Money habits doctors should make in 2021

While 2020 has been a challenging year for physicians, there have been some silver linings. Doctors looking to improve their financial outlook in 2021 can look to these strong pieces of financial and investing advice, generated by the COVID-19 pandemic.

Here's our list of the best financial advice in 2020.

The best in personal finance

Let's start by looking at some of the best day-to-day advice. These are ideas that you can apply to your everyday life. Here's the best personal finance advice we've seen so far in 2020.

Focus on your emergency fund

An emergency fund is always a good idea. But 2020 has brought that into focus more than any time since the 2008 financial crisis.

In simple terms, an emergency fund is a pile of money that sits in your bank account. It's not invested. You don't spend it—except in an emergency.

What counts as an emergency? Loss of employment is a big one, and 2020 has seen plenty of that. An unexpected trip to the hospital counts as an emergency, too—after all, you doctors call it the emergency department for a reason.

More benign examples might include an expensive car repair or unexpected home maintenance. The go-to example for my wintry Rochester, NY, home: If your furnace breaks in January, you need to have money to fix it.

Most financial advisors would suggest that you first build a small emergency fund—it might cover an unexpected $1,000 expenditure. This isn't enough to cover long-term unemployment but should help if you need cash for an immediate need.

Later on, one should build a large enough emergency fund to cover 3-6 months of living expenses. The point of this sized emergency fund is to cover a life-altering event.

Building this kind of slack into your life is perhaps the biggest personal finance lesson from 2020.

Now more than ever: Make a budget

When faced with personal finance troubles, a budget becomes more important than ever. Why?

A budget is an ultimate tool for measuring the money you already have and planning the money you'll spend. These two actions—measuring your money and planning your spending—are exactly the actions you should be taking if you lose your job due to a pandemic.

While it can be a chore to maintain a detailed budget, imagine these two scenarios.

1. You lose your job. But you know that you have $6K in the bank, and you know that you can lower your spending to $2K per month. You are confident that you have three months to find a new job.

2. You lose your job. You think you have about $6K in the bank…or was it $4K? Either way, you have no idea how much you spend every month. Therefore, you have no idea what your future looks like.

2020 has highlighted how we'd all rather be in Scenario #1. The difference-maker is the budget.

A typical budget involves tracking the money in your bank account and allotting different “jobs” to that money. Most people budget one month at a time. So I might allot $400 to groceries in October. That money now has a “job.” I can't use that money to buy new shoes, because it's already been assigned to Groceries.

You can use a pen-and-paper or a computer spreadsheet. Some people use apps like Mint. Personally, I use (and love!) the app You Need A Budget, or YNAB for short.

Know your priorities

Nobody wants to miss their bill payments. But if you find yourself between a financial rock and a hard place, you must understand your financial priorities.

For example: Would you rather ensure that your heat stays on or make your next credit card payment? Would you rather buy this month's groceries or get those new shoes?

For most (if not all) of us, the priorities are heat and food before credit card bills and new shoes.

Nobody wants to miss a bill, but some things are more important than having good credit. 

Everybody wants to have nice stuff, but we all have to face our own lives' realities. And that might mean the new kicks go on the back burner.

When COVID came, and the economy sputtered, many people began considering where their priorities lay. It's far from a fun task, but it's essential.

But speaking of missing bill payments…

Ask for forgiveness

Wait…this sounds like relationship advice?!

Well, in this scenario, forgiveness relates to loans and your ability (or lack thereof) to repay them.

Many people have faced loan repayment issues during COVID. Perhaps it has related to a monthly mortgage, student loan payments, or a credit card bill. The common theme is that the bills keep coming, even during a pandemic—and even if you lose your job.

But you can do something to change that. Many organizations are willing to be flexible with your debt repayments. While they won't forgive your debt outright, they will make things easier on you by deferring your payments until later, reducing your monthly payment, or postponing interest from accruing on your debt.

But one important point: You've got to ask! These debt-servicing companies aren't mind-readers. They likely don't know that you need their assistance unless you ask them.

You'd be surprised what a phone call can do. If you're struggling with paying your bills during COVID, see if your creditors are willing to work with you.

The best in investing

Some of the loudest voices in 2020 have come from people focused on investing and the stock market. Let's take a look at some of the best investing advice in 2020.

Stay the course

2020 has seen one of the most turbulent stock markets in history. We saw the quickest plunge into a bear market ever—just 20 days. But then we recovered into another bull market around mid-August—5 months after the bear market began.

Throughout this turbulence, the timeless advice of Vanguard founder John Bogle, “Stay the course,” worked out tremendously well. “Staying the course” means maintaining the path that you're on. Don't buy and sell because of what the news tells you.

As of December 17, the Dow Jones Industrial Average is up 6.7% on the year. And if you invested via dollar-cost averaging (like many 401(k) plans do), then you would have made some small investments while the market was low—that's great! Staying the course would have worked out just fine for you.

It can be scary to see the market plunge. But remember the lessons from Mr. Market—the only prices that matter are when we buy and when we sell.

Staying the course during turbulence is where the smart money sits.

Don't time the market

“Timing the market” refers to finding perfect times to buy and sell stocks. It's notoriously difficult and incredibly risky. Investing is not gambling, but timing the market makes it feel that way.

Some people believed that late February was the worst of the COVID stock market. Check out this Tweet from February 27.

“Yikes! The stock market proceeded to fall 25% over the next three weeks. Timing the market is hard.”

So, what do we do instead of timing the market? We employ the aforementioned strategy of dollar-cost averaging. We invest a little bit of money on a regular schedule. During good times, bad times, bull runs, and bear dips…we buy a little bit during all of them.

Dollar-cost averaging reduces the risk of investing and reduces the associated stress of finding the perfect time to buy.

Diversify your investments

The 2020 COVID bear market reminded us why diversifying your investments is a great idea. Diversification protects you when any one stock or industry does poorly (see: airline stocks). 

Simultaneously, diversification can provide us with investment gains that we might not have predicted (eg, Zoom, Netflix, Peloton).

Take two investors. One began 2020 owning $100,000 worth of Delta airlines stock. The other owned $100,000 worth of diverse S&P 500 index funds—which is naturally diversified across many large-cap stocks.

As of this writing, the Delta investor would have a portfolio value of ~$56K, while the diverse investor would have a portfolio worth $107K.

But I've cherry-picked the data a bit. I chose Delta because I know their stock is down. I could have chosen Apple instead. Someone with $100,000 in Apple at the beginning of the year would now have a portfolio worth $155,000.

The crux of diversification is this: It reduces your variance. You might not win as big (eg, with Apple), but you won't lose big either (eg, with Delta).

Diversification leads to more balanced, more predictable results. And the more predictable you can make your financial future, the less stress you'll feel.

Look on the bright side

The year 2020, well…it pretty much sucked. But employing this great financial advice can make 2021 a little less painful. Whether you're concerned about day-to-day personal finance or the future of your investment portfolio, we hope this list of 2020's best financial advice will help you.

This post originally appeared on Dollars for Docs, a blog for healthcare professionals, brought to you by Your Money Geek. Dollars for Docs provides the medical community with the latest information in personal finance, careers, and lifestyle.