Quick Guide For Managing Loans, Insurances, and Budgets

Of note, this article was originally published on Doximity’s Op-Med for resident physicians.

As resident physicians who work crazy hours, we have a lot on our plate. With so many competing responsibilities, it can be difficult to balance our personal lives with our careers and some things may inevitably fall by the wayside. While there are many things we can put off for another month or even another year, our finances shouldn’t be one of them. Here’s a financial check list of three things you must do to make sure you’re on the right track: 

Have a concrete plan for your student loans

Figuring out what to do with your student loans can seem a bit overwhelming. Here are a few steps to help you navigate through the madness.

1. Decide whether or not to consolidate or refinance your loans. Consolidation is when you combine all your loans into one giant loan and this can usually be done through the federal government. Refinancing is when you combine your loans with a private company outside of the federal government. Refinancing your loans usually allows you to get a lower interest rate on which can save you money over time but it makes you ineligible for several government loan forgiveness programs like public service loan forgiveness (PSLF). Since I’m enrolled in PSLF, I chose to consolidate my loans through the government instead of refinancing them with a private company.

2. Pick a repayment plan that you can afford. If you have federal student loans, you will be automatically enrolled into the standard repayment plan. This plan may require a higher monthly payment than you can afford. If this is the case for you, as it was for me, switch into one of the income driven repayment plans that cap your student loan payment at 10-15% of your discretionary income.

3. Sign up for public service loan forgiveness if your residency qualifies. Enrolling into the program isn’t binding and may give you the chance to get tens of thousands of dollars in student loans forgiven, tax free. Take five minutes out of your day and submit the form to officially enroll, if your resident program meets the qualifications.

Make sure you have insurance

Many of us didn’t think much about insurance in medical school. We probably had health insurance from our parents or our schools and didn’t worry about anything else. Now that we’re out in the “real world,” here are three things to do to make sure we are thoroughly protected in residency: 

1. Verify that you have medical insurance. Even though most of us are young and healthy, we still need health insurance. Whether it’s for yearly checkups, acute illnesses, the birth of a baby, prescriptions, or unforeseen injuries, we have to make sure we’re protected and have an affordable way to cover these costs. As residents, most of us should get free or low-cost coverage through our programs. Just make sure you’re enrolled.

2. Get disability insurance. After taking out loans and spending most of our 20s in school, let’s make sure that our income is protected. If we get in an accident, are diagnosed with an illness, or simply have an injury that prevents us from working to our full capacity, disability insurance will kick in and give us money to replace the income we may have lost. Group disability insurance policies through our residencies usually don’t have enough coverage or adequate protection. I purchased an individual specialty-specific disability insurance policy that will pay out $4,000 a month if I am unable to work at 100% capacity as a resident. The policy will increase and pay out $12,000 a month when I become an attending.

3. Decide if you need life insurance. Life insurance pays money to our families if we were to pass away. While many of us have a life expectancy well into the 80s, life can be unpredictable. If something were to happen to us, we’d want to make sure our family was taken care of. As a resident, many of us have a small life insurance policy from our employers, but if you have a spouse or kids who depend on your income, that group policy may not be enough. You may need to purchase additional term life insurance.

Create a monthly spending plan

As resident physicians, life is much different now than it was when we were medical students. Instead of getting one lump sum of money each semester, we now get paid on a consistent basis. In order to make sure we’re not spending too much money and are actually saving a decent amount for emergencies, paying down debt, retirement, and vacations, it’s imperative that we implement a spending plan. I categorize my spending into 3 buckets: 

1. Things I need to buy, which are necessities like rent, bills, and food.

2. Things I want to buy, which are discretionary entertainment expenses like concert tickets, movies, books, meals at restaurants, or clothes.

3. Things I should buy, which are investments I make to increase my net worth whether that’s by paying down debt, saving money into a separate account, or investing toward retirement.

Simply allot a percentage of your check to each of these three buckets to make sure you’re living within your means and making responsible spending choices. 

To summarize, getting your finances in order doesn’t have to be difficult. Have a concrete plan for your student loans by deciding whether or not to consolidate or refinance your loans, enrolling into an affordable repayment plan, and signing up for PSLF. Next, make sure you have all the insurance you need like medical insurance, disability insurance, and life insurance. Lastly, create a spending plan to ensure that you’re paying your bills, increasing your net worth, and investing in your own self-care. 

