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How One Physician Used Her Locum Experiences to Get a Financial Head Start

Dr. K’s Profile

Age: 33

Area of practice: Pediatrics

Province: Alberta

Marital status: Married, no children

Issue: Financial decisions around working a locum: ensuring proper cash flow, paying down debt, and investing

Dr. K’s gross annual income: $300,000

Spouse’s gross annual income: $88,000

Assets: $230,000 in long-term investments and $30,000 in a shorter-term account held within the corporation; $120,000 in corporation that will be used for life insurance policy and other investments; home: $425,000

Liabilities: Mortgage $300,000; medical school line of credit $30,000; car loan $4,500

For many new-in-practice physicians, it can take some time to find the best structure and location for a practice. A locum tenens is an ideal way to gain experience in a variety of settings while giving yourself a financial head start, but it also comes with some unique financial challenges.

For Dr. K, a 33-year-old pediatrician, working a locum in a rural community after completing her residency was an appealing idea, at least for the short term.

“I decided to work a locum at that point in my career, because I wasn’t quite ready to start a practice after completing my residency,” she says. “There are so many decisions, both geographical and financial, and I wanted to see how other physicians manage their practices and what types of practice arrangements and styles work best.”

A locum is an ideal opportunity to enjoy a greater work-life balance while earning income and paying down debt, but it also means forgoing the financial security of a regular, full-time job. Dr. K’s concerns were mainly about having stable locum work and ensuring she could maintain a steady flow of cash to support her lifestyle and meet her financial obligations.

Dr. K’s first exposure to MD came when she was still in medical school, trying unsuccessfully to secure a line of credit at a manageable interest rate through her local bank. The rural bank’s limited knowledge of medical students’ needs led her to learn more about MD’s Medical Student and Resident Line of Credit, offered through a relationship with National Bank of Canada.

“I opened an MD Tax-Free Savings Account,” says Dr. K, “and although I didn’t do anything with it immediately, it was reassuring to know that there was a financial organization that understands medical students’ financial needs and challenges.”

... it was reassuring to know that there was a financial organization that understands medical students’ financial needs and challenges.

Improving cash flow while working a locum

Dr. K first met her MD Advisor during her last year of residency, before graduating. She had accumulated significant debt during medical school—about $160,000—and saw locum work as a way to pay down this debt more quickly, while maintaining her lifestyle. She also wanted to continue to invest, put money aside for short-term goals and explore the advantages of incorporating.

To begin, Dr. K’s advisor helped her set up a cash flow statement, including budgeting and debt repayment. She suggested that Dr. K convert her student line of credit to a personal loan, and budget a $1,500 monthly payment. Dr. K’s goal was to pay down her debt in 10 years, with the ability to build assets within her corporate savings account.

As a new-in-practice physician, single with no dependants, Dr. K’s biggest asset was her ability to earn income. With this in mind, her MD Advisor wanted to make sure her risks were covered and suggested she obtain disability and life insurance coverage, based on her income. She also created a will and established power of attorney for financial and personal care.

About a year into Dr. K's practice, her MD Advisor and her accountant also suggested that she incorporate to improve the consistency of her cash flow reduce personal income tax. Single at the time, Dr. K wanted to ensure she had a regular stream of income to maintain her lifestyle, while minimizing personal income tax and retaining extra savings within the corporation. Regular payments from a corporation, either through a salary or via dividends, provide a steady personal cash flow. This is especially helpful if you’re working a locum and the income from your practice fluctuates from month to month.

“While I wanted to make some financial decisions that would prepare me for long-term goals like retirement and paying off debt,” says Dr. K, “I also realized that there might be smarter ways to invest my money within a medical professional corporation and potentially defer paying some debt, because the interest rates were so low.”

Dr. K currently pays herself from her corporation with dividends, and doesn’t draw a salary. “My MD Advisor was very good about showing me the advantages and disadvantages of both options, and ultimately left the decision in my hands.”

Dr. K was disciplined about saving and building up her assets early in her career. Her MD Advisor suggested she begin by putting at least 10% of her income into a corporate investment account to allow those savings to grow.

Now married and working full-time at a large hospital, Dr. K appreciates the valuable experience she gained from working several diverse locums early in her career. She is also grateful for MD’s help to establish a solid financial foundation as a new-in-practice physician, and the practical advice she continues to get from her MD Advisor.

“I feel very comfortable with my advisor. Unlike at a bank where people are always moving and changing roles, our relationship has been consistent over the years. I don’t have to explain things to her the way I would have to with someone who doesn’t understand physicians—she anticipates my needs and knows the challenges I face.”

I don’t have to explain things to my MD Advisor the way I would have to with someone who doesn’t understand physicians – she anticipates my needs and knows the challenges I face.