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Think Differently of Your Emergency Fund

Think Differently of Your Emergency Fund

January 24, 2020

When it comes to doctors, having an emergency fund is nearly always a good idea. An emergency fund is a liquid – or accessible – reserve of money in the event a larger-than-normal sum of money is needed. Generally, these funds are set up in safe investment or savings accounts in the specified amounts, oftentimes, 3-6 months of expenses, more or less. While being able to absorb an emergency can be critical to financial success, I think it’s important for physicians to look at an emergency fund from a different angle.

While emergencies are looming, not all emergencies require 3-6 months of expenses. More times than not, an emergency requires more time than money, and if money is required, a checking account can usually suffice. For many catastrophes, insurance is available, so covering an insurance deductible or copay doesn’t require an account liquidation.

A physician encounters more opportunities than emergencies (outside of the hospital and clinic!). So instead of locking up 3-6 months of expenses in an emergency account yielding next to nothing in interest rates, consider structuring a tiered approach, where the full emergency fund isn’t just a clone of a savings account. While it might be important to keep some money in a super safe investment strategy, a savings account might suffice for a healthy portion of this. The other tiers to a physician’s opportunity fund might include amounts a little larger than 3-6 months (since it’s not in a low interest account and can be repositioned as long term savings or even to help pay off student loans), and it’s likely a good idea to get that kind of money off the proverbial sidelines in a solid taxable investment strategy (I think tax management here is important). The opportunity account doubles as an emergency account. If the account is fully invested, the values are up, and you know you’ll need the money soon, go ahead and liquidate some of the account. Sell shares when the values have appreciated. If you know you’ll need the money soon, and the values are considerably lower than the original purchase price, you might consider leaning on the tier left in the savings account until values can cycle through. The sooner you know you might need the money typically helps the value at liquidation.

One good exercise in creating an opportunity fund is to identify what potential opportunities would provide positive outcomes. Do you want to invest in real estate and what does that actually mean? (Do you want to be a landlord or hire a property manager?) Are there opportunities to buy stock in your practice as a partner? Do you have a network into surgical centers or ambulatory centers? Are you, your friends, or partners inherently entrepreneurial? Do you have ideas on how to improve your specialty of medicine? Is there a hobby, product, or activity you’re especially passionate about that could be monetized? Are there companies building platforms and businesses you admire? These questions, among others, might help a physician identify what an opportunity might look like.

Since physicians are generally such highly productive producers, it’s so common that they “rub elbows” together with many other highly productive and successful people. Whether it be on vacation, in their neighborhoods, at work, or many other places, opportunities are often right around the corner. All people are different, but I see many physicians as doers, rather than thinkers. So when opportunity presents itself, a lot of physicians are on board immediately (some too quickly!). These opportunities, when thoroughly planned out and vetted by a trusted team of professionals, needs the two economical resources we have available to us: Time and Money. If either one, time or money, are in short supply (usually time is the more valued resource), the opportunity may not be right, but if all the necessary resources exist, it could be the perfect to align investment and passion.

Opportunity knocks in many ways. The opportunity doesn’t necessarily need to be an arduous entrepreneurial adventure; it might have nothing to do with generating more money. An opportunity might be the chance to take a month off work to explore a hobby or join your family on the vacation of a lifetime. Opportunities come and go, and sometimes it makes perfect sense to grasp the opportunity, and other times it’s perfectly fine to wait for the next one. Active and highly productive people ongoingly get invited into many opportunities, and while the future is unpredictable, preparing for it is often within our control.