Building Financial Immunity

Everyone has had an overwhelming amount of change thrust upon them over the past month. While you’d think that physicians would have a leg up in a healthcare crisis, we have had to scramble too. In my professional life, I got sucked into a COVID-19 vortex.

At our hospital, our pandemic surge plan has lived on paper for over a decade now. Seeing the situation unfold in Italy and New York was like reading the scenarios used in those planning documents. However, operationalizing a surge plan in real life is totally different. It actually gave me a renewed sense of purpose in my career again to use the combination of innovation, leadership, medical expertise, and Excel-Spreadsheet-Ninjitsu that I have honed as an eclectic skills mix. Anyway, I won’t bore you with those details. Instead, I hope to hold your attention with some of the financial lessons that I have learned from the past month or so.

The main lessons:

  • Doctors are not financially immune to a viral pandemic or other economic shocks, but we can build our financial immunity with some basic steps.
  • An emergency savings account or maintaining room on a line of credit is important.
  • Diversify your practice.
  • Have a pre-meditated investment plan.
  • You can get a second chance this time.

Doctors are not financially immune. Even in a healthcare crisis.

No one is really immune to this. Everyone’s toilet paper budget got blown pretty quick. Supply and demand drive price. I called the run on toilet paper years ago. However, the larger impact has been on the income side of the equation. Millions have suddenly found themselves completely unemployed. Some essential employees have managed to dodge the income hit or seen an increase in revenue – but are working for it under stressful conditions.

You would think that physicians would also fit that bill.

Except, we are usually not employees. We have the costs of running our own businesses and most of us are paid fee-for-service. Overhead marches on: pay for the employees that depend on us, rent, professional dues, insurance, and other infrastructure costs don’t disappear. Billable work can evaporate though. Surgeons or anaesthetists who don’t operate, don’t get paid. Clinics that don’t see patients don’t either. Virtual visits help, but they take longer and some governments aren’t actually going to pay for them until months later.

I am luckier than most, but even I have not been financially immune.

As a hospital-based physician, I have minimal overhead. Maybe $50K/yr. Intensive care is also at the center of this pandemic response, and I have been working about double the normal hours. Even though our patient load has been manageable, everything takes longer. New protocols to build, infection control measures, communicating with scared people, change management with staff, and navigating unanticipated problems all takes time. Unfortunately, it is not billable time for fee-for-service docs. I think ED, ICU, acute inpatient docs, and outpatient docs all face this challenge. It is great to have work when many do not, and rewarding to be doing something useful at a time of crisis. However, it also makes the hourly wage about 50% of normal, at best.

So, we are not immune. The exact nature and timing of this financial shock was not predictable. However, that one would occur was. There will also be more in our lifetime in various forms. Both personal and societal. How can we immunize ourselves?

Emergency funds really are important. For everyone.

It is easy for physicians and other high-income professionals to scoff at having an emergency fund. Yes, we all talk about it as a basic part of personal finance. However, most things that an average person would find a difficult financial surprise like a car repair, house repair, or vet bill are still within the range of what we can absorb or pay off with a bit of extra work. Our biggest expense is generally tax, and that is pretty predictable.

Unfortunately, the work-a-bit-extra-to-pay-off-unexpected-expenses approach doesn’t work if you suddenly cannot work. That could be caused by a viral pandemic, like this one. Outsourcing or technological advances, like artificial intelligence, replacing some or all of what you do loom on the horizon. Operating room time could get cut back or clinical programme funding get axed. It could be personal, like an illness or disability in yourself or someone dependent on you. You can purchase insurance against some of these hazards, but not all of them. Further, the most versatile “insurance” that you can have is an emergency cash flow reserve.

High-Interest Savings Account vs Line of Credit.

That emergency fund could take the form of a high-interest savings account with 3-6 months worth of expenses covered or a line of credit with enough room to cover that.

The table below highlights some of the pros and cons of using a HISA vs a LOC. While mathematically sound to use a LOC, it may be behaviorally more difficult. Especially during an actual crisis which is when you need it! Objectively, we spend way more time in the “good times”, but the bad ones carry more weight subjectively. This is why it is vital to consider this carefully in the context of your own situation and personality. Early in our financial lives, we paid off our debt aggressively which gave us the option to make a deliberate choice. We have also lived through good times and bad a few times which has given us the confidence to know that they feel terrible, but they also pass.

emergency fund

Personally, I still prefer to keep an unused line of credit available instead with enough room to bridge cashflow crunches. I like to stay fully invested in equities that have more expected long-term return and favorable tax treatment than holding cash. We have buffer in our spending budget, plan major purchases in advance, and have no problem ignoring an empty line of credit. In fact, whenever I do use it, my wife is right on top of me to pay it back off. She does our accounting and is very debt averse. These characteristics are important to consider honestly because there are pros and cons to either approach.

