Financial tips while moonlighting 💳

📖 In this edition we’re going over -

For many doctors, the appeal of locum tenen and moonlighting work lies in its flexibility, autonomy, and the chance to gain diverse clinical experience. As a locum tenen physician, you can practice medicine in various settings, expand your professional network, and sometimes even earn a higher income than in traditional roles. However, these career paths also come with unique financial considerations that can impact long-term financial health if not carefully managed.

Locum tenen and moonlighting positions often operate on a contract basis, meaning income can be variable, and traditional benefits—such as employer-sponsored health insurance, retirement plans, and tax withholding—aren't typically provided. This setup means that without a solid financial plan, doctors may find themselves unprepared for unexpected expenses or tax obligations.

In this guide, we’ll explore essential financial tips specifically tailored for locum tenen doctors and moonlighting physicians. From budgeting and managing taxes to setting up retirement plans and navigating student loans, these strategies will help you build financial stability and thrive in your flexible career path.

Tip #1: Start Your Financial Journey with a “Resident Mentality”

While smart financial habits are essential for everyone, they’re especially crucial for locum tenen doctors, who often experience fluctuating income and varying expenses due to frequent changes in location and employment. When you begin earning a doctor’s salary, it can be tempting to upgrade your lifestyle quickly and be drawn to the life of luxury. However, maintaining a “resident mentality”—a term coined by Dr. Dahle of The White Coat Investor—can set the stage for lasting financial security.

For locum tenen doctors, sticking to a budget that mirrors the frugality of your residency years is key. Locum work can lack the stability of a single, full-time position, so income may fluctuate depending on contracts and hours. By living below your means and prioritizing savings, you’ll be better prepared to handle unexpected expenses, from sudden relocations to insurance needs and even travel costs. Embracing this mindset early can help you avoid overspending and build a strong foundation for future financial success.

Locum tenen physicians face unique financial demands, so a frugal mindset is not just advisable—it’s essential. Remember, the flexibility of locum work is a tremendous advantage, but to fully enjoy it, your finances need to be prepared to keep pace with any lifestyle changes. Keep your long-term goals in sight and let your “resident mentality” serve as a guide throughout your career.

Pro Tip: When negotiating your locum tenen contract try to negotiate travel costs as part of the deal. This can help with your savings and budget. 

Tip #2: Keep Meticulous Financial Records and Plan for Taxes as a Locum Tenen Physician

One of the most important financial habits for a locum tenen physician is maintaining detailed records of your income, expenses, and deductions. Since locum work often involves frequent moves, variable contracts, and 1099 income, you essentially have to become your own accountant. Accurate record-keeping helps you stay organized and ensures that if the IRS ever was to audit you, you’ll have everything you need.

As a locum tenen doctor, you’re typically paid as an independent contractor, meaning that most of your earnings come as gross income (1099) rather than net pay. This setup places the responsibility of tax management on you, requiring both annual tax filing and quarterly estimated payments. To avoid a hefty tax bill at year’s end, set aside a portion of each paycheck for taxes. A common recommendation is to allocate at least 25-30% of each paycheck to cover federal and state taxes. Make sure to research the location you will be filing your taxes in to ensure you are setting aside the proper amount. 

To maximize your savings, consider setting up a high-yield savings account dedicated to holding your tax funds. Online banks like Ally or Marcus offer competitive interest rates, allowing your tax funds to grow until quarterly payments are due. This simple step can make tax season significantly less stressful while giving you the peace of mind that you’re fully prepared.

Proper financial record-keeping and proactive tax planning are foundational practices for locum tenen physicians. By taking control of these aspects, you’ll stay financially organized, meet tax obligations easily, and have more freedom to enjoy the benefits of locum work.

Tip #3: Consult with a Professional Accountant and Financial Planner

As a locum tenen physician, balancing your clinical responsibilities with complex financial planning can be challenging. While you may excel in medicine, managing the unique financial demands of locum work is often best handled with the expertise of a professional accountant and financial planner. Consulting these professionals regularly can help you optimize your income, save on taxes, and protect your assets effectively. It can save you a lot of time and money to find a professional early on in your career that you can trust to help you make the best decisions. 

