Financial Advice for Residents, Physicians

Financial Advice for Residents PhysiciansThe financial decisions you make as a pre-med or medical student have a direct impact on your career and life in general. Taking the right steps to be financially smart now will benefit you in the long-term and there a quite a few considerations you should be making.

Many people are aware that it takes a great deal of time and a lot of hard work to become a physician. It’s a financially-challenging journey and most new MDs find themselves with hundreds of thousands of dollars in educational debt while average salaries have remained unchanged or declined in many specialties. In the current economic environment, residents and fellows should be aware of the financial challenges they face and take appropriate action early in their residency. Here are a few ways to stay ahead of the game and remain financially savvy during that time and beyond:

Start saving early and often

Saving begins with forming habits early on and investing in your future should eventually become automatic. One psychologically helpful approach is to have a small percentage of your paycheck automatically contributed to your savings. Keeping less at your disposal will encourage you to adopt more frugal habits early on in your career. That way, when you start earning more money, you have already gotten used to saving that percentage of your income. This can help you avoid lifestyle inflation and allow you continue to live beneath your means and save aggressively for retirement.

Open a Roth IRA

During your residency or fellowship is a perfect time to invest in a Roth IRA as your lower income places you in a relatively low tax bracket. The ability to pay taxes up front and allow the remainder to grow tax-free over the course of your working career is an excellent opportunity to take advantage of. All contents of a Roth IRA are after-tax dollars, which means you can also withdraw the contributions penalty-free and use them as an “emergency fund.” This option is not available in most 401(k) employee plans, where withdrawals are more stringently regulated. Roth IRAs generally give more flexibility in investment options as well.

Take advantage of employer 401(k)/403(b)

These plans will guarantee you further tax-advantaged savings up to approximately $18,000 annually. Although, being able to make the maximum contribution to a 401(k)/403(b) plan may be difficult, if not impossible on a resident’s salary. However, it is imperative to at least try to contribute up to the maximum employer match if this is an option. Otherwise, you are essentially forfeiting the opportunity to earn free money.

Taking advantage of roommate living arrangements

Living costs can put a serious strain on your finances. Luckily, there is a way to split some of the financial burden if you live with a roommate. This is not ideal, but it’s certainly better than your old teenage room in your parent’s house and manageable until you’re earning a higher income.

Explore career options in affordable areas

Most residents instinctively go for state capitals and densely populated urban centres on the coasts as their target for building up their career. However, these places have some disadvantages, such as elevated costs of living, a high overall tax burden, strict state malpractice laws, and other factors that are important when considering your practice location.

Start repaying student debt early on

Try to avoid requesting a forbearance on your student loans simply because you are trying to get by on your resident’s salary. There are different income-based repayment programs you can use to start repaying your debt as early as possible so that your finances don’t take a hit. Deferring your payments entirely might seem attractive in the short-term, but you’ll probably regret that decision later in life when you see how much those loans ballooned during that period of time.

Budget and plan for your retirement

For most resident physicians, retirement seems far away, but sooner or later – you’re going to have to face it. The sooner you start to put money towards meeting your needs in older age, the better prepared you will be. Take advantage of the opportunity to participate in employer-sponsored retirement plans. This way the funds you set aside will have time to grow, tax-deferred, until you need them.

You will need to create a monthly budget in order to have the necessary funds to cover your monthly expenses, repay your student loan debt and save for your retirement.

Budgeting gives you a clear picture of your assets and your fixed and discretionary spending monthly. This will allow you to adjust your budget as needed. For example, if you feel like there’s too much on-going expenses and not enough savings put aside, your budget will show you where you can make those adjustments. That translates into either cutting down on discretionary spending or lowering fixed expenses.

Sticking to a reasonable budget lays the groundwork for your financial future through your residency and beyond.

Turn to a Professional

Your time during residency is as exciting as it is daunting. Finances usually seem extremely tight during this time because you’re living on a resident’s wages, but keep in mind that this is just a stepping stone on your way to your career. Being financially smart now will better prepare you to meet your financial goals throughout your entire life.

Turning to a professional who specializes in financial planning for doctors such as SurePath is another option to get your financial life in order. By starting earlier you’ll be able to see the value a financial planning professional can create for you over the course of your entire career.

By | June 27th, 2017|Financial News|

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