My residency spending plan: a new way to think about budgeting

As a young professional with many competing expenses, it is paramount for me to prioritize my spending. However, adhering to a strict budget can seem a bit daunting and restrictive. To get over this anxiety, I started out with a spending plan that mirrors the “50-30-20 rule” by allocating money into 3 different buckets: things I have to buy, things I want to buy, and things I should buy. Let me explain.

Category #1: Things I Have to Buy 

This category is for my fixed expenses. It includes the bills and necessary purchases I must make to survive. This includes my monthly rent and other bills (like electricity, internet, water, and sewage). I also use this category to pay for groceries, gas, and different types of medical insurance (i.e. vision, dental, and disability). For young adults just starting out in their careers, this category of fixed, necessary expenses can take up about 50% of your take-home pay. For young professionals established in their career, it may be a much lower percentage. For me, this amounts to about 45% of my take-home pay. 

Pro Tip: If your fixed expenses add up to over 50% of your income, consider ways you can cut costs or increase your income. I tried to do both. In order to decrease costs, I decided to live with a roommate. This not only lowered my monthly rent payment, but it also allowed me to split many other bills, which substantially lowered my living expenses. Along with decreasing costs, I also created a second source of income. As a resident physician with limited free time, I couldn’t get a second job, nor did I want to. Instead, I decided to turn something I love (blogging) into a second source of income by monetizing my blog and accepting paying offers to write for other platforms. Whether you enjoy writing or have another area of interest, think about what you love to do and consider different ways you can turn your hobby into a second source of income. 

Category #2: Things I Want to Buy 

This category is for my discretionary spending “aka” non-necessities that increase my quality of life. These expenses can differ for each person but for me they include: entertainment (like weekend outings to the movies, sporting events, and restaurants), self-care (like personal grooming, hair appointments, and gym memberships), and incidentals (such car maintenance, birthday gifts, and other unexpected expenses). This is also the area I dedicate to giving. As a Christian I try my best to give to the less fortunate and donate to organizations that do the same. 

Pro Tip: Everyone’s list of discretionary spending may vary. I choose to drive an older car and spend extra money on entertainment and self-care. You may, instead, choose to drive a much nicer car and opt for a car payment. The items you choose to purchase can differ from mine. The goal is to keep your discretionary spending to about 20-30% of your take-home pay. Mine is 25%.

Category #3: Things I Should Buy 

This category is for monetary growth. It is the part of my take-home pay I use to increase my net worth and build financial security. This can be done in a variety of ways, but I use this section of my budget to save, invest, and pay down debt. For example, I put a certain percentage of money into an emergency fund and secondary savings account (which I will use for unexpected expenses, a future vacation, a house down payment, etc). I also allot a portion of money from this category to invest in my employer-sponsored retirement account (which is a 403b retirement savings plan through which I invest in a combination of stocks and bonds). Lastly, I use this category of money to pay down student loans and credit card debt. 

Pro Tip: You can increase your net worth by either paying down debt or increasing your investments. I do both. The goal is to reserve at least 20% of your take-home pay to this category to ensure you have an adequate emergency fund and are saving enough money for retirement. Since I was unable to work during my time in medical school and incurred some credit card debt when I moved to another state, I am allotting about 30% of my budget to this category to “catch up.” However, your exact percentage may differ from mine. You may need to start off by allocating a much smaller amount to this category and increasing the percentage over time.

Generally speaking: the amount you allot to these 3 categories may vary. The important thing is to make sure you have a portion of your budget reserved for all 3 areas.

Tell me, was this helpful? What percentage of your check do you have allocated to these 3 areas?

6 surprising benefits of having a spending plan

In order to practice good money management, we must put a valiant effort into getting our spending habits under control. Although challenging, creating a monthly budget or at least having a “spending plan,” can really help us get on the right track. When I finally started following a budget not only did my finances improve, but I also noticed these 6 surprising benefits:  

1. I am better organized. Before I created a budget, I used to “guesstimate” how much money I spent each month. After a few weeks, I’d realize that my bank account was lower than I anticipated and would just tell myself to “try harder” next time. As you can imagine, that didn’t work. I was still spending too much money and barely making ends meet. When I finally sat down and made a monthly budget things changed for the better. With a budget, I actually know how much I can afford to spend on certain items and can plan better strategies on how to meet my financial goals.

