When you’re a new physician going through residency, you may start to feel a little bit worried about your finances. Up until now, you’ve been scraping by in medical school, and it’s possible that a large portion of your monthly expenses were covered by loans, grants, or scholarships.
Now that you’re in residency, you have a small salary coming in, but you’re also responsible for more of your day-to-day expenses. You also have student loans hanging over your head, which can add to your money-related stress. To top it all off, you have big goals for your life and your career that all seem like they’re right around the corner.
It can help to set a few financial rules for yourself to follow while you’re a resident. That way, you can start setting yourself up for financial success both now and after you complete your residency.
Rule #1: Don’t Go Into Consumer Debt
This rule may sound easy, but it can be tough when you’re a new resident! There’s often a temptation to start living as though you’re making a physician’s salary. The truth is that, as a resident, you may not be able to afford a brand new car or expensive trips with your spouse or partner.
Some residents turn to credit cards or loans to cover these expenses, justifying their spending because they know that they’ll be able to pay it all off when they start working as a full-time physician after residency. This isn’t a good move! You’re going to have a notable amount of student debt to tackle now that you’re out of medical school, and throwing consumer debt onto the pile is only going to make your cash flow more complicated once you finish residency.
Instead of trying to tackle a number of big expenses and going into debt, consider budgeting and saving for smaller “splurges.” For example, instead of an expensive trip with your spouse or partner – you could plan a smaller, local weekend getaway. Instead of a brand new car, you could look at a slightly older model that you have the savings to pay for. Uncovering the values that are driving your spending impulses can help you to determine what smaller expenses might be equally fulfilling, without having the same negative impact on your budget.
Rule #2: Don’t Buy a House
Now that you’ve made it to residency, you probably feel like you’re ready to put down roots and start your career. The ups and downs of medical school seem like they’re behind you, and it’s tempting to seek out stability. One way some residents do this is by purchasing a home.
Buying a home is a personal lifestyle choice that you’re welcome to make as long as you have the finances to back it up. However, buying a home during residency doesn’t make sense for a few reasons.
- Even if you have the savings to put 20% down on a home, your current cash flow may or may not support a monthly mortgage.
- You may end up receiving a job offer elsewhere after your residency.
- Buying a home may tie you down unnecessarily in the first few years of your career, limiting the different job options you’re willing to take or pursue.
Don’t forget – when you factor in the costs associated with buying and selling a home, going through the selling process after fewer than five years of homeownership tends to be a losing game. Be patient and don’t jump into a decision immediately.
Rule #3: Start Your Qualified Student Loan Payments
If you start making qualified payments toward your student loans on an income-based repayment plan, your payments will be lower now than they would be when you get a full-time job after residency. That’s because your payments are calculated based on your current salary – which is lower during residency. So, by starting the clock on these payments now, you’re qualifying yourself for loan forgiveness programs, like PSLF for example, earlier, and with less money spent overall.
You can also start to qualify yourself for other student loan forgiveness programs by starting your repayment during residency. The William D. Ford Direct Loan Program, for example, could mean that you become eligible for student loan forgiveness after 20-25 years of repayment (remember: student loan forgiveness policies change depending on current legislation, and it’s important to stay up-to-date so that you know what to expect). Several states also have loan repayment programs that require you to be in repayment for a certain time period before qualifying.
Rule #4: Consider Insurance
Whether you’re single, or you have a spouse or partner, being a high-income earner means you need to protect your salary in case of emergencies. Two types of personal insurance you need to think about are:
- Life insurance.
- Long-term disability insurance.
Life insurance is important. Get a term policy that is enough to cover your income, as well as any future goals, for your spouse or beneficiaries. And don’t get suckered into a whole life policy.
A good long-term disability policy is arguably the most important insurance you can have in the early stages of your career. It will protect at least a percentage of your income should you become ill, or disabled, and unable to work for a long period of time. They are expensive, so be sure to shop around, and to budget for the premiums.
Rule #5: Understand Your Expenses and Your Goals
Right now, it may seem like your financial options are limited. Student loans are no joke, and they can be intimidating – especially while you’re still a resident getting your feet under you. One good step to take is to understand your current cash flow (what money is coming in, and what expenses you’re responsible for), and what future goals you have. Are you navigating your finances in residency? We’d like to help. Schedule a call with us today!