An experienced accountant, particularly one familiar with 1099 income for locum tenen, can provide valuable guidance on structuring your earnings. For instance, setting up a business account to receive income can simplify tax preparation and make it easier to separate personal and professional expenses, especially if you’re ever audited. Many locum tenen doctors also choose to create an LLC, adding a layer of asset protection. However, to maximize this protection, it’s essential to keep business and personal finances strictly separate—co-mingling funds could jeopardize the LLC’s benefits in court.

Additionally, working with a Certified Financial Planner (CFP®) can help you establish and work toward long-term financial goals, such as retirement savings, investments, and debt management. While an accountant focuses on tax efficiency and compliance, a financial planner brings a broader, strategic perspective to your overall financial wellness. Together, your team of a CPA and CFP® can create a holistic financial plan tailored to the unique needs of a locum tenen physician.

Partnering with professionals for both accounting and financial planning gives you peace of mind and ensures that your finances are managed proactively and strategically. With expert guidance, you can focus more on your medical career, knowing that your financial health is in capable hands.

Tip #4: Set Up Retirement Accounts for Long-Term Financial Security

While working as a locum tenen physician offers flexibility and diverse experiences, one significant drawback is the lack of an employer-sponsored retirement plan. Unlike traditional full-time positions at a single hospital, where 401(k) or 403(b) plans are typically available, locum tenen doctors must establish and manage their own retirement savings. Taking proactive steps to set up tax-advantaged retirement accounts is essential to ensure financial independence in later years. Here’s a breakdown of some top retirement options:

SEP-IRA (Simplified Employee Pension IRA)

A SEP-IRA is an excellent option for locum tenens physicians seeking a tax-deductible, high-contribution retirement account. With a contribution limit of up to $69,000 in 2024, the SEP-IRA allows you to set aside a substantial amount of income each year. Contributions are tax-deductible, providing immediate tax savings while building retirement wealth. However, one consideration is that SEP-IRAs may prevent the use of Backdoor Roth IRAs due to the IRS’s aggregation rule.

Pro Tip: Maxing out your SEP-IRA contributions annually can significantly boost your retirement savings and reduce taxable income.

Solo 401(k)

The Solo 401(k) offers locum tenens physicians both tax-deferred savings and flexibility. In this plan, you act as both employer and employee, allowing for a total contribution limit of $69,000 (or an additional $7,500 for those 50+ in 2024). This setup enables you to maximize your retirement contributions even without an employer match, and funds are tax-deferred until withdrawal. The Solo 401(k) also provides flexibility for a Backdoor Roth IRA, making it a favorite option among independent physicians.

Pro Tip: The Solo 401(k) is ideal if you want the flexibility of the Backdoor Roth IRA, allowing for more control over tax planning and retirement income.

Defined Benefit Plan (Cash Balance Plan)

For high-earning locum tenens doctors, a Defined Benefit Plan—often a Cash Balance Plan—can offer a powerful way to save for retirement while lowering taxable income. This plan functions similarly to a traditional pension, allowing contributions of up to $275,000 annually (2024), which are tax-deductible. On retirement, the plan pays out monthly annuities, providing a stable income stream. Due to its complexity, setting up a Defined Benefit Plan typically requires working closely with a financial advisor, but the long-term tax advantages and retirement income security can be well worth the effort.

Pro Tip: Although setting up a Defined Benefit Plan involves more complexity and costs, tax savings often offset these expenses, making it a valuable option for locum tenens physicians seeking substantial retirement savings.

Each of these options—SEP-IRA, Solo 401(k), and Defined Benefit Plans—offers unique benefits tailored to independent contractors like locum tenens physicians. By establishing these accounts early in your career, you can ensure that practicing medicine in later years is a choice, not a financial necessity. Consulting a financial advisor experienced in retirement planning for doctors is a smart step toward optimizing these strategies and achieving your retirement goals.

Tip #5: Prioritize a Low Cost of Living as a Locum Tenens Physician

As a locum tenen doctor, the cost of living can vary greatly depending on each assignment location. While practicing in urban areas often means higher expenses, working in more rural or suburban settings can help you save significantly. To maximize your income and build financial security, focus on keeping your living expenses as low as possible, regardless of where you practice. Try your hardest not to get carried away with the luxury lifestyle. 

