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Finance Quick Start Guide for Therapists

Navigating the finances of both your personal life and your business is a LOT. It's easy to get bogged down or simply feel uncertain you're covering all your bases.

That's where my Quick Start Guide comes in.

If your finances could use a little TLC, it's a great place to begin. If your finances feel in a good spot, it's a great checklist to confirm you're on a solid path.

And if getting through all eight steps feels overwhelming, consider signing up for my email newsletter. Every other week, I'll send you a small dose of knowledge to help you gently move forward with your finances. And I do it in a friendly, approachable (and maybe even inspirational) way. 🤠

You got this! 😃

I know the world of money and finance can feel confusing, intimidating and overwhelming. Make space for those emotions AND know that you've got this!

Managing your financial life will not be more challenging than all of the advanced educational work you've completed (and certification exams you've passed). You are more than capable enough to navigate your money in a smart and empowered way.

And at any point along the way if you need more guidance, please reach out!

So let's do this thing! 👍

Oh but before we do, let me clarify that these pointers aren't financial, legal or tax advice. I don't know the particulars of your life, so I can't know what's best for you. These are educational resources and illustrations of what I've found works well for most people. But you're not most people; you're you. If you suspect you need professional guidance, please seek that out.

Eight Step Finance Quick Start Guide for Therapists

Click on the orange section headings to expand

1. Consider an Emergency Fund 🚨

The first step is to consider establishing an emergency fund. The idea is to keep three to six months of non-discretionary expenses in a bank account. Three months is a better goal if you have a partner who contributes financially to your household. If you're single, closer to six months is a better goal.

Non-discretionary means what you would HAVE to spend if you cut back as much as possible. So rent is non-discretionary. Fancy dinners out and front-row concert tickets are not.

You should include the non-discretionary expenses you have in both your personal life and in your private practice.

The goal of an emergency fund is really to reduce your anxiety.

If you're unable to earn money for a period of time we want that emergency fund in place so you can rely on it to pay the bills. We don't want you to feel enormous financial anxiety and stress - because that's when we humans start to make bad decisions.

Like all things in finance - this is personal, so you need to decide what is best for you. Think through what it would look like if you couldn't earn money for a period of time. What type of emotional response might you have? What options do you have to access money? Maybe you have a short-term disability insurance policy or family members you could rely on.

If you want to learn more about emergency funds and my thoughts on them, check out the Resources Section of this page of my comprehensive guide to financial planning for therapists.

2. Evaluate Mission Critical Risk Management ⚠️

Risk management is not always the most fun because it's about preparing for when things go wrong. And it's quite important. This is an area to focus on progress rather than perfection (all areas of life are, tbh).

In this Quick Start Guide I'm focusing on getting the essentials in place, and later on you can refine and optimize. We're going to cover two different areas: insurance & estate planning.


Chances are you already have health insurance, auto insurance and home owner's insurance (if you own your home). If you rent, you might consider renter's insurance - mostly for the liability protection (but also to insure your belongings).

Those are all great policies to have. And the last one we really need to consider is life insurance. Not everyone needs life insurance, but if you have children (or anyone else who depends on your income) life insurance is pretty much a must-have.

Don't stress - it's fairly cheap. I virtually always recommend term life insurance - it's by far the most cost effective. Don't fall for the shady sales practices of the whole life insurance companies. In almost all cases, you don't need that whole life insurance junk. (Can you tell I have opinions on this subject?! 🤣)

If you'd like to learn more about life insurance (and all the other important insurance policies), check out this page of my comprehensive guide. There I'll also explain how other insurance polices such as disability and long-term care insurance might fit into your financial plan. Once you've got your Quick Start plan in place, I do encourage you to carefully consider which insurance polices are right to round our your protection.

Estate Planning

Does everyone need to delve into estate planning as part of their Quick Start? Nope, but there are four times you do.

  1. Do you have minor children or other dependents? You'll want to think about who you'd like to appoint as guardian if both you (and your partner if you have one) were to pass. This is done in a formal will.
  2. Do you have a romantic or life partner? Especially if you aren't legally married, you'll want to consider what would happen if one of you were to pass unexpectedly or become incapacitated. Non-married partners can experience significant roadblocks under these circumstances, but there are legal solutions you can put in place through an estate planning attorney.
  3. Do you have substantial assets and care where they end up after you pass? In that case, you'll want to put in place a formal plan with an estate planning attorney.
  4. Do you have clients in your practice that you'd want to offer specific referrals (or other guidance) if you were unexpectedly unable to work with them? You'll want to have a simple plan in place to ensure an appropriately licensed professional can step in and assist them.

I know this is often an overwhelming part of planning. Since this is a Quick Start guide, what I'll recommend for you now is to simply read my overview of Incapacity and Risk Planning.

