If you’re heading into your last year of residency as a young doctor, congrats! Medical training is tough and you’re almost done. As you celebrate and start reserving your vacation weeks, don’t forget about some large expenses that may be coming your way. As a former senior resident who just started fellowship, there were quite a few large expenses I had that I wasn’t fully prepared for. I ended up having to make some extra money on the side in order to cover all the costs. Learn from my mistakes and plan ahead for these large expenses that may be coming your way:
1. Board Certification Exam
As you finish your residency, you will become eligible to take the board certification exam for your specialty. While some specialties like Ob/Gyn and Surgery have oral components that may take a lot longer to study or qualify for, almost all specialties require you to pass a written exam. In case you weren’t aware, that written exam isn’t cheap. I’m in family medicine and I paid around $1300. Yep, you read that right $1300. And yes, I had to pay the full cost before I was able to schedule the exam. Be sure to look up how much the board exam costs for your field. For some specialties and subspecialties it may cost over $2,000.
2. Full Physician Medical License
Residents in training usually practice medicine and see patients with a post-graduate training license. Once you finish residency, (whether you decide to do a fellowship or not) you are usually required to get a full physician license. This is not a national license. It is a state license which means you must have a full medical license in each state you practice medicine. Unfortunately, the cost of a full medical license isn’t cheap. I paid at least $500 in application fees for my initial Georgia license. Then I paid $230 a couple years later to renew it. Because I am doing a fellowship in California, I needed to pay for an initial California medical license along with the application fee which was around $1200. I also had to pay to get official fingerprints, medical transcripts, and USMLE scores sent to the state medical board. These costs were not cheap either. If you have already signed an attending contract, you may be able to get some of these expenses paid for by your new employer. Try to negotiate that into the contract or plan ahead so you have the money available for it.
3. DEA License
If you’re like me, you may be surprised to learn that getting a full physician license in each state you practice in, isn’t sufficient. You also need a license to prescribe medication, otherwise known as a Drug Enforcement Administration (DEA) license. The cost of this license isn’t cheap. I paid $888 for mine. If you’re a physician in training at a state institution or residency you may be able to get this fee waived, but there’s a caveat. Technically speaking, you need a DEA license for each state in which you practice medicine and you may have to pay for it yourself if your employer does not provide funds for this cost. I have a DEA license associated with my Georgia medical license and another DEA license associated with my California medical license. These costs can add up quickly.
4. Moving Expenses
Whether you are moving to a different state for fellowship or starting your attending job in a new area, most doctors-in-training move after they finish residency. In case it’s been a while since you moved, let me catch you up to speed: it’s expensive. I moved to California from Georgia and this cross-country move was not cheap. Simply traveling to California to look at apartments was costly. The cost of moving my clothes, transporting household goods, and shipping my car was expensive as well. Plus, there are other moving costs to consider too. You may need a new driver’s license and car registration which can lead to additional expenses and insurance fees. You may also need furniture or kitchen appliances. Once you account for these costs, you can easily spend $2,000 to $4,000 if not more.
5. Housing Costs
Many people finish residency and want to buy a home. We have so much delayed gratification in training that we finally want to accomplish the ultimate sign of adulting: homeownership. Unless you’ve been living under a rock, you know that inflation is through the roof and housing prices have increased over the last couple years. Many people are offering over the asking price and paying with cash which has made it more difficult and costly to find the home you desire. Be prepared. For those of us who plan to rent for another year, things may not be as good on our end either. Rent prices have gone up tremendously and many places still require a rather large security deposit. Whether you decide to rent or buy, beware that your housing costs may be higher than you anticipated.
6.Celebratory Vacation
Residency is hard. We were on call for over 24 hours at a time, worked nights and weekends while missing out on time with our families, and were drastically underpaid for the work we did. Finishing this training is quite an accomplishment and you deserve to celebrate. If you’re like most people, you will want to take a break before you start working as an attending. Most people take at least 6 weeks off to refresh and recharge and one of the most popular things to do during that time is travel. Go to Greece, Belize, Europe, Hawaii, or whatever bucket list location tickles your fancy. This may be one of the only times in your life where you have an extended time off without work obligations so take advantage of it. Just be aware that these vacations aren’t cheap. They can cost thousands of dollars and usually require you to save for them ahead of time.
