Completing residency is a landmark event in the medical profession. It marks the end of your training and the beginning of your career.
For some doctors, this transition may require a move to a new city. For all doctors, it means more responsibility, and with that, more money.
After living modestly on a resident’s income, your first paycheck in practice may feel like winning the lottery. But it’s easy to squander your newly earned wealth. Especially if you don’t have an airtight plan to manage, save and invest your income.
With this in mind, take these steps now to prepare for the wealth you’ll earn and accumulate once residency is over.
Most doctors finishing up residency carry a six-figure load of student loan debt. Since this debt will assume a large portion of your budget, determine how much you can afford to repay each month.
Weigh your refinancing options through private lenders. Refinancing student loans to a lower interest rate can reduce your monthly payments. When done right, it can even help you save thousands of dollars over the course of your career.
But for those with federal student loans, there is a potential downside to consider. Refinancing to private loans may result in losing special repayment plans that can help you in a time of need.
If you pursue this option, make sure you can comfortably afford your new payments. Compare rates from several providers to find the best deal available. Typically, you can “rate shop” for up to 30 days and only one inquiry will show on your credit report.
It’s easy to spend every dollar you earn. Modern society doesn’t just enable overspending. It encourages it by glorifying pursuits like:
- Luxury cars and homes.
- Lavish vacations and dining experiences.
- The latest and greatest technology.
Given their income, physicians are more susceptible to this trap than others. In fact, material items may even serve as an outlet to dealing with the stress of their careers.
With this in mind, start planning now for how to spend your money in the future. This should include your debt repayments and basic living expenses.
Avoid impulse buys with your first post-residency paychecks. Instead, budget a reasonable amount to spend on lifestyle items and experiences. That's the easy part. The hard part is having the discipline to stick to your plan.
No matter how much you take home, you need to save money. Sufficient savings will help you deal with emergencies and other needs you simply cannot budget for. It also minimizes the need to borrow money and pay interest on credit cards.
It helps to know exactly how much you spend on household items, bills and other recurring expenses. The easy part is creating a budget that includes savings and unforeseen needs. The hard part is sticking to that budget no matter what tempts you to overspend.
You should also start saving for retirement through your employer’s 401(k) or your own IRA. The sooner you start and the more you contribute, the better off you’ll be when the time has come to hang up the white coat.
What happens if you can no longer practice medicine due to an accident or illness? What will your family and loved ones do if you pass away unexpectedly? Although unlikely, hardships like these underline the importance of finding the right coverage.
Invest in own-occupation disability and term life insurance as you finish residency and start practice.
Disability insurance will supplement the majority of your income if you become unable to work due to injury or illness. Without it, you could lose it all to any accident or illness that prevents you from practicing medicine.
Even a temporary disability may force you to:
- Fall behind on mortgage, car or student loan payments.
- Tap into retirement accounts for cash.
- Sell valuable items.
- Rack up more debt.
Additionally, life insurance provides a death benefit to those who depend on your income in the event you pass away. Both life and disability insurance are underwritten based on the insured’s age and health. That means both types of insurance will never be more affordable than they are today. The more you age, the more they will cost.
When it comes to insurance, there are countless riders, add-ons and options available. This goes for both life and disability insurance.
Don't hesitate to enlist the help of a licensed insurance agent to make smart, swift decisions. It will save you plenty of time, brainpower and money.
Likewise, you may want to consider a professional financial adviser to help you manage your finances and make prudent investment decisions.
Fortunately, the mortgage industry features several products that meet the unique financial challenges of medical professionals.
For example, many mortgage lenders offer home loans specifically for physicians. These loans are unlike conventional mortgages because they do not disqualify physicians who have:
- Minimal income history.
- A large amount of student debt.
- Poor credit.
Likewise, many insurers have provisions in certain policies that cater to physicians. These policies pay a disability benefit if an accident or illness prevents you from working full-time in your recognized area of practice. This remains intact even if you can earn a lesser income in another medical field.
You chose a career in medicine, not financial planning. Don’t hesitate to use various resources when it comes to:
- Creating a smart budget.
- Saving for the future.
- Building your wealth.
In doing so, you are protecting your assets and setting yourself up for greater financial freedom in the future.
Joel Palmer is a writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.