2. I know what is happening to my money. Now that I have a realistic budget, my spending habits have changed. I am more aware of fixed vs variable expenses and have a rough idea of how much money is in my bank account at all times. Because of this awareness, I no longer have anxiety opening my mobile banking app or logging into mint.com. I know how much I can afford to spend on food and which times I can splurge on other items. Instead of getting to the end of the month and wondering where my money went, I am now the one telling it where to go. 

3. I feel less guilty when I spend money on myself. Before I created a budget, I felt guilty spending money on myself. Even though I worked hard, I always felt like I should be using the “extra” money I had to pay off credit card bills or save for retirement. At one point, my guilt was so bad that I could barely walk into the nail salon without feeling financially irresponsible. All of that changed when I actually created a budget. Each month I allocate a certain amount to “personal grooming and self-care.” I now have a small portion of my budget set aside for a monthly pedicure and trip to the hair salon. This minor change adds so much to my quality of life. It makes me happy knowing that I can enjoy myself from time-to-time and remain on track to meet my financial goals. 

4. I worry less about my bills. Before I had a spending plan, paying bills near the end of the month gave me anxiety. Even though I knew the bill was coming, I had usually spent too much money earlier in the month so paying that bill would lower the balance in my checking account to a level that I was not comfortable with. Facing that reality caused me great angst on a regular basis. When I created a budget, things changed. Fixed expenses that come out of my check are no longer a surprise to me, regardless of when the money is deducted. I am more aware of my spending throughout the month which makes me better prepared to pay those mid-month bills when they come.

5. I actually save money each month. Before I had a budget, saving money was something I didn’t think I could afford to do. I swiped my card whenever I deemed it necessary and was genuinely surprised that I didn’t have much left over at the end of the month. When I created a budget, this changed. I became much more aware of how my unhealthy spending habits precluded by ability to save. Nowadays, I solve this problem by actually “paying myself first.” I have a portion of my check directly deposited into a totally different bank account. Since I hardly ever use this secondary account, I don’t really “see” the money I am missing. As result, the money in this account has continued to build over time. As I continue to work in residency, I’ll have this separate bank account serve as an emergency fund, new car fund, and vacation savings account. 

6. I finally started giving. As a well-intentioned Christian, I try to give to others. Generosity not only blesses the other person, but it does something internally to the giver as well. Every time I give, I get this wave of gratitude knowing that I helped make someone else’s life better. Creating a budget has allowed me to continue these good deeds on a regular basis. Instead of feeling like I can’t afford to share with others, having a spending plan helped me see where I could make room in my budget to tithe and make small charitable donations. It might take me a little longer to become financially independent, but to me, this sacrifice is worth it. Giving to others brings me so much joy and helps me maintain perspective. It also allows me to enjoy the work I’m doing so much more. Without a budget, I wouldn’t be able to continue this practice.

For these 6 ways and more, creating a spending plan has really enhanced my life. If you haven’t already, sit down and make a budget and see if you experience some of these same benefits. As the old saying goes “Do something today that your future self will thank you for.” Believe me, creating a budget (and sticking to it) is something you won’t regret.  

Tell me, was this helpful? What other benefits have you gotten from creating a budget?

Yes I’m a Doctor, yes I still live on a budget: 4 steps I took to change my spending habits

To the outside world, I’m a rich doctor who can buy what I want. In reality, I’m a sleep-deprived resident physician struggling to keep my head above water. No one told me life would be like this, at least not before I started taking out tens of thousands of dollars in student loans each semester, but I digress. The point is that even [future] high-income earners like myself need to have a budget. Without one, our money disappears faster than a post-call resident leaving the hospital. 

