5 Truths Every Resident Needs To Know

July 1st is just around the corner and for those who are new to medicine or unfamiliar with residency life, July is the start of the new resident physician year. A resident physician is a doctor who graduated from medical school and is getting specialized training in his or her field of choice while still seeing patients. Residents are doctors who are still actively learning (like a student in school) while they are also working and earning money.

Besides experience, the main difference between a resident physician and a regular physician (like an attending physician who is done with his/her specialized training) is that resident physicians work a lot more and get paid a lot less. I’m still a resident myself, so as you can imagine, it’s a busy time in our lives. There are a lot of things we have to worry about, but finances shouldn’t be one of them. Here are 5 money-related truths every resident physician, and young professional with high earning potential, needs to know:

1. You are not guaranteed to be rich. Just because you are a doctor and will have a high salary, does NOT mean you don’t need a plan for your finances. Most people who make more money, get into more debt. Your time as a resident is not an excuse for poor money management and credit card accumulation. Many doctors’ net worth is not nearly as high as it should be considering how much they get paid. Make some financial goals for yourself now and try to avoid some common pitfalls. Learning a few finance basics as a resident can go a long way.

2. Spend less. Save more. Minimize debt. Things can be challenging during residency so try to live below your means or at least avoid living above your means. You don’t have to have a detailed budget but creating a basic spending plan to prevent yourself from accumulating [more] debt during training might be helpful. Save money in an emergency fund so that small, unexpected expenses like a car repair, urgent trip back home, or new cell phone doesn’t derail your budget or financial goals. Vacations can serve as a much-needed break from the stress of residency, but try to pay for them in cash by saving a couple hundred dollars from each paycheck. If you can, invest some money in index mutual funds via your work retirement plan or your own Roth IRA. The goal in residency is to keep your head above water financially and avoid getting into more debt. 

3. Have a plan for your student loans. Choosing to “deal with it later” is NOT a plan. Read about the different student loan repayment options and choose one, likely an income-driven repayment plan, so that your payments are affordable in residency. Most residency programs qualify for public service loan forgiveness so take a couple minutes out of your day and sign up for this free program so that you have an option for your student loans to be forgiven after 10 years. When choosing a student loan plan recognize that the optimal student loan plan for you as resident may change when you become an attending. That’s okay. Just figure out the best federal repayment plan for you now, likely PAYE or Re-PAYE and consider hiring a company like Student Loan Advice or Student Loan Tax Experts once you finish training so they can run the numbers for you and help you determine the best repayment plan for you as an attending.

4. You need Insurance. As a resident physician, there’s a good chance you have health insurance from your employer that is either free or low cost, but health insurance isn’t all the insurance you need. Every resident physician needs long-term disability insurance. You may get a small amount through your residency program but that is unlikely to provide enough coverage. Most residents and attendings will need to purchase an additional individual long-term disability insurance policy. If you have a spouse, kids, or family members that you support financially, you may also need to purchase term life insurance. If you have a side business, you may also need extra liability insurance coverage. Figure out all of the insurances you need and make sure you get them.

5. Think twice before you buy a house. Owning a home can be a major milestone and lifelong dream, but it may not be wise to do so in residency. You cannot just compare the monthly mortgage price to the monthly rent price and make your decision. There are additional fees and costs associated with home ownership that can be challenging to deal with as a resident. Do what is best for your family, but make sure you consider all of the pros/cons of buying a home before you make the decision to rent vs buy.

What Are Your Top Financial Goals?

It can be easy for us to get caught up in the busyness of life. We are so focused on progressing in our careers that we may lose sight of the main reason(s) we are working so hard in the first place. When you reflect on some of the biggest financial benchmarks you want to accomplish, what comes to mind?

Some people want to pay off their student loans. Others want to be completely debt free. Some people want to buy their dream home, others want to fully fund college for their children. Before you hire a financial advisor or start investing money in various places, figure out what’s most important to you and create a specific plan to meet that goal.

Do you want to pay off your student loans? Doing so may require you to live below your means for the next 5 or 10 years so that you can increase your monthly student loans payments and lower the loan balance quicker. If you work in a non-profit job that qualifies for loan forgiveness, you may want to make sure you’re enrolled in an income-driven repayment plan so that your student loans payments are lowered to an amount you can actually afford. If your job doesn’t qualify for federal loan forgiveness and you have already refinanced your loans with a private company, perhaps you should see if your job would be willing to pay down some of your student loan debt directly – some professions may use this student loan payment as a type of salary bonus. Regardless of the route you take, if being student-loan debt free is a goal, you may want to think of ways to pay it off within the next few years and align your financial priorities to meet that goal.

Do you want to purchase your dream home? For many young professionals, buying a home is the ultimate sign of adulting. This desire to have a place of their own intensifies when young professionals reach their early to mid 30s, get married, or become more settled in their careers. If you desire your own place as well, perhaps you should meet with a specialist at your bank to see if any unique mortgage programs are available to buyers in your profession, income bracket, and geographic region. You may be surprised at the options mentioned. Along with seeing what’s available, you should also re-shift your focus to saving a larger amount of money in your savings account than you otherwise would. Having this money available will help you pay for the house down payment, closing costs, moving expenses, and other associated home-buying fees.

Do you want to retire early or work part time? Many people who like their careers may decide that other things are more important to them. Perhaps they enjoy their work but want to be able spend a little more time at home with their children. Maybe they want to cut back to part-time. Other people may choose to retire early and do something else altogether. If working less or retiring early is one of your goals, then it may require you to invest aggressively in retire accounts from a very early age. While some people may only contribute 10% of their salary to retirement, you may want to double or triple that amount. Perhaps you should consider maxing out your work retirement account then setting up additional taxable accounts to invest even more money. My point? If you plan to retire soon or work part-time, you will likely need to invest more money toward retirement from an earlier age so that you can let the magic of compound interest work in your favor and actually afford to make that change in your career.

Do you want to pay for your kids’ college? Perhaps you are someone who would like to finance your kid’s educational costs. Because the cost of college has continued to increase over the years, paying for an undergraduate education can be quite expensive. Many parents who plan to pay this cost end up saving/investing money for many years in a 529plan that saves them money in taxes. Other parents may opt to save money in a Roth IRA, set up a custodial account for their kids, or purchase educational bonds. Regardless of which method you choose, you will likely need to save money each month which will require you to think over your monthly income to see just how much you can afford to spare in order to stack up enough money over time to cover the cost of college.

Do you want to be completely debt free? Many people are risk averse and hate debt. The thought of owing someone, or some financial institution money, bothers them and adds bills to their monthly expenses that decreases the amount of money they can spend on other things they enjoy like travel, entertainment events, and fancy restaurants. If you feel similarly, and would like to get rid of all of your debt, doing so may require some changes in your finances. Perhaps you need to decrease the amount you contribute to retirement investments and instead pay down your credit card debt and car loans more aggressively? You may also need to learn to save aggressively and pay for everything in cash instead of credit.

My point? Many of us have financial goals we would like to accomplish. Achieving these goals may require some sacrifice and a shift in how we think about our money. It may also change how much we invest for retirement or spend on various debt repayments. Think about what is most important to you financially and make the necessary shifts in your finances to bring these goals into fruition.