That's it - just read it. You'll start to get an idea of what you might want to have in place. This isn't something that needs to get done overnight, and it is an important project.

3. Quick peek at your Cash Flow 🤑

Next up is to understand your cash flow a bit better. Cash flow is just a fancy word for tracking the income and expenses in your personal life. This isn't about being super judgy about how you spend money or creating a suffocating budget. Instead, it's simply about bringing a bit more clarity to how money flows in and out of your life.

How in depth you go here is, once again, personal. If you never struggle to pay a bill and your bank accounts are steadily growing, you might not need to do any further work on cash flow right now.

If you're sometimes feeling pinched, bringing a bit more clarity to where your money is going could be a big benefit to you. You could take the simple approach of manually (or electronically) writing down everything you spend for a week (or a month). Or you could use one of the many apps out there to automatically track your cash flow.

Just remember you don't need to get this perfect. Cash flow work is simply a tool to bring more awareness. For many folks, the long-term goal is to get to a place where you can save 15% to 20% of your income each month. That might be a stretch goal, especially in the beginning and that's totally ok. Remember none of this work is about getting anything exactly right. It's about greater clarity, intention and progress!

You can learn about all the details and different ways you can approach cash flow work on the Personal Cash Flow Page.

4. Take a look at your Debt & Credit Report 🙈

Having debt is not a disaster. Debt is simply a tool. In this quick start, we'll just do a quick survey to make sure you're using this tool in a smart way. And if you conclude you're not - be kind to yourself. No one does money stuff perfectly. There are always course corrections to make, and debt is often part of that. 

General Debt

Most people hold some debt, such as credit card debt, a car loan or home mortgage. As long as you can make the appropriate monthly payment on your debt without issue, most of this debt isn't something we need to worry about right now.

However, the one exception is credit card debt or any other form of high-interest rate debt. If you have debt like that, it usually makes sense to pay it off as quickly as possible. Generally it's still a good idea to work on building up an emergency fund while you're working to pay that debt off. You can read more about the nuance of saving versus paying off debt at the bottom of the Personal Balance Sheet page, or ping me and I'll happily help you think things through.

Credit Report

Checking out your credit report and understanding your credit score is important to preserve your ability to borrow when you need it (like getting a mortgage). It's also a good way to make sure no one is out there stealing your identity. Identity theft doesn't happen all that often, but when it does, it sucks.

The quick start here is to log on to AnnualCreditReport.com and check out at least one of your credit reports from the three primary credit reporting agencies. This is the official, free website mandated by Federal Legislation. Any other websites you find online are not (entirely) free and trying to sell you something. You can find my further thoughts on managing your credit on this page.

Student Loans

As a therapist, there's a good chance you have a fair amount of student loan debt. It might feel like a burden you'll never be able to shed. But it won't be. There is a way out.

Student loans need not be a huge road block in your financial journey. Instead, think of them as an incremental tax that you have to pay. It's a fairly steep tax, but in most cases the tax will be a bit below 10% of your income.

If you have Federal student loan debt, the first thing to do is see how big your loan balance is relative to your annual income. Use your individual income, don't include the income of your spouse. If your loan balance is bigger than your annual income, you'll likely benefit from one of the Income Driven Repayment (IDR) plans. Under most IDR plans your payments will be capped at 10% of your discretionary income and a portion of your balance will likely be forgiven after twenty or 25 years (I know it's a long time).

If your loan balance is less than your annual income, chances are you won't benefit much under an IDR plan. In that case you'll probably want to pay off the debt relatively quickly to minimize interest charges. Refinancing your debt through a private lender may be a way to lower your interest rate - sometimes dramatically.

Check out my Student Loans Resource Page for more information.

5. Start a Simple Saving & Investing Plan 📈

Investing is one of those things that seems very complicated at first glance, but it doesn't need to be. If you want to dive into the details, you can do so on the Investing page of my comprehensive guide.

If you're looking for the short version, here it is: invest in low-cost target date funds.

You select a target date based on your estimated retirement age and the fund's allocations are adjusted over time to be risk-appropriate for your investment time horizon. You really don't need to do anything other than regularly contribute. Once again, I'm a big fan of Vanguard's funds here because they are well-implemented, low-cost and tax efficient.

Split Savings between Retirement & Non-Retirement Accounts

In most cases, I'm a fan of splitting your investment contributions between your retirement account and your ordinary "taxable" investment account. The right split will vary, but especially if you're just getting started you might consider starting with a simple 50%-50% approach.

To get a better feel for why you might want to invest outside of your retirement plan, check out my blog on the Liquidity Life Hack for Therapists! 

That taxable account is bad because it gets hit each year with taxes but it's often worth it because you can access those funds any time you need them (not true of money in your retirement account). Both your retirement account and your taxable account will be able to hold the same target date fund. Again, someone like Vanguard can establish all these different types of accounts for you.