Unfortunately, realizing I needed a budget and actually creating one were two different things. Like a diabetic struggling to shed those unwanted pounds, it takes time to actually move from one step to another. Coming to terms with the fact that I work super hard and still can’t afford all the things I crave is its own beast that has taken me several attempts to tackle. Just in case some of you are in the same boat, let me shed some light on my own come-to-Jesus moment.

Step 1: I had to let go of my pride and accept that I was spending too much money. 

I’m almost ashamed to admit, but a few years ago I didn’t think a budget was necessary. I thought they were for poor people living paycheck to paycheck. Now that I’m a doctor living paycheck to paycheck I have a lot more sympathy (and humility too). It wasn’t until 6 months ago that I finally let go of my pride and began to accept that my habits needed to change. I was tired of running out of money at the end of each month. I was tired of relying on my credit cards for basic living expenses or holding my breath every time I had to pay for an oil change. 

Step 2: I had to sit down and actually write down my budget.

Honestly, I think the only reason I finally sat down and tried to make a budget was because I had this incredible distaste for debt. I had heard horror stories of older doctors whose student loan burden was sapping all of the happiness they once had with their jobs. It’s as if their lack of financial independence had turned the job they once loved into one they despised. I didn’t want that to happen to me. I wanted to know that my bills were paid on time each month and that my credit card debt was getting smaller and smaller. I wanted to make sure all my bases were covered. Creating a budget was one of the first steps I took to get on the right track. 

Step 3: I had to download a budget app to track my spending, and actually check it. 

Sounds simple, but for me, this was not an easy feat. The anxiety I had even thinking about opening Mint.com is one I cannot even begin to describe. But...I got through it. Slowly but surely I began to look at the numbers. I saw how much money I was actually spending on food each week. How my impromptu trips to the mall resulted in unnecessary clothes and holes in my budget. How the Uber rides, overpriced drinks, and club fees from weekend shenanigans added up to much more than I anticipated. I finally opened the app, stared at the numbers on the screen, and faced the fact that my spending was out of control. 

I was barely staying afloat and knew I had to do better. I couldn’t use the fact that I was a med student living on loans as an excuse. The spending habits I had wouldn’t magically change once I started getting paid as a resident physician or even as an attending physician. I needed to get rid of the bad behavior now, so that when I do experience an increase in pay in the future, I don’t just squander my wealth. 

Step 4: I had to put boundaries in place and stick to them. 

It wasn’t enough for me to track my spending each month. I needed to put some protections in place to “save me from myself.” I opened mint.com and set up budget notifications that send an alert to my phone whenever I’m nearing my weekly allotment for food or entertainment. For example, if I limit myself to $100 every two weeks for transportation, the app will send me an alert whenever my Uber rides approach the $80 mark. That way I know when I need to forgo that weekend party invitation and maybe host a game night at my place instead. I was well-intentioned before, but setting boundaries through budget apps and spending notifications has really challenged me to stick to my goals.

Full disclosure, I am still a work in progress. There are times I ignore those alerts only to face regret when I log into my bank account afterwards. Thankfully, those times happen a lot less frequently than they used to. When it comes to my spending habits, I am far from perfect. I still struggle, but by simply making these 4steps my spending habits have improved exponentially. 

Tell me, what steps have you taken to improve your spending habits? What was it like when you first tried to make a budget?

How I'm Investing The Money In My Retirement Account

I just started a new job and part of the orientation process involved setting up my retirement plan. Once I determined which retirement account was best for me and how much I wanted to contribute each month, I then had to choose how to invest the money in that account. When it comes to investing money for retirement, here are 3 general rules I follow:

1.     Make sure it’s profitable. Retirement plans don’t just help us save money on taxes and stash cash for a later date. One of the biggest perks of retirement accounts, is the opportunity to invest the money and make a profit. When you contribute towards your 401K, 403b, or IRA, the money is simply sitting in an account. In order to make a profit on that money, you must actually invest that money. Most employer-sponsored retirement plans (401K, 403b, 457) give you the option to choose different “index funds” that invest in stocks, bonds, or a combination of the two. Bonds are a “safe” investment but the returns on your money (aka profits) are quite low and barely keep up with yearly inflation. In order to make your contributions profitable and increase the value of your retirement portfolio, you should invest in some percentage of stocks.   

