5 Financial Tips for Residency
Evan Winter
There is no doubt that residency is an extremely busy, and somewhat confusing period in a physician’s life. Financially, it is a sort of in-between stage. You technically have a job, but it doesn’t pay nearly enough to sustainably cover all your bills, plus payments on the pile of high-interest student loans you have racked up over recent years. Chances are that you’re on a tight budget, but maybe you’re not sure how to manage that budget, or what steps you should be taking to plan for your financial future. Here are some tips to help you proactively make positive financial decisions throughout residency.
Track Your Loans and Make a Repayment Plan
Perhaps the best thing you can do to save yourself money in the long run and start building wealth is to pay off student loans early. There are many different approaches to paying off debt, and some will argue that debt can be leveraged for your gain. However, most advisors would agree that large sums with interest rates as high as many student loans have are best to knock out before investing substantial funds elsewhere. Start by looking at what you currently owe, your interest rates, and your repayment options, and make a plan. Your strategy should be realistic, yet at least somewhat aggressive. Making a plan will help you keep track of how much you owe, when payments are due, and any alternative repayment options. When evaluating those options, be sure to consider Public Service Loan Forgiveness (PSLF) and check to see if you qualify. There are 120 payments required for loan forgiveness through PSLF, and starting those payments early will get you to that point sooner rather than later.
Save for Retirement
Although paying down debt will likely be your primary concern, funding a retirement account should still be in your current financial plan. Much like getting rid of student loans, the sooner you start saving for retirement, the better off you will be long-term. Which type of account you choose for retirement savings largely depends on what your employer offers, as well as your own larger retirement goals. Your employer likely offers a 401(k), 401(b), or possibly both. You should start contributing to at least one of these accounts and may also consider opening a Roth IRA, as it is an extremely powerful, tax-advantaged account type. Currently, individuals under 50 years of age can invest up to $6,000 in a Roth IRA, annually.
Rent Your Housing
Buying a home is incredibly tempting for so many resident physicians, but unless you are in a specialized situation, renting is often the better choice. As a resident, you are likely at a time in your life where many of your non-medical friends are buying homes and settling down to start families. If you already have a family of you own and a spouse with significant income, purchasing a home could make sense, but as a single physician with much training and probably a relocation or two left to accomplish, renting will save you money and headaches. Chances are you probably won’t have the time to maintain a home of your own or be staying there long enough for the property to appreciate, offset all costs of ownership, and ultimately be sold to at least break even.
Acquire the Right Insurance
Proper disability insurance protects your income in case you are unable to work, and it is important to have good insurance throughout all your working years. Don’t neglect disability insurance during residency, especially considering you will be on a tight budget. Missing out on income for awhile could throw off your entire financial plan and set you back in paying off loans, saving for retirement, and more. Disability insurance can be complex, so it is best to consult a professional and find the plan that best fits you.
Avoid More Debt and Embrace Your Current Lifestyle
Along with avoiding the temptation to buy a home during residency, also avoid making other unnecessary purchases, particularly those which force you farther into debt. A few hundred thousand dollars or more in student loan debt is a lot of money, and adding to the debt pile further hinders your ability to pay it off quickly. You may want to celebrate entering residency with a fancy new car or some other large upgrade, but it is not worth the added debt burden. Instead, embrace living a middle-class lifestyle. Try to live modestly, maybe have a roommate, and don’t eat out too often. If you continue living more like a med student and less like an attending for a few years, you will be in a better position to live large or retire early in the future.
Staying on top of your finances during residency can be a challenge, but if you make a plan early in your journey and stick to it, you will succeed. Not only can Resolve provide you some tips along the way, but we will help you get the most out of your future attending position as well. The majority of physician employment contracts are written below fair market value, so if you want help with student loan repayment, a sizable signing bonus, or increased salary, you will likely have to negotiate for it. Resolve’s experienced team of healthcare attorneys have the knowledge and data you need to negotiate confidently. Visit our contract review page to learn more about how Resolve can better your financial future.