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Five Ramifications of Not Having a Financial Plan

January 1, 2021
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According to Charles Schwab’s 2019 Modern Wealth Index Survey, only 28 percent of Americans have a written financial plan.1 Most of the remaining 72% of Americans said they didn’t have enough money or time to make a plan worthwhile, or that the process was too complicated. However, those with a financial plan consistently maintain healthier saving and investing habits. Everyone can benefit from having a financial plan in place, not just the wealthy, but implementing and adhering to a financial plan is especially vital for physicians for several reasons.

  1. High debt – The average student loan debt for those who graduated medical school in 2019 is $201,490, and 73 percent of medical students acquired debt while in school.2 This can present big challenges for doctors just starting out and for years down the road.
  1. High operating expenses – If you run your own practice or are in a partnership, you know that it costs a lot to see patients. One of the biggest upfront costs is the purchase of equipment. You also face high ongoing expenses, such as insurance coverage, employee salaries and building upkeep/maintenance.
  1. Cashflow – Cashflow planning is also a challenge for doctors who face a fluctuating number of patients and procedures each month. This can make staffing and budgeting a challenge.
  1. Practice/partnership valuation – For physicians considering purchasing a practice or entering into a partnership, it’s important to have an accurate idea of the practice’s valuation. Business valuation is a complex process, so it’s wise to seek the guidance of a professional.
  1. Retirement – If you’re a physician who owns your own practice or is in a partnership, retiring is not a simple as hanging up your white coat and scheduling payments from your 401(k). Instead, you’ll need to transition your practice to another doctor. An important part of the transition is in maximizing the value of your practice prior to selling (see #4 above).

Any good financial advisor will tell you that the first rule of successful personal finance is to have a clearly defined plan in place. This point is emphasized by Peter Mallouk, the founder and CEO of Creative Planning, in his book The Five Mistakes Every Investor Makes and How to Avoid Them. Not having a plan is mistake #1.

Peter invokes Yogi Berra’s sentiment that “If you don’t know where you are going, you’ll end up someplace else.”3 You wouldn’t initiate a course of treatment without seeing a patient and taking x-rays. However, Peter advises that, “Most investors invest without an endgame laid out in advance. Without a destination, it is easy to drift off course. Without a plan, it is easy to change the strategy midstream, increasing the odds of messing everything up.”

Before you spend or invest a single dollar, you should have a plan. It doesn’t need to be a 150-page road map of how you will budget, save and invest every penny for the rest of your life. Instead, start with a plan that is simple and straightforward.

Need more incentive to begin the planning process? Consider the following. A written financial plan can:

  • Increase your financial confidence and peace of mind
  • Help you budget and meet your financial goals
  • Lead to better habits
  • Help you identify, avoid and address various risks, including investment risks, insurance risks and estate planning risks
  • Guide your risk tolerance and inform how aggressively or conservatively to invest
  • Implement a strategy for paying off student loan and other debt
  • Allow you to save adequately in an emergency fund
  • Help you set priorities and live comfortably while also planning for the future
  • Provide financial security in the case of an unexpected event
  • Establish a cashflow planning strategy
  • Help you plan for large equipment purchases
  • Provide a business valuation strategy
  • Help you prepare for your eventual transition out of the practice at retirement

Regardless of whether you have a financial plan in place, you are likely aware of the benefits. Less talked about are the ramifications of not having a written financial plan.

Ramification #1 – Coming up short on your financial goals

It is often said that failing to plan is planning to fail. By not taking time to reflect on where you are financially, where you want to be and how to get there, you are unlikely to achieve your financial goals. Planning early gives you more flexibility when life throws complications your way.

Ramification #2 – Missing an opportunity to leave a legacy

Tax and inheritance laws are increasingly complex, and the best solution for other investors may not be what’s best for you and your family. Documenting your financial priorities, such as paying for children’s education, purchasing a home, paying down debt, transitioning your practice, funding your retirement or enhancing the amount you can pass to your heirs following your death, can help you choose the right path toward achieving your long-term goals.

Ramification #3 – Taking on more risk than necessary

There is inherent risk in everything from investing, to not investing, to income streams, to the general risks of life and your career. Many of these risks are necessary and worth taking. Others should be planned for by implementing appropriate insurance and a deliberate, diversified investment portfolio. Without a plan, however, it’s difficult to identify what risks you are taking that are necessary, which ones you shouldn’t be taking, and which ones can be mitigated through appropriate actions.

Ramification #4 – Having an investment strategy that is not aligned with your goals

A good financial plan helps you understand your current financial situation in relation to the goals you are trying to achieve. Only with this knowledge can you begin to identify an investment strategy to help you get to where you want to go. Without a plan (in other words, without knowing where you are and where you’re going), it’s impossible to build an investment strategy to achieve your specific goals.

Ramification #5 – Trying everything because you aren’t focused on the right thing

The options for where and in what to invest are endless. Do you choose mutual funds, exchange-traded funds, hedge funds, stocks, bonds, annuities, other insurance products, REITs, commodities…? The list goes on and on. Without a plan to keep you focused and on course, it’s easy to get sidetracked with the wrong investments charging high fees. A solid financial plan can help you stay the course by providing guidelines around the type of investments that are right for you as well as those you should avoid.

Having a plan is essential to building, understanding and achieving your goals. Planning can help increase your level of confidence and comfort, result in more constructive financial behavior, and help ensure your family will be provided for in unexpected circumstances. Ultimately, a good financial plan puts you in control of your future.

Starting a financial plan may seem like chore, but it doesn’t have to be. If you find you’re having a hard time taking the first step, a professional advisor can help.


  1. https://www.aboutschwab.com/modernwealth2019
  2. https://www.nerdwallet.com/article/loans/student-loans/average-medical-school-debt
  3. https://www.goodreads.com/quotes/499411-if-you-don-t-know-where-you-re-going-you-ll-end-up

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.


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