My point? The end of residency or fellowship can be exciting, but it can also be quite costly. Expenses tend to add up quick. If you’re not careful, you can find yourself charging way more things on your credit card than you ever imagined. Be sure to plan ahead.
Your priorities affect your lifestyle and net worth
When it comes to making money and living well, we all have different priorities. Some people choose to spend a great deal of money on their family while others choose to live a fancier lifestyle as a single person or invest for their future. Since you can’t rely a huge raise at your job or a large influx of cash overnight, you have to prioritize spending money on the things that are most important to you. The choices you make have a huge impact on your lifestyle and net worth. For example:
If you prioritize living by yourself in the city… realize that this simple desire is considered a luxury. Many people want to live in the city close to various entertainment options and nice restaurants. They value having their own personal space and want the freedom to come and go as they please. Since this desire is so common, the demand for one-bedroom apartments in the city is high. Because demand is high, the prices are high. In my current city of Atlanta, a modern one-bedroom apartment in the city can cost around $1500 a month, if not more. Paying $1500 a month in rent may require a big sacrifice. It likely means that you cannot save or invest as much money as you otherwise would each month.
If you prioritize investing money for retirement… realize that doing so means the paycheck deposited into your account each month will be lower than it otherwise would. For a person making around $60,000 per year, who plans to allocate at least 10% of their income for retirement and building wealth, their monthly take-home pay will decrease by about $500 per month. For people who are already on a tight budget, getting $500 less each month may be a little too much to handle. For other people, the $500 per month is doable and they like knowing they are building their net worth and will be able to retire with enough money in the bank when they please. Investing money in retirement accounts is vital since it allows you to build wealth in a tax-efficient way but doing so may require you to live below your means. You may have to decrease monthly bills by opting to live with a roommate, travel less, or drive a more affordable care.
If you prioritize living a nice lifestyle (with fancy cars, good food, and lots of spare cash to spend) … realize this costs a lot of money. Choosing to live in a nice apartment or home will increase your monthly mortgage (or rent) each month. Choosing to lease or purchase a luxury vehicle may cause you to have a car payment that is well over $500 per month. Having spare cash to spend on concert tickets, frequent restaurant outings, and weekend bars can cost you hundreds of extra dollars per month as well. Although you have the freedom to live that lifestyle, understand that doing so may prevent you from being able to invest money for retirement. It may also preclude you from saving money in an emergency fund or being able to go on vacations without getting into debt.
If you prioritize giving money away… realize this may require you to make a sacrifice in another area of your life. As a Christian, I tithe. This means I give away 10% of my income each month. Because I give away 10%, I have 10% less money to invest, spend on housing, or use to save for a future vacation or wedding. To make up for this “loss,” I lived way below my means and shared an apartment with a roommate for 2 years until I was able to increase my income. Giving away money may be an important religious tenant for you as well. If so, think about how you can fit this financial priority into your current lifestyle.
If you prioritize saving money (for a nice vacation, future wedding, or house down payment) … realize this may require you to live in a cheaper apartment, invest a little less towards retirement, or be more frugal in your disposable spending. Perhaps you have a goal of saving $5,000 a year to finance a large international vacation and build up your emergency fund? This may require you to save an extra $400 a month. This may require you to turn down a few happy hour invites or forgo a few music concerts. If that doesn’t work and you can’t figure out where to get the extra $400, you may have to get a side hustle or part-time job that can net you the extra money you need.
If you prioritize having a family (with children) … realize that although having a family with children can bring you joy, it may also add to your monthly expenses. With more people, you may need more space which means getting a larger apartment or house. Because there are more people, you will also have to spend more money on food. If you have small children, you may have to allot a certain amount to daycare. All of these added expenses can amount to thousands of dollars per month causing you live a more frugal lifestyle and decreasing the amount of money you can allot to other things like travel, entertainment, and investing.
My point? You may have to pick and choose what to spend money on. Until you increase your income, you won’t be able to do it all. Part of being a fiscally responsible young professional means that you have to prioritize your desires and figure out what’s most important to you.
Would you rather build wealth as quickly as possible by investing a large chunk of money for retirement or do you want your own personal space via a luxury one-bedroom apartment?
Would you rather avoid going into debt by saving up for a fancy vacation and unexpected expenses ahead of time or do you want to spend your disposable income right now by consuming expensive food, nice cars, and city entertainment?
