sudden changes when your first paycheck arrives can help prevent lifestyle creep and its negative financial impact.
Balancing Savings and Spending
Maintaining a balance between savings and spending is important for reaching your financial goals and making sure your business is set up for financial success. You can achieve this by creating a budget, tracking expenses, setting financial goals, saving funds for emergencies and prioritizing spending from essential to non-essential. Properly managing your income and expenses can help you avoid taking on more debt, needing more insurance coverage, making bad investment choices, and insufficient retirement savings.
6. Insufficient Retirement Savings
Retirement savings should consider your expected lifestyle when you retire, factoring in inflation. If you have an RRSP contribution room, you should look into contributing more to your RRSP when you can. You should prioritize retirement savings and paying off your student loans for long-term financial security.
Calculating Savings Goals
Establishing savings goals towards retirement motivates and encourages commitment to your savings plan. Setting short-term, mid-term, and long-term savings goals is vital to achieving financial stability for you and your business. To maintain motivation and commitment to your savings goals, set attainable goals, monitor progress, and reward yourself for achieving milestones.
7. Neglecting Financial Education
Continuing financial education is necessary for all health professionals because as your business grows and changes, so do your financial needs, goals and challenges. It is important to educate yourself on business finance on an ongoing basis. Gaining financial knowledge and developing skills to manage your finances will lead to better financial decisions and a secure financial future. Tyagi Group’s Business Foundations is a great financial course for health professionals like you as a stepping stone to start making smart financial decisions.
Importance of Continuing Education
Continuing education allows you to boost your skills, stay informed about the latest advancements in your field, and significantly increase your chances of making your business more successful. For your business finances, continuing education can help you stay current with the financial news and trends, which will help you to make better financial decisions for you and your business.
Working With The Wrong Financial Advisor
It's crucial as a new and veteran health professional; you do your due diligence when choosing a financial advisor. Things to consider are health industry knowledge, experience and professional credentials, and if your vibe matches theirs.
Resources for financial educaiton
There are a lot of resources available for financial education, including courses like Business Foundations. Taking advantage of these resources can help you gain the knowledge to make mindful financial decisions and achieve your financial goals.
8. Overlooking the Impact of Relationships on Finances
Relationships significantly impact finances, and as a new health professional, you may not consider their importance. However, as your business gets more successful, you'll gain team members and contractors and have more decision-makers involved. Financial issues can generate tension within those relationships leading to negative impacts in both professional and personal relationships. To avoid that, you should prioritize ongoing communication with all financial decision-makers.
Achieving Work-Life Balance
Work-life balance is essential for better physical and mental health, increased job satisfaction, permitting more time for personal interests and relationships, increased productivity and fewer sick days. Boundaries between work and home life can include taking regular breaks, delegating work, and setting achievable goals. These are all essential strategies for a healthy work-life balance. These simple steps can also help you tackle your finances clearly.
Investing in Relationships
Investing time and effort in relationships can impact your well-being and financial health. By dedicating time to your business partners and having open communication with your team, you can have strong business relationships and avoid the financial consequences of disagreement between business partners.
9. Ignoring Time Limitations
As a new health professional, it is important to recognize that time is a limited resource when planning for your financial health and future. Many health professionals maintain the perspective of "Someday I'll tackle that..." and that someday continues to be pushed. Plan for what really matters to you, use your income to maximize time, and do the things you love, so you can focus on planning for your financial future when needed.
Conclusion
Avoiding these ten financial mistakes is key to a bright financial future as a new health professional. By establishing a budget, creating a financial plan, obtaining sufficient insurance coverage, managing debt, practicing delayed gratification, balancing savings and spending, making wise investment choices, continuing financial education, investing in relationships, and addressing time limitations, you can achieve financial security for yourself and your business. Your financial journey may be challenging, but you can successfully pave the way to financial freedom with the right knowledge and strategies.
Starting a health business is already tough…then add business finances and taxes to the mix. Don’t let your business finances keep you up at night–set your business up right from the start with Tyagi Group’s Business Foundations: The Online Course For New Health Professionals To Understand Your Business Finances And Tax Requirements.
Frequently Asked Questions
What is the biggest financial mistake people make, in general?
The biggest financial mistake people make, in general, is failing to plan for their future by not saving and investing for retirement. This simple mistake can lead to serious consequences down the road, making it important to prioritize long-term goals and regularly review your finances to ensure your plans remain on track.
How do you move forward from a financial mistake?
Taking responsibility for your mistake and using the nine steps outlined in this blog can help you move forward from any financial mistake that you may make. Acknowledge the mistake, talk about it, focus on the present, keep learning, and let go - these strategies can help you rebuild your confidence and learn from the experience.
What are the biggest money mistakes new health professionals often make?
New health professionals often make financial mistakes such as overspending, making impulse purchases, taking on too much debt, and not saving enough for a rainy day. These mistakes can have long-term effects on financial security and can be easily avoided by budgeting, shopping around for the best deals, and planning to save emergency funds.
