Locum Link

Category

  • Understanding Your Credit Score

    July 27th, 2009

    The tightening economy has put a new focus on personal credit and credit scores.  But how credit scores are calculated is poorly understood, even by savvy consumers.

    As a physician, you may enjoy a high-paying career, which is attractive to lenders.  Still, it’s important to know that your income level is irrelevant to your credit score. 

    Why Your Score is Important
    As explained in this overview from MSNBC finance writer Herb Weisbaum, your credit score “is a three digit number that summarizes the real-time information on your credit report. It ranks you with other consumers according to your risk, on a scale of 300 to 850, where higher scores mean less risk of future defaults.”

    All lenders use credit information differently, but consumers with the highest credit scores may get preferred access to the most favorable lending rates.  On the other end of the spectrum, consumers with low credit scores can be denied credit or forced to accept higher rates. 

    Adding it Up
    To stay on top of your score and ensure that it remains high, it helps to know what factors go into the calculation. According to SmartMoney.com, these are the five major factors that impact a credit score:

    Do you pay your bills on time?   This is the single most important factor, which accounts for 35% of your credit score. 

    How much do you owe relative to your total credit limit?  This is also a major factor, representing 30% of your score. A recommended benchmark here is to keep your balances from surpassing 30% of your total credit line.

    How long have you been borrowing?  A longer credit history is preferred.  As a result, older borrowers generally score higher in this category, which represents 15% of your total credit score.

    Is your credit still expanding?   Said another way, are you applying for credit with alarming frequency?  Lenders are wary of borrowers who apply for too much credit in a short time frame.  (10% of your score)

    Do you have credit diversity?  In addition to credit cards, do you have a mortgage, a car loan, etc?  Successfully managing different types of credit is a positive in the eyes of credit rating agencies. (10% of your score)

    To fully understand your credit score, you need to know what your current score is (it changes).  You can access this information online at several popular websites, the best known of which is www.freecreditreport.com

    Tags: ,
    Posted in Money | No Comments »

  • Do You Need a Financial Planner?

    June 17th, 2009

    In my previous post, I wrote about retirement planning and recommended that it be done with the guidance of a financial planner.

    But outside of retirement planning, a more fundamental question that many individuals and couples ask is:  do I/we need a financial planner?   I’ll try to briefly answer that below.

    What is Financial Planning?
    Simply stated, it’s the process of meeting your life goals through the proper management of your finances. Life goals can include buying a home, saving for your child’s education or planning for retirement.

    A financial planner should be able to guide you through an evaluation process that will help you take a “big picture” look at where you are financially. The process involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan for how you can meet your goals given your current situation and future plans.

    To answer the original question, I think you would benefit from professional financing planning if:

    • You need expertise you don’t possess in certain areas of your finances. For example, a planner can help you evaluate the level of risk in your investment portfolio or adjust your retirement plan due to changing family circumstances.
    • You want to get a professional opinion about the financial plan you developed for yourself.
    • You don’t feel you have the time to spare to do your own financial planning.  This is a common scenario for busy physicians and locum tenens.
    • You have an immediate need or unexpected life event such as an inheritance or a major illness.
    • You feel that a professional adviser could help you improve on how you are currently managing your finances.
    • You know that you need to improve your current financial situation but don’t know where to start.

    Tags: , , ,
    Posted in Money | No Comments »

  • Review your Retirement Readiness

    May 4th, 2009

    It’s a sign of our troubled economic times. As American Medical News reports, many retired physicians, who thought they had their finances in order, are now re-entering the workforce to recoup their losses after the recent market meltdown.

    If you’re retired or nearing retirement, you undoubtedly took a big hit in the past year.  But if you’re younger, you have a longer time horizon in which to make up losses and put your financial house back in order.  But where to start?  Should you lower your debt?  Take on more locum tenens work?  Change your investments?

    You Need a Plan
    My first recommendation is to create a personal retirement plan working with a trusted financial advisor.  Don’t be daunted by the thought of working with an advisor (ideally, a certified financial planner) or the planning itself, because it’s fundamentally a three-step process.  If you and your advisor follow these steps, you’ll be far ahead of most Americans in terms of your preparedness.

    The first step is determine a savings goal for retirement.  That means figuring out much money you are you going to need to live well, however you define that, when you stop working. To do that you need to assess your financial needs for retirement and, in essence, project a budget for the future.  You will need to estimate all of your potential sources of income (social security, pensions, investments, etc) and all of your potential expenses (healthcare, housing, travel, etc). 

    To help with this type of goal setting, an online retirement planning calculator is a surprisingly easy and informative tool that can be a great starting point.

    Charting your Path
    Once you’ve determined your retirement goal, step two is to figure out if you’re on a realistic path to reach that goal.  That path is different for different people and there are a variety of factors to review and consider.  What is your current and anticipated future income?  Is your current spending in check?  Are you maximizing retirement plans, such as 401Ks and IRAs?  Are you diversifying your investments to mitigate risk?

    Working with your advisor, it’s a fairly straight forward process to take your retirement goal, evaluate your current status toward your goal, and then to put a plan in place to ensure that you meet the goal.

    The final step is one of annual review and assessment.  Your retirement plan is like a business plan it needs to be constantly updated and re-evaluated to ensure that it’s still sound.  During an annual meeting with your advisor, you can revise your plan to accommodate unanticipated life changes, like disability or job loss, or more positively, a financial windfall, like an inheritance.

    If you don’t currently work with a financial advisor, this search tool can help you find a certified financial planner in your area.  I’ll also devote future blog posts to financial planning.

    Tags: , , ,
    Posted in Money | No Comments »

  • Thinking About Taxes

    April 20th, 2009

    With April 15 in the rear view mirror, you’re probably finished thinking about taxes for this year, but should you be?

    Because taxes are a year-round concern for independent contractors, like locum tenens, now is actually the best time to plan for next year—while the pain of filing this year’s return is still fresh. With that in mind, here are a few tips that can help you get ahead of the game for 2010.

    Get Organized. The return that you just filed is probably your best guide to the documentation that you’ll require next year. Review your 2009 return and outline everything that you need to set aside and document for 2010—travel receipts, work expenses, records of charitable donations, etc.  Use notebooks, file folders or whatever works for you to create some sort of organization structure that will help you keep track of your paperwork year round.

    Track Expenses. Many independent contractors under itemize. Remedy that in 2010 by carefully tracking everything related to your business from your stethoscope and professional journal subscriptions to your health insurance costs and your cell phone bill.  When in doubt about what’s deductible, save the documentation and have your tax professional sort it out for you.

    Pay Estimated Taxes. First-time locum tenens may not understand the importance of making quarterly estimated tax payments.  But the bottom-line is, failure to make estimated payments may result in a penalty.  Don’t wait on this. Work with your tax professional or accountant now to determine how much of your pay you should set aside in reserve—and to determine a payment schedule for quarterly taxes.

    Take these simple steps and you will save time and money next year.

    Tags: , , ,
    Posted in Money | No Comments »