Diversification: not just for investment portfolios.

The more you peg your financial well-being to fewer things, the more specific risk you have. This applies to our incomes as well as our portfolios. A variety of income sources helps to mitigate that risk.

There is risk to taking a too-narrow focus within medicine.

Medicine is not a homogeneous field. There are areas that pay way better than others. Without getting into the politics of that, it has arisen due to a mix of what diseases are a political priority, changes in efficiency from advances in technique or technology, the risk of time and money to succeed, and a general bias that favors procedures over talk. Even within a specialty, there is the well-compensated “gravy” and there are the poorly paying tasks. This “pay relativity” problem has dogged medical associations as long as I can remember. I have also watched docs catch themselves in it.

For example, I have watched people build entire clinics focused on a sweet-spot in the fee schedule. They make out like bandits and then suddenly the fees are changed by the government making all of that infrastructure cost and efficiency at a single task barely viable. They are not only stuck with that cost, but are also stuck doing the same thing over and over again. Boring. It is much less risky and more interesting to have variety in a medical practice.

A variety of income streams isn’t limited to clinical work.

There are plenty of other opportunities for physicians or other professionals to earn money and take on new challenges related to their expertise. Some examples would include course development, administrative or leadership roles, consulting to industry, or even medico-legal work. Most of these are unlikely to pay nearly as well as clinical work does. However, I can tell you that some of my work as a teacher and physician leader has been the most satisfying. I was also pretty grateful for my admin and teaching stipends this past month when my clinical billings shrivelled.

There are many income streams outside of your professional realm worth considering. Most professionals have a variety of interests and developing some of those outside of medicine is important. Not just for income diversification, but to do more than retire from something someday.

Have an investment plan.

Investing is pretty easy when markets just smoothly rise. You predictably put in some money slowly over time, it grows slowly and smoothly, and it will be there in the distant future when you need it. It is soothing. Unfortunately, that is not how markets work in the short-term. In the short-term, they are volatile. Sometimes extremely volatile, like what we saw in March. That volatility threatens investing success. There is a constant inner battle between the mild-mannered doctor and the inner investor beast. The doctor is smart and logical while the beast is emotion-driven and very, very, strong. Having a solid plan helps to keep you focused on a longer time frame and not let the beast smash your portfolio through morphing investing into gambling.

The plan needs to be really simple for the investor beast to understand. The beast doesn’t read well, but it should be written down. Changes should require some sort of “cooling off” period before acting on them.

Key points to an investment plan:

Goals: How much money will you need and when. That helps you to choose the right time frame. Money needed in the short-term should be saved, not invested. To understand that, you need to get a handle on your income, spending, and short-term goals. Invest for the long-term needs. Write that down so that when you encounter short-term volatility, you also remember that it is the long-term that matters.

Risk Tolerance & Asset Allocation. Choose a mix of stocks and bonds that suits your risk tolerance. Make a plan to rebalance to manage risk. Plan when to rebalance in advance so that you are not tempted to market time. Similarly, don’t change your asset allocation on the fly. Your investor beast will want you move to 100% market equities at a market top when it is exciting and add bonds at a market bottom when it is scared. If you are going to shift your asset allocation, make a premediated plan based on a well-defined rationale.

Investing Rules. Do you believe in active management vs passive investing? What is your plan to diversify your investments? Will you use individual stocks or ETFs? Maybe a one-stop asset allocation ETF? Will you put the same investments in all of your accounts or attempt to optimize tax-efficiency across accounts like my Robocorp calculators do with 3-4 ETFs or 4-6 ETFs?

Be explicit about debt. Only use credit cards for convenience and pay them off immediately. If you have a mortgage, will you try to pay it off quickly or invest instead? Will you ever use a line of credit or margin to invest? If so, what would be the specific circumstances and plan?

Having a written investment plan still doesn’t ensure success.

Mike Tyson on Investment Plans

It is still scary and the emotions are high when in the heat of a market battle. I still had my moments of terror watching the markets move up and down 10%/day over the past month.

However, it was much less concerning to me than previous smaller downturns when I didn’t have a plan. In fact, it was kind of exciting to see some of my triggers to rebalance, shift asset allocation, and even use some leverage get activated.

I can honestly tell you that without a pre-meditated plan, I would have been paralyzed into inaction. Incidentally, inaction is not necessarily a bad thing in the long run. The worst outcome would have been to panic and sell at the worst possible time which is much more likely to happen when you don’t have a logical plan and leave it open for your emotions to drive your actions.

What if you didn’t prepare for this current financial crisis?