Part of being an adult means you have the freedom to make your own decisions and spend money how you see fit. However, you can’t have it all, and neither can I. What are your priorities? What will you choose?
Want to invest and build wealth sooner? Use Retirement Accounts
In the last few years there has been increased interest in investing. People from all over the world have downloaded apps like Robinhood to purchase stock in various companies. Some have even used the app to put money in alternative investments like cryptocurrency. Although this desire to build wealth is well-intentioned, there may be a better way to reach this goal: Retirement accounts.
Before you roll your eyes and write me off, hear me out (or I guess read me out). Retirement accounts aren’t just for middle aged and older adults who want to stop working in the next few years. Retirement accounts are useful for everyone. Although the original purpose was to help people invest money to use when they reached their 60s and 70s, retirement accounts can be extremely useful to you now, even in your 20s and 30s. The benefits you get by using retirement accounts can help you build wealth much more efficiently. You should consider using retirement accounts to invest money and become financially independent for the following reasons:
Using retirement accounts allows you to keep more of your profits– since you pay much less in taxes. Apps like Robinhood are considered taxable accounts. The money you use to invest is taxed, the profits you make are taxed, and the revenue you get after you cash out the investment is taxed. That’s 3 types of taxes! When you invest through retirement accounts you don’t pay nearly as much in taxes. Some retirement accounts like a 401K or 403b are tax-deferred. This means you delay paying any taxes until decades later when you take the money out. With other retirement accounts like a Roth IRA, you invest with money you earned and never have to pay taxes on the profit you make. Plus, you can take out the money you contributed at any time tax-free. My point? Using retirement accounts helps you save money because you pay less in taxes.
Using retirement accounts may help you get extra “free” money to invest – since you may get a contribution “match” from your job. Another perk of using retirement accounts to build wealth is that you usually get to invest more money. Retirement accounts are usually offered through your employer in the form of a 401K, 403b, or 457. As part of a benefits package at your job, your employer may offer a retirement account “match.” This is when the job gives you extra money, in addition to your salary, to invest in a retirement account. The amount they give you usually matches the percentage of your salary you choose to invest in retirement accounts. If you invest 5% of your salary, they will “match” your contribution with an additional 5% to put in your retirement account. With this match your job is giving you extra free money to invest with. Why not take advantage of this offer?
Using retirement accounts can lower your taxable income – which can decrease your student loan payments. Most of the retirement accounts offered through your job (like a 401K, 403b, or 457) are tax deferred. Since the money is tax-deferred, you don’t have to pay taxes on it until you take the money out years later. This means the more money you contribute to retirement accounts, the less money you owe when you file your taxes each year. It could even increase the amount of your tax refund. Since contributing to retirement accounts lowers your taxable income, it also lowers any income-based repayments that are tied to your income – like your federal student loans. The more money you contribute to tax-deferred retirement accounts, the lower your taxable income and the lower your federal student loan payments. Although interest will still accrue on your loans, this may be a good benefit for anyone currently enrolled in a student loan forgiveness program.
Using retirement accounts can help you invest on a more consistent basis – since contributions are connected to your paycheck. If you are a person seeking to invest more money to build your net worth and eventually have enough money to quit your job, pay for your kids’ college, pay off your home, or travel the world, you have to invest. You can’t merely save your way to wealth. Your money needs to make more money and grow. The only thing better than investing your money is doing so on a consistent basis. Year after year, month after month, make investing a habit. Make it routine. Make it automatic. One way to do that is to take advantage of an investment account that is already set up to help you make consistent investments – your work 401K. For some people it may be called a 403b or a 457 or perhaps they are self-employed and have an IRA or solo 401K. Either way, you have retirement accounts at your disposable and these accounts are set up to help you invest on consistent basis every time you get paid.
Using retirement accounts gives you more asset protection – since money in these accounts is protected from your creditors. Sometimes unexpected things happen in life. If for some reason you were sued, owed someone a lot of money, or happen to file for bankruptcy, your creditors could garnish your assets and take any money you have in banking accounts or in a taxable account like Robinhood. That is not the case when it comes to most retirement accounts. Retirement accounts offered through your job (like a 401K or 403b) offer much more asset protection because they are protected under the Employee Retirement Income Security Act (ERISA). This means your creditors cannot take the money you have in your work 401K to pay off your debts. If you are named in a lawsuit, the person suing you cannot go after the money you have in your 401K.