2.     Make sure it’s diverse. When it comes to investing in stocks, I do not mean buying individual shares of Amazon or Netflix. Buying individual stocks carries enormous risk. Even a big company like Walmart can experience less profitable periods where their revenues don’t meet expectations, decreasing the price of their stock and the value of your investment. As lay persons with jobs, it can be difficult to predict which companies or industries will be the most profitable 5-10 years from now. Even if we stay informed on company news, there is no way we could outsmart the people on Wall Street who have the latest information right at their fingertips (and even those experts get it wrong 50% of the time!) The key to managing this risk, is to invest in many different companies in a variety of industries. Since we don’t have an endless amount of money, the most effective way to do this is to invest in index mutual funds. The total stock market index fund, for example, buys almost all of the public stocks in the country. That way if one industry experiences a downturn, your stock investments in all of the other industries will prevent you from losing too much money. Plus, being this diversified may allow you to make an even larger profit when small startups companies experience unexpected growth or turn into the next Facebook.

3.     Make sure it’s safe. While we want our investments to be profitable, we must also ensure they are not too risky. People who had all of their retirement savings invested in stocks during the crash of 2008 lost a lot more money than those who had invested some of their money in bonds. A general rule of thumb is that your stock-to-bond allocation should be 100 minus your age. If you are 25 years old, you should have 75% of your money in stocks and 25% in bonds. If you are 45, you should 55% in stocks and 45% in bonds. Since people are living longer nowadays, some experts suggest using 110 or 120 minus your age instead. Regardless of which estimator you use, your ideal allocation of stocks to bonds, should be based on your comfort level. Take a look at the investment fund options available through your job or through various companies like Fidelity or Vanguard and pick a stock-to-bond portfolio allocation in which you are most comfortable.

WHAT AM I DOING? As a 28-year-old female who is new resident physician, I’m investing in Vanguard’s Target Retirement 2050 fund. This index mutual fund is a type of lifestyle investment fund that automatically adjusts the percentage of stocks and bonds as I age. Money in this fund is actually invested in 4 other index funds:

-53.5% in the “total stock market index” fund (which purchases stocks from nearly every public company in the US)

-36% in the “total international stock market index” fund (which purchases over 5,000 stocks from over 40 different countries around the world)

-7.5% in the “total bond market index” fund (which purchases a mix of over 8,000 corporate and government bonds offered in the US)  

-3% in the “international bond market index” fund (which purchases thousands of bonds from developed countries and emerging markets around the world)   

As you can see from the breakdown, the allocation starts off with about 90% in stocks and 10% bonds, since I’m young and plan to work in some capacity for another 30 years. However, it periodically decreases the percentage of stocks and increases the percentage of bonds as I age. This advantage of this changing allocation is that I have more risk and thus a bigger chance of higher profits when I’m young (since the majority of this fund is in stocks), but become less risky as I age (since the percentage of bonds will increase overtime). Another advantage of this fund is that it decreases the work on my behalf. Instead of investing in these 4 funds individually, investing in this Target Retirement lifestyle investment fund allows me to purchase this 1 fund, which then automatically has me invested in the 4 other funds.

As I get older and more experienced, I might choose to invest in different index mutual funds or open a Roth IRA to invest in other things like real estate, but as a busy resident who is just getting started with retirement investing, this is my fund of choice. Whether you choose to adopt my game-plan or come up with one of your own, remember the 3 rules to retirement investing: Keep it profitable, keep it diverse, keep it safe.   

Tell me, are you saving money for retirement? If so, how do you plan to invest the money in your retirement account?

Which retirement account is best for you?

