Don't Underestimate the Benefits of Budgeting
You did it! You graduated from medical school. You are no longer an MS4; now, you're an M.D. and a resident. Unless you were working while in school, this may be the first time you have received a salary in a while (or maybe ever). You may need or want to spend your entire paycheck on necessities and celebrate having finally become a working doctor! It's perfectly ok to want to spend some money in your first few months of residency, but you will quickly find that costs add up and wonder where your paycheck is going.
After you have had some time to transition from student to working life, take the time to carefully consider how much you are making and how much you are spending. If you are spending more than you are making or do not have much left over at the end of the month, it is time to create a budget. Figure out your fixed costs (e.g., rent/mortgage, loan repayments, utilities, etc.), and see how much is available for you to spend, save, and invest. Then, create a budget around those numbers.
Don't Put Off Saving
It can be easy to fall into the trap of thinking that you can afford to save less (or nothing at all) during your residency because you will have a significant pay increase once you are out of residency. But this is a mistake. While it is certainly easier to save on an attending's salary compared to a resident's salary, the truth is that you cannot make up for lost time. Not to mention, expenses rise to meet your level of income. What truly matters is building good savings habits. By saving early and often, your money has more time to grow and for compound interest to work for you.
Generally, physicians get a late start in saving. By the time you make it through medical school and residency, you are probably in your late twenties or early 30s. While you may have more earning potential, you are also a decade behind in earnings and savings compared to others who took their first paying job right out of college. Don't put it off any longer; make a plan to save and stick to it.
Don't Get Hooked On Investing Trends and Get-Rich-Quick Schemes
Between the uptick in 'finfluencers' on social media, financial salespeople disguising themselves as financial advisors, and people with little knowledge of physician-specific financial issues, it is easy to fall prey to investing trends, get-rich-quick schemes, and unqualified financial advice. The road to becoming a wealthy doctor is paved with incremental steps toward wealth building, including saving systematically, investing for the long-term, understanding that there is no free lunch, and making sound financial choices.
Don't Defer Planning For Retirement
Take advantage of the hospital's retirement plan and any matching contributions. Depending on the hospital's benefits, they may offer a pre-tax retirement account and a Roth retirement option.
A pre-tax (traditional) retirement account (e.g., 401(k), 403(b), 457, Traditional IRA) allows you to set part of your paycheck aside before taxes for your retirement account. Money in the account grows tax-deferred, and you pay taxes on your withdrawals in retirement. Generally, these accounts are worth investing in when you believe you will be in a lower tax bracket during retirement.
A Roth retirement account (e.g., Roth 401(k), Roth 403(b), Roth 457, Roth IRA) allows you to set money aside after taxes for retirement. The account grows tax-deferred, and withdrawals are tax-free in retirement. This is usually a good plan for individuals who believe they will be in a higher tax bracket in retirement – like residents!
If the hospital you work for does not offer a Roth retirement plan, you may be able to participate in the hospital's retirement plan and contribute to a Roth IRA. This is a bit complicated and is probably worth discussing with a tax professional or financial advisor.
BONUS: Your hospital may offer a health savings account, which is worth exploring. Also, if you work for a hospital system that is a subsidiary of a publicly traded company, you may have access to an employer stock plan.
You have so many savings options during residency; don't put it off until later in your career.
Don't Skip Insurance
At its core, insurance planning involves managing risks in your life. By having insurance policies, you are transferring (or sharing) the possibility of a catastrophic financial risk to an insurance company. There are different types of insurance to consider as a resident, depending on your circumstances and your life stage. At a high level, there are three insurance policies in particular you will want to think about to protect you and your family:
Health Insurance – This is likely the most essential type of insurance you will have.
Disability Insurance – Young doctors are uniquely exposed to the risk of financial hardship from a disability. This is because of high student debt and years of living ahead, which must be paid for through income or a disability policy.
Life Insurance – If others depend on you financially, you need life insurance.
Don't Go Through Residency Without a Plan For Your Student Loans
You may have attended some seminars in med school about paying back your student loans but are still trying to figure out what you should be doing. You have heard the term income-driven repayment plan and assume you will qualify for public service loan forgiveness (PSLF), but do you know what your payments will look like? Which income-driven repayment plan makes the most sense for you? Does the hospital you are working for qualify for PSLF?
In particular, it is worth looking further into PSLF. The Department of Education has strict requirements for reporting PSLF, and for-profit hospitals likely do not qualify.
There are some great resources out there to learn more about your loans. An excellent place to start is studentaid.gov.
Don't Be Afraid to Ask For Help
Many physicians sleep better knowing that there is someone whose job it is to look out for their financial future and well-being. For different physicians, that could mean a variety of things. If you just graduated med school, you might need to focus more on paying down your student loans and crafting a plan to start your financial journey on the right foot. In contrast, if you are further into your career, you may want help crafting an investment strategy and planning for retirement. Whatever your needs, be sure to look for advisors who:
Are fee-only and reasonably priced – This means they do not sell commissioned products and do not charge you too much for services in which you do not need or do not see the value,
Offer the services you are looking for – Some advisors may have asset minimums or only advise clients in a specific area. Whatever the advisor's skillset, look for one that meets you where you are.
Has designations/certifications – Three of the most recognizable ones to look for are CERTIFIED FINANCIAL PLANNER™ (CFP®), Chartered Financial Analyst (CFA), and Chartered Financial Consultant® (ChFC®).
If you are a young physician seeking help with your finances, check us out! You can schedule a complimentary, no-obligation call with us here.
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About the Author
Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.
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