Start Where You Are & Make it Automatic!

I'm also generally a fan of automating monthly transfers from your primary bank account to both your retirement account and taxable investment account. Treat those transfers like any other expense you need to pay.

An ideal goal for many folks is to save 20% of your income each month, but start where you can. Building the habit of saving and investing is much more important than waiting to start until you can hit the "right" percentage savings.

Buying a House 🏡

You might be wondering if purchasing a house should be a focus of your investing plan. The answer is it depends, but in many cases I don't believe prioritizing home ownership over other investments makes sense. I explain my thinking on this page, and the reasoning includes that on average real estate actually hasn't been the greatest investment. Plus it's very illiquid (your home equity is hard to access if you need it).

That doesn't mean you shouldn't buy a house if that's important to you! But you don't NEED to own a home to be financially successful.

Ready to Refine & Optimize Your Investments?

If you're looking for more detail on different investment vehicles, such as saving for college education through 529 plans, check out the Balance Sheet page of the comprehensive guide. And more detailed thoughts on investing strategy can be found on the investing page.

6. Assess (don't stress) your Retirement Plan 🌅

Picking a retirement plan doesn't need to be a decision you agonize over. Yes, there are many options and they're all complicated, so it's easy to get stuck. But the most important thing here is to just get started saving - even if you don't set up your retirement plan right away and even if the amount you're saving feels small.

And don't worry if you pick the "wrong" type of retirement plan. With some small exceptions, you can "roll over" the balances from one type of account to another down the road.

The two things you do need to pay attention to are: first, don't over-contribute for the type of plan you have. Second, don't exclude your employees from the plan (if your practice has any). Beyond those two, there are generally few "mistakes" that can't be fairly easily modified down the road.

Saving under $6,000 Annually?

Looking to save $6,000 or less toward retirement each year? In that case, your practice doesn't even need to be involved, simply open an individual IRA. This Vanguard page will show you how.

You can always contribute to a Traditional IRA, regardless of income. Whether that contribution is tax-deductible might depend on your income, however. Roth IRA contributions, on the other hand, are restricted by income. See this IRS page for all the contribution limit details. (See below for the Roth versus Traditional distinction.)

Looking to save a bit more?

If you're looking to save more than $6,000 annually, you'll probably want to form a retirement plan which is 'sponsored' by your private practice. You do not need to have an LLC or Professional Corporation to do this.

If you have no employees other than yourself (or yourself and your spouse), the two most popular options are either a SEP-IRA or an Individual 401(k). Yes, there are other options, but these two work well in most (but not all) - situations. If you want to contribute more than 20% of your pre-tax earnings, a solo 401(k) is best. If a lower amount is acceptable, the SEP-IRA will work just fine.  

If your practice has non-spouse employees, things do get a bit more complicated. But it still is fairly easy to set up simple 401(k) plans. You likely will want to work with a professional to put this in place. Your payroll vendor may also offer some good options to consider. See this page in my comprehensive guide for more guidance.

Roth or Traditional

Most retirement plans can be either Roth or Traditional. The differences are complicated and honestly - they don't matter that much. Roths are advantageous if your income tax rate today is LOWER than what you think it'll be in retirement. Traditional holds the advantage if your income tax today is HIGHER than you think it will be in retirement.

Can you predict future tax rates? I sure can't. Chances are if you're early in your career and earning a relatively lower income, your tax rate is low and a Roth could make sense. And there are reasons to believe tax rates have nowhere to go but up from here. But if I've learned anything in life, it's that the legislative process is often full of surprises.

Honestly, for most of us, the right move is to just get started with a retirement plan. Either a Roth or Traditional will get you on the right path.

Once you've been saving for several years and those retirement account balances are starting to add up, then it is a smart idea to evaluate how much you have in traditional versus Roth. You want to have a smart and diversified approach to taxes (read more about that here), but don't let these nuances slow you down from getting started!

If you're at the stage where you have some questions around all this, it could be a great time to consider my Quick Start Coaching Intensive!

Account Establishment

To set up your individual IRA, you'll need to work with a financial institution. I love Vanguard for this. They're low cost and I generally trust them to not have hidden fees or other gotchas. Their website (or representatives) will walk you through the steps of setting up any of the accounts we've discussed here. See this page of the comprehensive guide for more information.

And of course, navigating all this complexity is exactly the type of thing I help therapists with. Click here to learn about my services!

7. Use Separate Bank Accounts for your Practice + Pay Estimated Taxes 🏦

Separate Accounts

Managing the finances of your private practice is no small task. But the most important and most powerful tip is a (relatively) quick and easy one: use separate bank accounts for all your practice's financial needs!