Whether you are starting a new job like me or extending the contract at your current place of employment, part of the process may involve signing up for a retirement account. Most people have heard of a 401K, but you may have other options available to you such as a 403b or Roth IRA. Understanding the pros and cons of each account will help you better determine which one is best for you.

What is a 403b? A 403b is a type of employer-sponsored retirement plan offered to people who work at nonprofit organizations. It functions very similarly to a 401K, which is a type of employer-sponsored retirement plan offered to people who work at for-profit organizations.

Pros of a 403b (or 401K)?

1.     You can lower your taxes. As of 2024, you can contribute up to $23,000 a year in this account, pre-tax. That means that you don’t have to pay yearly income taxes on the portion of your paycheck you allocate to retirement. For high-income earners with tax rate near 30%, contributing to this 403b plan can save them over $6,000 a year in taxes.

2.     You may get a “match” from your employer. This is when the company places an equal amount of their money into your account to “match” the contribution you made. If you contribute $6,000, they will “match” your contribution with an additional $6,000, so at the end of the year you will have a total of $12,000 in the account.

3.     You may lower your monthly student loan payment. The income-driven federal student loan repayment plans are based on a percentage of your discretionary income. Your discretionary income is your “taxable” income minus 150% to 225% of the poverty line (the minimum amount of money you need to cover living expenses). When you contribute to employer-sponsored plans, like a 403b or 401K, you lower your taxable income. Lowering your taxable income, lowers your discretionary income, which then lowers your monthly student loan payment. Although interest will still accrue on your loans, lowering your monthly payment is beneficial if you are enrolled in a student loan forgiveness program like public service loan forgiveness.

Cons of a 403b (or 401K)?

1.     You are limited in the type of investments you can make. When you contribute to a 403b (or 401K), you are simply putting money into an account. In order for the money to grow over time, you must actually invest the money in that account. Employer-sponsored plans can be limited in the types of investment options they allow you to make. Most employer-sponsored plans allow you to invest in index mutual funds, which purchase a variety of stocks or bonds in different industries. However, they usually do not allow you to make other types of investments in things like real estate.

2.     You will have to pay taxes on the money you withdraw in retirement. Since you contribute to this account with “pre-tax” dollars, you did not pay taxes on the money before it went into the account. Because you didn’t pay taxes at that time, you will have to pay taxes when you take the money out of the account in retirement. Since the money in these accounts will have been invested, you will ideally have profits/earnings in the account as well. The profit you made will also be taxed.

What is a Roth IRA? A Roth IRA is a type of individual retirement account (IRA). Unlike a 403b or 401K, this account does not go through your employer. You can contribute to a Roth IRA (or a traditional IRA) with any type of earned income you get from your main job or any side job.

Pros of a Roth IRA?

1.     You don’t have to pay taxes on the profit in retirement. You contribute to a Roth IRA account with post-tax dollars. Since you’ve already paid income taxes on the money before you contributed to the account, you will not have to pay taxes on the money (or any profits you made) when you take it out in retirement.

2.     You have more investment options. Unlike employer-sponsored plans, you can make a variety of different investments through a Roth IRA. You can invest in index mutual funds, buy individual stocks, or even invest in real estate.

3.     You can withdraw money from the account easier. Although the goal is to leave money in the account until you retire, if you need to take the money out earlier (to cover the down payment on your home or pay off your student loans), it is easier to do that from a Roth IRA without incurring as many penalties or being charged extra fees.

Cons of a Roth IRA?

1.     You can’t put as much money into the account each year. Unlike a 403b or 401k that allow you to contribute up to $23,000 a year, you can only put $7,000 a year into a Roth IRA. Since the contribution limit is so low, there’s a good chance you’ll max out this account and need to use other types of retirement accounts after you hit the contribution limit.

2.     You won’t save as much money in taxes in the short-term. Since you put money into a Roth IRA with post-tax dollars, you will pay income taxes on this money before you contribute to the account. This raises your tax bill in the short-term and could decrease the amount of cash in your pocket after each paycheck.