6 Reasons I’m Not Buying Whole Life Insurance (and you shouldn’t either)

If you’re a physician or high-income earner, you’ve probably been approached to purchase whole life insurance. While many of your fiscally responsible colleagues may warn you not to buy it, many other financial advisors seem convinced that whole life insurance is a must-have. With such conflicting advice, you may be confused on who to listen to and unsure about what to do. Several of my physician friends are in the same boat. In fact, many of them have asked me to help them understand why “whole” life insurance is so bad and “term” life insurance is ideal. Here was my response:  

Most whole life insurance policies, universal life insurance policies, indexed life insurance policies, (and basically anything other than term life insurance) is sold to us under false pretenses. These policies are branded as a way to “guarantee” our family money when we die. However, if you delve into the fine print of these polices you will see that they aren’t nearly as good as they sound. In fact, there are 6 main problems with whole life insurance:   

1.     You don’t need it. Unlike disability insurance, where we insure against the unpredictable risk of becoming disabled, life insurance is different. We already know that we will “pass away” at some point. Thus, dying isn’t necessarily a “risky” event, it is an EXPECTED event. Any event that you can expect to happen, you can plan for yourself. Since you can plan for this event yourself, you only need to insure against the risk that you could die before this plan is fully carried out. In other words, you don’t need life insurance for your “whole” life. You only it for a certain period of time or “term.”

2.     It’s inefficient. In order for whole life insurance companies to guarantee your family money after you die, they must have money to give them. Insurance companies aren’t charities, so they definitely are not giving your family money out of their own pocket. What they do is collect a large amount of YOUR money to pay into THEIR system. In fact, the financial advisors who sell you whole life insurance put a large portion of your money into their own pockets as profits, then take the rest and “invest it” into low-yield accounts. If you die young, your family may not get much of anything at all because you’ve haven’t paid into the system for long. If you die old, your family won’t get nearly as much as they should because the insurance company still needs to make a profit. With whole life insurance, you end up paying a huge chunk of money to an insurance company that will give you and your family much less in return.

3.     It’s expensive. Whole life insurance policies pay out to your dependents after you pass away. Thus, insurance companies will want you to pay for the cost of that benefit upfront. Paying for this benefit is insanely expensive. In fact, whole life insurance costs about 10x more than term life insurance. This means you could easily be paying hundreds if not thousands of dollars each month for this policy. That’s a lot of money to spend on an inefficient insurance product you don’t need.

4.     There are lots of hidden fees. The vast majority of whole life insurance products have a slew of hidden fees. These expenses take away from the value of the product and drastically decrease the benefit your dependents receive when you die. In fact, most of the money you pay the insurance company for a whole life insurance policy is paid directly to the agent who sold you the policy as “commission.” I can think of many more ways you can spend your money, than to pay tens of thousands of dollars in commission fees to an insurance agent.  

5.     The benefit isn’t as good as you think. If you look at the fine print of these whole life insurance policies, you’ll see that the benefit it provides to your family isn’t very good. In fact, the “returns” are actually negative in the first few years. This means that if you die shortly after you purchase a whole life insurance policy, your family may not get anything at all, even though you’ve paid thousands of dollars in premiums. If you die much later in life, the average returns on your money are only 2-4%. In contrast, average returns from the stock market are 7-10%. This means that if you had simply placed your money into an index mutual fund, you’d have been able to give you family drastically more money and paid much less in fees.

6.     There’s a better alternative. The biggest reason I’m against whole life insurance is that there is a much better way to proceed. You can save money for your loved ones without ever having to purchase whole life insurance. How? By maxing out your retirement accounts so that you can save and invest money in a tax-efficient way. By converting money each year to Roth accounts (like a Roth IRA) so that your family can inherit the money you save tax-free. By purchasing a “TERM” life insurance policy so that if you happen to die before you’ve been able to pay off your student loans and stack enough money for your family, the insurance company will provide a hefty benefit to your family.

My point? As busy young professionals, we already sacrifice a lot. The last thing we need to do is to get tricked into purchasing an insanely expensive insurance product that has lots of hidden fees. There is a much better alternative. Save money for your family yourself and purchase a “term” life insurance policy to cover yourself in the meantime. Don’t buy whole life insurance.