Get a separate bank account (and credit card if you want to use one) for your private practice. Run all your business expenses and revenue through those accounts. Keep personal accounts personal and business accounts business. This will make your bookkeeping work SO much easier.

This doesn't need to be complicated. If you're operating without a incorporated business entity (e.g. as a sole proprietor) you can even use just a personal checking account. A business checking account is better, but don't let perfection be the enemy of good here. If you are using a incorporated business entity (like an LLC or Professional Corporation) having separate financial accounts is legally required to preserve the integrity (and benefits) of your business entity.

Make Estimated Tax Payments

You don't want to forget to make your estimated tax payments. The IRS won't be happy if you do. These payments are sorta down-payments on the current year's tax bill. The IRS doesn't want you to pay all your taxes when you file your return in April, they (strongly) prefer a pay-as-you-go approach.

This doesn't need to be overly complicated. Just look at your previous year's tax return and make sure your four estimated tax payments add up to 100% of your previous year's tax liability. (If your Adjusted Gross Income, or AGI, was $150,000 or more, you'll need to make estimated tax payments of 110% of last year's tax liability.) Be sure you're including any self-employment taxes in your total tax liability number! Check out this IRS page for more information.

👉 Here's a brief explainer video on estimated tax payments I made back in the summer of 2021! 👈

And don't forget if you live in a state that has a state income tax, you'll need to make estimated tax payment to your state as well. (And in some cases your local government... looking at you Seattle and NYC  👀)

When you're ready to really dive into the details of your practice's finances and tax, check out this page of my comprehensive guide.

8. Assess (don't stress) your Business Entity 💼

You don't absolutely need an incorporated business entity like an LLC or Professional Corporation to start a private practice. Full stop. In many cases, you can operate as a sole proprietor without too much downside. If you're using a brand name (rather than your legal name) for your sole prop, you will want to complete a Doing Business As (DBA) filing.

Sure, a business entity like an LLC or Professional Corporation can offer some benefits, but they aren't always that compelling. 

That said, in many states forming an LLC - or Professional LLC - is cheap and easy. There isn't much downside to forming one. But keep reading 👇 for more details on nuanced requirements for licensed professionals like you - including why in California you can't operate through an LLC. (Sorry! 😕)

And again, what I'm covering here isn't legal advice, but general education. If you're unsure, seek out a qualified business law attorney with experience serving licensed professionals (because you are one!).

Some Liability Limits

The biggest advantage any business entity offers is that is shields your personal assets from liabilities arising from your business. But there is a big exception to that: a business entity does NOT protect your personal assets from malpractice claims. That's why as a licensed professional you should always keep your malpractice insurance current. If you really think through your business risks, you might find there aren't many to be worried about except for malpractice claims. That's primarily true if you're a 100% virtual practice (e.g. tele-health) without any employees.

No (Automatic) Tax Benefit

Business entities also don't offer any tax advantage. Simply forming a business entity won't save you any money on taxes. In fact your business entity will subject you to government fees to keep your business entity in good standing. 

Yes, LLC's and Professional Corporations can make the S-Corp Tax Election which can offer tax advantages. But this is a further (and complicated!) step that should be carefully considered. An S-Corp isn't always a smart or tax-saving move. I know more people who regret having made the (somewhat) irrevocable S-Corp Election too early than those who think they made it too late. To learn more about S-Corp, check out the Income Tax section of this page.

Check if Your State Requires a Professional Entity

As a licensed professional, in some states you need to form a Professional LLC or a Professional Corporation (rather than a regular LLC or regular Corporation). In California for example, therapists can't form any type of LLC; the only business entity available to them is a Professional Corporation. Check out my blog post on business entities for more information.

You can learn more about business entities and how they fit into the overall risk management strategy for your practice on this page.

🏁 Congrats on reaching the finish line! 🏁

Once you've worked through this Quick Start list... first, celebrate yourself! Because that is a big accomplishment! 👏

Cultivate a Practice

After the party dies down, I'd encourage you to set aside some time every month (or better yet every week) to sit down with your financial world and see what needs a little TLC. The more frequently you check in with your bookkeeping, cash flow and investments, the less intimidating and overwhelming they will be.

Financial caretaking is a critical element of self-care. And like exercise and eating your broccoli, it's not always the most fun. And through being a good steward of your financial resources, they will support you in both growing your impact and building the life of your dreams. And those two things are really what financial planning is all about!

Further Steps & Resources

When you're ready to begin learning how to refine and optimize that plan you've created for yourself, be sure and visit the main page of my Comprehensive Guide to Financial Planning.

If I can ever help or answer any questions along the way, please reach out. A perfect complement to this Quick Start guide is my Quick Start Coaching Intensive - learn more about the Intensive on my Start Here page!

👉 Looking for a bit more guidance? Click here! 👈