Which account am I contributing to?

Both, eventually. For me, saving for retirement is about investing in different accounts during different phases of my life to maximize the benefits of each account. My goal is to have a substantial amount of money in both Roth and non-Roth retirement accounts. Contributing to my employer sponsored account will allow me to save more money for retirement since I can contribute more money in those accounts each year. Contributing to a Roth IRA will allow me to make some real estate investments and also give me the flexibility to take money out of the account, tax-free.

Since I’m a first-year resident physician, I plan to start off putting about 10% of my income into the 403b. Even though I don’t get a “match” through my job, the tax savings and lower student loan payments that come with this account will leave more cash in my pocket each month. Any additional earned income I make from passion projects, blogging, or working extra hospital shifts, I’ll put into a Roth IRA. Once, I finish residency training, I’ll convert some of the money I saved in my 403b to a Roth IRA so I can have a decent chuck of money in both accounts that will collect interest and make me a profit over time.

Tell me, what is your plan for retirement? Which account do you plan to use?

Retirement Account 101: Answers to questions you were afraid to ask

I’m a recently graduated medical student who is about to begin my new job as a resident physician. Along with creating a monthly budget, getting disability insurance, and making a plan for my student loans, I also need to start saving money for retirement. Several of my friends and co-workers wanted me to help them get their finances in order as well. Here are my answers to some of their most common questions about retirement accounts.

1. What are the different types of retirement accounts? Technically speaking, there are two main types of retirement accounts: Employer-sponsored plans and non-employer sponsored plans. Employer-sponsored plans are things like a 401K (offered by for-profit organizations), 403b (offered by non-profits), and a 457 (offered by government institutions). Non-employer sponsored plans are called Individual Retirement Accounts (aka IRAs). Through traditional IRAs or Roth IRAs, you can choose to save earned income for retirement in a way that is not dependent on your employer.

2. What is the difference between a Roth account and a regular retirement account? Many people have the option of contributing to “Roth” accounts like a Roth 403b or a Roth IRA. While Roth accounts may have different contribution rules, the main difference between Roth and non-Roth retirement accounts is the timing on when you pay taxes on the money. Roth accounts are considered “post-tax” because you contribute to them AFTER you’ve already paid taxes. Employer-sponsored accounts are considered “pre-tax” because you contribute to them BEFORE you pay taxes.

For example, with a Roth IRA you pay income taxes on money you make now, then you contribute to the account with “post-tax” dollars. Your money builds and accumulates interest over time. In retirement, you WILL NOT have to pay taxes on the money you withdraw or on any profits you made in the account. Non-roth accounts like a 401K are different. You contribute to these accounts with “pre-tax” dollars and your money builds and accumulates interest over time. In retirement, you WILL have to pay taxes on the money you withdraw and on any profits you made in the account.

3. Should you contribute to a Roth account? It depends. If you feel your salary is going to increase in the future, then consider paying taxes now (while you are in a lower tax bracket) and thus opt for a Roth account. In contrast, if you are already near your peak earnings or may experience a decrease in salary in the coming years (due to working part time or opting for a lower paying job with more lifestyle balance) then you may want to postpone paying taxes now and opt for the non-roth retirement account.

The goal is to pay taxes on the money when you are in the lowest tax bracket. The average person will want to do Roth retirement accounts (like a Roth IRA) when they are young and just starting out in their careers (unless they have other competing expenses that make them want to defer the taxes). As they earn a higher salary, they will want to do non-roth accounts (like their employer sponsored 401K, 403b or 457 plan) to avoid paying so much in taxes on those earnings.

