My new client Emma was torn. She worried she’d made a mistake incorporating before her med school loan was gone. I’ve met many doctors who felt the same. They were caught in the head vs heart financial battle.
She threw her hands in the air. “I was told I should incorporate, but now when I want to pay off my student loans, I’m told I shouldn’t since my taxes will be so high. I hate seeing so much disappear in interest. Did I make a mistake incorporating early?”
“It sounds like you’re really having a battle of your head versus your heart.” I replied. “You incorporated because you were told you could minimize your taxes, which was a rational thing to do. But that’s in conflict with your heart that would love to have your student loan gone. Does that sound about right?”
“That’s it exactly.” Emma said. “Adrian, did I make a mistake?”
The answer I gave Emma really set her mind at ease, and is true for just about any financial decision you’ll encounter. In finances, there’s rarely an answer that’ll all right or all wrong. You have to trust your gut once you know what you’re getting and what you give up in return. How would you feel if you saw almost half your income gone in income tax before you could put any money on your loan?”
The stricken look on Emma’s face said it before she did. “I’d feel pretty sick at seeing all that tax being taken.”
And Emma’s heart was giving her good advice.
The Good News? You Can’t Screw Up With Head or Heart Choices.
In my book, The Doctor’s Handbook, I call this the debt dilemma.
You’re so keen to finally pay off your student loan or to pay down your mortgage quickly, but the taxes you’d pay would be more than the interest saved. At its core, this is what I mean when I help doctors with their head versus heart battle.
Is it wrong to pay a boatload of tax to hammer your debt early? Absolutely not. You’ll be able to start saving more afterward and more securely. Just make sure you prescribe anti-anxiety medicine for your accountant as they see your taxes higher than they’d like.
Neither is it wrong to pay it off over time, sticking within certain personal tax rates and saving the rest in your Prof Corp.
Many doctors who hate debt are able to move forward easier if they see their savings growing faster than their debt is decreasing. And if the you-know-what hits the fan, they have savings to lean on or to pay off their debt if they later change their minds.
What path is right for you?
That’s where I come in.
There are no wrong answers, and no need to be fearful of making the wrong decision. My head and heart formula leads you to success no matter which path you take.
Did I just hear your sigh of relief??
Enjoyed this article? I’d love to hear from you! I’m always interested in hearing about the unique financial situations doctors have. Send me a note!