My point? As you start investing, prioritize using retirement accounts. When you use retirement accounts you get better asset protection and more money from your employer. You also pay less in taxes, keep more of your profits, and can invest on a more consistent basis.
Becoming a doctor helped and hurt my ability to build wealth
I just graduated from medical school and will begin my first job as a doctor in a few weeks. Yay! Unfortunately, I am not about to hit the jackpot or start making the salary people google online, just yet.
Although it is true that doctors make a high income, we have to complete residency first. This is a period of 3-7 years in which we are paid a government salary of around $60,000 while working 80 hours a week--not exactly the best lifestyle. In fact, there are several ways in which going to medical school and becoming a physician helped AND hurt my ability to build wealth.
Ways it helped me build wealth:
1.) I will have a high income. Most doctors make at least $200,000 a year, once they finish residency training. Since everyone needs access to physicians and reliable health care, doctors have a high level of job security as well. Mathematically speaking, it is much easier to pay off debt, save for retirement, and build wealth with a high income, especially when it is virtually guaranteed.
2.) It gives me access to exclusive perks and profitable investment opportunities. Some lucrative real estate deals, such as large multifamily homes and syndications (in which people combine their money to invest in an apartment building), are only available to people who have a high net worth and/or make at least $200,000 a year. Many physicians qualify for these deals. Doctors are also favored by banks (since we have a high income and rarely default on loans). As a result, we have the ability to purchase homes with no down payment or private mortgage insurance and are exempt from paying some of the added fees associated with the home-buying process.
3.) Many people in my network have a high net worth. As a physician, I completed medical school and thus know at least hundreds of other doctors and high net worth individuals that were once classmates or colleagues in the hospital. Having friends and associates who are well-educated and also earn a high salary is advantageous. There is a greater chance that people within my social circle have a high net worth. Not only does this give doctors like myself greater insight on how to build wealth, but it also increases the number of people with whom I can share ideas, pitch investment opportunities, and depend on for various levels of support.
Ways it hurt my ability to build wealth:
1.) I could not work in medical school. As a medical student, I went to class all day then went home to study all that material at night while also trying to squeeze in time at the gym, cook dinner, and maintain some semblance of a social life. Just in case some of us could miraculously do all of this with time to spare, the administration forbid us from working. That’s right. I gave my word that I wouldn’t work a job and would instead focus all of my energy and attention on medical school. This is well intentioned, but the simple fact is that medical school is 4 years long. That’s 4 years of my life that I couldn’t work, 4 years in which I didn't contribute to retirement accounts and work the magic of compound interest, 4 years that I was unable to save up for a car or a down payment on a home, and 4 years of potential wealth building and lucrative investments that I missed out on.
2.) I have less time to establish additional streams of income. Unlike many of jobs that require their employees to work 8-9 hours a day with nights and weekends off, med school and residency (our first 3-7 years as a physician) are the complete opposite. We often work 12-hour days, have several periods in which we work night shifts for weeks at a time, and are often scheduled to work holidays like Thanksgiving and Christmas that most other professions get off. While I absolutely love medicine, it monopolizes my time. Because I work so much, I have less time to devote to passion projects, side hustles, and the creation of additional revenue streams. People typically build wealth by actively investing their money or creating a lucrative business. Both of these avenues require a substantial amount of time and can be difficult to pursue when the vast majority of my time is spent working in medicine.
3.) I acquired lots of debt. Perhaps the biggest reason going to medical school hurt my ability to build wealth is all the student loan debt I accumulated. The average medical student has $200,000 in federal student loan debt and unfortunately, I was not an exception to this rule. In case it isn’t obvious, having $200,000 worth of debt at a 6% interest rate that started accumulating well before I could even finish medical school is not a winning formula for wealth creation. Plus, there is a good chance I may accumulate even more debt from a [future] wedding, have increased monthly expenses from having kids, buy a newer car, or finally give up apartment-style living to purchase a home. Either way you spin it, having increased monthly expenses with a high debt burden can make building wealth quite challenging.
Overall:
As someone who wants to build wealth, I recognize the ways my love for medicine has impacted my ability to reach financial freedom in a timely manner. Nevertheless, I don’t regret anything. With good money management, I can overcome the obstacles set before me and still reach my financial goals. Even with its disadvantages, I’m glad I choose to go into medicine.