4.How much should you contribute? It depends. You have to figure out how much money you need to retire and contribute enough money each year into retirement accounts to meet that goal. Of note, different types of accounts have different rules about how much money you can contribute each year. As of 2024, the max a single person can contribute to employer-sponsored plans like 401K, 403b, or 457 is $23,000 a year. The max you can contribute to traditional IRAs and Roth IRAs is $7,000 a year. (This amount can increase overtime due to inflation)

5. What happens to the money you put into these accounts? Once you put money into a retirement account, you can choose to invest that money in a way that will earn a profit. Employer-sponsored plans like 401Ks may offer a variety of options with different ways you can safely invest into the stock market, purchase bonds, or do a combination of both to earn a profit on your money. Non-employer sponsored plans like IRAs tend to be more flexible and can be used to invest in things like individual stocks, index mutual funds, commodities (like gold), or real estate. Regardless of the type of plan you choose, most people use the money in these accounts to invest in the stock market by purchasing index mutual funds. These are large, diversified funds that invest in hundreds of different stocks (or bonds) and earn a profit ranging from 7-10% each year.

6. What if you own your own business, do contract work, or earn money from a side gig? Once you set aside money for taxes, you can choose to save and invest that money for retirement. Depending on your income level, you may be able to put that money into a Roth IRA (provided you have not already contributed the yearly limit of $6,000). You may also choose to open a SEP-IRA or a solo 401K through a company like Vanguard, Fidelity, TD Ameritrade, etc. These accounts allow business owners and self-employed individuals to contribute up to 25% of their earned income (or $69,000, whichever is lower) into those accounts each year.   

7. Are there any special caveats I should be aware of? Yes. Oftentimes employer-sponsored plans will “match” your retirement contribution by placing an identical amount of their money into your retirement account, alongside your original contribution, up to a certain percentage of your salary. This is basically “free” money given by your employer.

Of note, people with really high incomes (i.e. physicians) are phased out of a traditional Roth IRA when their income gets to a certain level. They can try to work around this rule (legally) by doing something called a “backdoor Roth IRA” which is explained here.  Some high-income earners may also be able to contribute to a 403b plan in addition to a 457 plan, which allows them to save even more money for retirement.

To summarize, there are many different types of accounts that help you save and invest money for retirement. Determine which employer-sponsored plans you have at your job and compare to them to an IRA. Traditional and Roth IRAs tend to have lower contribution limits but offer more flexibility in the types of investments you can make. Employer-sponsored plans have higher contribution limits and may even offer a “match,” but may be limited in the types of investments you can make.

Tell me, was this helpful? Do you have a better understanding of the different types of retirement accounts?

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.

9 Things I learned when I purchased disability insurance

As an incoming resident physician, I need disability insurance. Although a group policy is offered through my employer, it doesn’t provide enough coverage to adequately cover my monthly expenses or insure my future income. Thus, I purchased an individual long-term disability insurance policy. This is what I discovered:

1.     Disability Insurance is expensive. Quotes from different companies from $100-250 per month.  Apparently, a substantial number of people use disability insurance, so companies raise the price to cover the payouts and ensure they aren’t losing money. Many companies offer “graduated” premiums (which allows clients to pay a reduced monthly premium for a few years in exchange for a higher premium later in life) to make it more affordable. I still opted for a “level premium” with a set rate and it’s $110 a month.

2.     The definition of disability is important. The definition of disability is variable. Some people might consider themselves disabled if they can’t work full-time, while others may only consider themselves disabled if they are unable to work at all. The broader the definition of disability, the harder it is to claim the benefit. Physicians need “own-occupation” disability insurance so that if we are unable to meet the specific demands of our own specialty (i.e. Surgery) we will get compensated, even if we can technically still do the work of another specialty (i.e. Family medicine). As a family medicine resident who plans to specialize in sports medicine, I still opted for an own-occupation definition of disability.   

3.     Gender bias is real. Disability insurance is more expensive for women than it is for men. Insurance companies claim that women are more likely to get disabled and seek payout from disability insurance (due to factors like pregnancy) so they charge us more for it. To avoid paying such high premiums, I purchased a “unisex” policy (which is the same price for men and women). These policies offer similar coverage and tend to be cheaper than gender-based policies for women.