A practical approach is to set a target limit for housing costs relative to your income. Many financial experts recommend spending no more than 28% of your total earnings on housing, whether that’s rent or a mortgage. By adhering to this rule, you can maintain flexibility in your location choices while avoiding financial strain, regardless of assignment length or regional cost differences.

However, while keeping expenses low is essential, it’s also worth considering factors beyond cost. If lifestyle or family needs make certain locations more appealing, such as a top-rated school district or proximity to a preferred lifestyle, budgeting for those intangible benefits can be worthwhile. For example, raising a family in a suburban area may justify slightly higher housing costs, while a dream destination assignment could offer experiences that offset additional living expenses.

Staying mindful of your cost of living not only boosts your savings but also enhances your flexibility in accepting assignments across diverse locations. With a smart approach to budgeting, you can enjoy the financial freedom that locum tenen work offers while still building long-term wealth

Tip #6: Reassess Your Student Loan Strategy as a Locum Tenens Physician

Managing student loans can be challenging for locum tenen doctors due to the variable income and lack of access to programs like Public Service Loan Forgiveness (PSLF). Since locum tenen physicians are often 1099 independent contractors, they’re typically ineligible for PSLF—a program available only to full-time employees of qualifying non-profits or government agencies. Knowing this, it’s essential to adopt a student loan strategy that aligns with the financial realities of locum work.

For some physicians, an Income-Driven Repayment (IDR) plan may be an option, offering loan forgiveness after 20-25 years. However, the forgiven amount is considered taxable income, meaning you’ll need to plan for this tax burden down the line. While IDR plans can be helpful, many doctors find that with higher earnings, it’s often more practical to pursue direct repayment through refinancing.

Refinancing student loans can reduce your interest rate and allow you to aggressively tackle the principal, potentially paying off the balance within 5-10 years, or even less. For example, with $300,000 in student loans at a 4.5% interest rate over five years, payments would be approximately $5,593 per month. While these numbers can be daunting, high monthly payments allow you to free yourself from debt sooner and redirect funds toward wealth-building opportunities.

Using referral programs from reputable platforms like Credible, SoFi, Earnest, or Splash can sometimes offer additional financial incentives when refinancing. Taking advantage of these resources and aligning your loan strategy with your career goals can make loan repayment a manageable part of your locum tenen journey.

By reassessing your student loan options and planning strategically, you can build a repayment strategy that supports your financial future as a locum tenen physician.

Tip #7: Secure Life and Disability Insurance for Financial Protection

As a locum tenen physician, the unpredictability of your work schedule makes it crucial to secure life and disability insurance to protect your income and provide for your loved ones. Whether you already have a family or plan to start one soon, having adequate insurance coverage can prevent financial hardship in the event of unforeseen circumstances.

Start by consulting with an independent insurance agent to explore term life insurance options. A term life policy typically provides coverage for a specific period, such as 20-30 years, ensuring that your beneficiaries receive a financial safety net if something were to happen to you. It’s important to prioritize a strong “own-occupation” disability insurance policy, which pays out benefits if you are unable to work in your specific medical specialty due to an injury or illness. This is especially vital for locum tenen physicians whose income is often tied to their ability to practice.

While permanent life insurance may be marketed as a way to save through “forced savings,” many financial experts recommend focusing on term life insurance instead, as it tends to offer more affordable premiums and straightforward benefits. Avoid being swayed by sales pitches from large insurance firms that promote permanent policies without considering your unique needs.

Any interruption to your income stream can have devastating consequences for you and your family, making it essential to be prepared for the unexpected. By investing in the right life and disability insurance policies, you can secure your financial future and gain peace of mind, knowing that your loved ones will be protected, regardless of what life throws your way.

Navigating the financial landscape as a locum tenens physician presents unique challenges and opportunities. By implementing these seven financial tips—focusing on budgeting, retirement planning, student loan management, and securing essential insurance—you can create a solid financial foundation that supports your career flexibility while safeguarding your future.

Taking proactive steps now not only enhances your financial well-being but also empowers you to enjoy the diverse experiences that come with being a locum tenens doctor. Remember, the decisions you make today can significantly impact your financial health tomorrow.

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