Well, you have lots of company. Most people did not anticipate this. Even though Contagion and Pandemic were being widely watched on Netflix! If you find yourself under-employed, then perhaps this is a good time to make your written investor policy statement. Use the time to develop some of your other interests or relationships to build holistic wealth. There is even a chance for salvation if you didn’t have an emergency funding plan.

With the majority of people getting caught up in a legislated financial crisis comes the political pressure for a bail-out. Usually, you would be on your own. Especially if part of a small affluent voter segment (no one will feel bad for you nor anyone seeking votes particularly care). However, you can get some basic life support and a second chance this time. I will cover an overview of the options in my next post when I get into the details of the Canadian Emergency Business Account (CEBA). I plan to follow that with the Canadian Emergency Wage Subsidy (CEWS), Small Business Wage Subsidy (SBWS), and the Canadian Emergency Commercial Rental Assistance (CERCA) programmes. I promise to use pictures and links.

Note: For CERB, check the CRA site as it seems to expand inclusion every few days.


  1. Thanks for taking the time to post even in the midst of what must be an unprecedented surge in your work place! While this post covers information that we should know as regular readers, at least to me this post couldn’t have come at a better time to remind ourselves to stick to our plans and not trying to rationalize ourselves out into making a bad financial decision. Loss aversion is real and I’m seeing my colleagues left and right trying to rationalize their way out saying this time it’s different, and as health professionals we can do better market timing because “we are in the field”. Having a pre-meditated financial plan really gives us a good perspective to focus on the big picture.

    1. Thanks Mark. Knowing what you should do and actually doing it under pressure is very difficult. I struggle with it. It is also human nature to always think you are living in unprecedented times. We are in that history doesn’t repeat itself exactly, but it often rhymes. Trying to predict what will happen in the markets reminds me of what I have seen in my career in the ICU. We think we know the pathophysiology of something. Then, we develop an intervention based on a really good narrative. We feel good because we are “doing something” and initial small studies are often self-affirming. Then, we do a larger study and find it to be harmful and that doing nothing is better because there was actually more complicated other parts of the physiology that we didn’t even know existed. Still, that doesn’t stop us from continually trying to do more.

  2. What has happened this past few months is truly shocking. Never seen anything quite like this that puts a financial hit on so many levels.

    My workplace mandated a 40% reduction in draw based on our W2 from 2019 and even before that got implemented increased it to a 60% haircut when the patient volume numbers were even worse than anticipated.

    One surgicenter was shut down for the last months, some surgical specialties like ent closed their doors for the last month as well. Radiology took a big hit as elective imaging such as mammograms etc went away.

    I thought I was really diversified having a lot of real estate income from syndication etc but that too is at risk as people may not be able to afford to pay rent and laws are in place for their protection where can’t evict etc. Already a few syndications have said they are suspending distributions. So it would have been painful if I had to rely on the expected income from that.

    1. Yeah. This has been really far reaching. However, when there is a real crisis it usually is. A big ear, a banking crisis, a pandemic. Our economies and lives are very integrated like a big machine with lots of moving parts. That is great when the machine is running well, but if one part of the machine gets badly damaged the whole thing shuts down.

  3. Once again, our telepathy is in evidence. Thank you for taking our shared thoughts and channeling them into words more eloquently than I could have.

    If I host a financial immunity party where you and Xray come over and we inoculate our portfolios with some weakened strains of vintage 2008 recession a la Edward Jenner, do you think it might protect us from a 2020 depression?

    1. Hey CD. Thanks for stopping by. I enjoyed reading your blog entries while taking breaks last month. Right now, I’d go for pretty much any party! Currently breaking out the D&D to extract my kids from their devices.

  4. Even though I don’t need it I got the full CEBA. Initially I was not going to apply. However Canada is racking up huge massive deficits now. The people who are going to pay for this as usual are the ones who never receive any benefits: those who are prudent, responsible, don’t live beyond their means and don’t live on credit. Canada will be trying to squeeze out every cent from the financially prudent and responsible. I can see new taxes on capital gains, dividends and likely a wealth tax especially from those “rich, wealthy tax cheating “ MD’s. I’m getting the CEBA to get the $10K free money to pay for all the new taxes. If I’m going to pay for everyone else’s benefits I may as well receive some too.

    1. Yeah Monterey. I think we all can see what is coming. Anything not nailed down is going to get hoovered to pay for all of this. There are going to be diminishing returns taxing raising taxes much more I think because people who can will adjust to work/spend less. I already started down that path when the marginal rate hit 54%. My wife keeps commenting as more is spent each day that I am picking the right time to scale back. This will be a long haul to pay back as a country.

  5. I found this to be super helpful not just for doctors. As someone who studied this in school and have the opportunity to apply financial optimization techniques at work, this is very eye-opening. Thank you for sharing and I will spend the next few weeks digesting your content.

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