4.     Some companies are better than others. When I contacted a few disability insurance brokers, I realized that one company was vastly cheaper than the others. Mass Mutual was the only company that offered an individual unisex disability insurance policy for female resident physicians. Since unisex policies are cheaper for women than gender-specific policies, the monthly premium for disability insurance from Mass Mutual was vastly cheaper than any other company. On the flip side, Principal offers discounted gender-specific policies for men, so many male residents purchased individual disability insurance policies through that company instead.

5.     Certain “riders” or added protections are essential. When I shopped for disability insurance, I had the option to buy additional protections. As a resident physicians with high-income potential there were 3 main riders I needed: 1) a cost-of-living-adjustment rider (so that my payout will increase with inflation each year), 2) a residual & recovery rider (so that I am compensated for any partial disability until I am back to my full productivity), and 3) a future purchase option (so that I can purchase more disability insurance after residency when my salary increases without having to re-qualify or pay a much higher price). Since I have a substantial amount of student loans, I also purchased a student loan rider so that if I get disabled before I pay off my debt, the disability insurance policy will pay me an extra $1700 for up to 10 years to cover my student loan payments.

6.     There is a limit on how much individual disability insurance we can buy. By law, resident physicians can only purchase an individual disability insurance policy with a max benefit of $5,000 per month. (They don’t want to incentivize us to become disabled by compensating us more than our current salary). We can purchase more disability insurance as attending physicians, but we need to have an individual disability insurance policy as residents so that we are fully covered now and can upgrade our coverage later for a cheaper price.

7.     It’s cheaper if you’re healthy. As I filled out the disability insurance policy application, I answered a TON of personal questions. Insurance companies take a very thorough history to determine our risk of being disabled in the future. I was asked about my own medical history and that of my family. They wanted to know if I had broken any bones, got in any recent car accidents, and whether I had ever smoked cigarettes. I was also asked if I had plans to travel out of the country or engaged in any high-risk behaviors like rock climbing or sky-diving. They wondered if I had ever gotten pregnant and the result of my last “wellness check” from the physician. Because I was young and healthy, my rate remained low.

8.     The price varies by state. I currently live in Florida, but I will begin residency in Atlanta, GA. Apparently, my disability insurance premiums are lower with my Georgia address than they are when I use my Florida address. Insurance companies look at hobbies, accident rates, and other data and determined that we pose a greater or smaller risk to them depending on where we live. California is one of the most expensive places, Georgia is one of the cheapest.

9.     Be wary of group policies through professional organizations. As physicians, we can buy into the group disability insurance policy through the American Medical Association or our specialty-specific organization. These policies seem cheaper and looked enticing. However, after doing some research I saw several drawbacks. First, the premium was not “level,” meaning the cost of policy could increase every few years as I aged. Secondly, they did not offer sufficient “future purchase options” so I couldn’t upgrade my coverage as often as I’d like (i.e. when my salary increased as attending physician). Lastly, buying into these group policies would negate or significantly reduce the payout from any disability insurance coverage I already have from my residency. Group policies usually cancel each other out, individual policies do not.  

Bonus: Many residents are eligible for the guaranteed standard issue policy at their institution. Every doctor needs their own individual long-term disability insurance policy. However, there is a special version of policy available to many pysicians-in-training. It’s called the guaranteed standard issue (GSI) policy and it allows physicians-in-training to get their own individual long-term disabiity insurance policy for a lower rate and with guaranteed approval. They get to skip the medical underwriting portion of the application can instead be guaranteed approval at a lower rate. Unfortunately, many insurance agents don’t tell clients about this policy so be sure to ask about it. These GSI policies are usually available to residents, fellows, and other physicians who just finish training with the past l3 months.

My point? Disability insurance is a must for resident physicians. It’s a bit expensive, especially for females, but we can get around that issue by purchasing a unisex policy and/or opting for a graduated premium. When we buy this insurance, we need a definition of disability specific to our own specialty, with the 3 main riders for complete coverage. Purchasing this policy in residency is cheaper and gives us the protection we need. Be mindful of what address you use on the application since the price varies by state and remember that group policies through professional organizations may be insufficient.