This is a very special time of year when newly minted doctors begin their residency. It also marks the time when junior residents move on to their senior years of training. So, to all of you, congratulations!
With this time of year in mind, I’d like to share some financial tips for residents (although the same can apply to visits!). But this is not your usual financial advice. My goal here is to distill things down to their most essential and basic components.
I was a resident just a few years ago. So I haven’t forgotten what it’s like. The hours are long, and your focus is, rightly, solely on becoming the best doctor you can be.
However, it is a mistake to ignore your general well-being during this period. Trust me, I know from experience. And financial well-being is a huge component of overall well-being. It is also often overlooked.
Moreover, as a resident, there may seem to be no financial plays that will move the needle as a resident. This sentiment led me to essentially write off any potential financial education during my training. I buried my head in the sand and hoped for the best. Then, a few months before graduation, I looked my financial fears and mistakes in the face. I started my financial education and made positive changes.
Looking back, I now realize that there were a LOT of things I could have done as a resident to put myself in a good financial position, both in and out of training.
By sharing this list, I hope to inspire many of you to make these moves and avoid the mistakes I made! In fact, these simple steps you can take as an intern will make you over a million dollars in your investment career!
1. Pay off debt
This is #1 for a reason: you must make this a priority as a resident! I paid off exactly $0 of my principal in 7 years of training. For two loans, I only paid interest for 2 years because I ran out of deferment options.
Every year I would have to look at my large loans and fill out cancellation/deferment paperwork to submit. I would get stressed out by the absurd amounts I saw and then practically ignore them for another year. This was the worst possible strategy.
Let’s look at the math. My average interest rate is about 6.8%. At this rate, every dollar I didn’t pay off at the start of training is now worth $8.60 at the end of my 7 years.
That means every dollar I could have paid out would save me about $8.60 now. If I hadn’t eaten out one night and used that $50 to pay off my loans, I would now have $430 less to pay off. My net worth would be exactly $430 more right now.
2. Use your retirement accounts to optimize your personal finances as a resident!
You will usually have retirement accounts available to you as an intern. Chances are you’re not aware of it. I even contributed to a 457(b) retirement account for 7 years and didn’t know it (sad but true).
Even if you contribute what seems like a small amount each year, the magic of compound interest works in your favor to make money. When you’re on call in the ED all night, at least then you can imagine the money your money is making for you. It makes things not look so bad!
Assuming you get paid on a biweekly basis and average a 7% return on your investments, say you save $192 from each paycheck and put it into a retirement account of your choice. Let’s say you do this for every paycheck for 7 years. This represents a savings of $5,000 per year. Not much. But at the end of your training, that would be $43,270.11! Now, let’s have that compound for another 30 years… now that’s over $800,000 for retirement.
As a side note, your tax bracket as an apprentice will be much lower than it will be in the future as an apprentice. Therefore, when possible, make Roth contributions to your retirement accounts. This means your contributions will be taxed now, grow tax-free and never be taxed again.
Which brings me to our next gem…
3. Contribute to a Roth IRA
In addition to contributing to a retirement account, work really hard to contribute to a Roth IRA each year. Again, Roth contributions are taxed when you contribute and are never taxed again. So you are taxed when you are in the lowest tax bracket you will ever be in … as a resident.
As soon as I started learning about Roth IRAs at the end of my training, I collected all the money I knew I wouldn’t need for at least 20 years, opened a Roth IRA at Vanguard, and invested it. It wasn’t a lot of money, but it had already grown into a pile in a short time.
4. Create an anti-budget of resident finances
Now I’m a big fan of budgeting. Seriously. I’m weird like that. Here is my free budget template that you can use…
Every month my wife Selenide and I sit together. We open our bank account and compare each expense to what we budgeted for that month. The allowance goes to additional loan repayments.
We didn’t do that when I was a resident and she was a PhD student. Honestly, I think it was for the better. It would be super depressing to realize how little money we had to spend on groceries, etc. It’s easier to tolerate (and even fun) to do it now that we’re making more money.
However, you have to watch your money as an intern. There is no excuse.
The best way to do this is to use an “anti-budget”.
To use an anti-budget, take a certain percentage of money out of your checking account with each paycheck. This is money set aside for loan repayments, retirement savings and general savings. Aim for this figure to be at least 20% of your earnings. But you can start with just 1% and increase by 1% every month. Then, with whatever money is left in your checking account, spend as you see fit, without feeling guilty or planning every cent.
It’s even easier to avoid a budget when your savings are automatically paid out before they reach your checking account. This is what happens with your contributions to retirement accounts or automatic transfers to pay off your loans. Do this automatically as much as you can.
5. Limit your credit card spending
Interest on commercial credit cards is the highest interest rate. That’s way more than even your student loans. A lot more. Please reduce your credit card usage. If you’re going to use it, pay off the full amount each month. Even if there are big rewards, the amount you’ll pay back in interest will be less than all the points you get.
The only exception to this rule in my opinion is if you need to pay board or exam fees and you absolutely cannot do it any other way. These are necessary expenses for your career.
I had to do it a few times and didn’t feel bad about it. Still, I felt bad about all the other unnecessary credit costs I had racked up.
6. Read one financial book each year as a resident
Your financial success is directly related to your financial knowledge and education. In training, your medical knowledge is obviously a high priority. As well as family and your personal well-being. Financial well-being is a major but often overlooked component of personal well-being. Make your financial education a priority.
This can easily be achieved by making it a goal to read at least one personal finance book each year of your training.
Here is a great place with resources to get started. Pick one and just try to read 10 pages a day – starting the day you actually get your hands on the book. Don’t delay. You’ll be hooked in no time.
Even better, you’ll feel your financial power expand, improving your well-being.
When you finish the book, lend it to your roommate and keep spreading the word.
I hope these steps give you the high yield information you need to create simple, automated habits that will put you on the path to financial freedom!
If you’ve been following along, these highly doable financial moves you can make as a resident will easily net you over $1 million in net worth over the course of your investment career. That’s crazy!
Integrate and automate these simple financial steps into your life as a resident and you’ll be better off than 99% of your peers taking the course – let alone your co-workers.
And you will be 100% ahead of where I was as a resident!
Disclaimer: The author is not a lawyer, accountant or financial advisor. His expertise is in the field of medicine. Any information in this book and its links should not be considered personalized financial advice.
Jordan Frey, MD, is a plastic surgeon at Erie County Medical Center in Buffalo, New York, and founder Prudent plastic surgeon.