The purpose of this article is to give you a straight forward, bullet-point approach to get you to start thinking about finance and #adulting after residency. Disclaimer: I am not a financial advisor, I am just sharing information that I wish I knew during residency.
- If your employer offers a 401(k) match, sign up for it: This is a no brainer. If you don’t do this you are basically turning down a 100% return on your money.
- Put your 401(k) contributions and match into a ROTH account: This is an “after tax” account meaning that you pay taxes on the money you contribute, but that money will grow over the next 40 years tax free and you never pay taxes on that money again! Yay! Your old gray wrinkled future self will thank you! It is best to use this type of account during your lower income earning years (residency, fellowship, and the first tax year after completing residency and fellowship). This is because once you get that sweet, sweet attending money, you will want to use a traditional 401(k) to avoid paying the higher tax bracket amount on that money (22-32% income tax rate depending on your income).
- Get a credit card but only if you can pay it off: If you are the responsible type (which, being a medical resident, I would assume so) you should get a credit card. If you have a spending or shopping problem, credit cards with their 17% average interest rate will eat you alive. For example, if you charge $1000 to a credit card with a 20% interest rate and you cannot pay it off right away, every month you don’t pay off that debt you will be charged an additional $200 in interest. The goal of getting the credit card is to build up your credit score in order to get the best interest rates for buying a house and potentially refinancing student loans. The earlier you get a credit card, the better, as average credit line age is one factor in determining credit score. Total credit amount is another factor to determine credit score, so you should request increase credit limits as often as possible. This can be done online or by calling the credit card company. Added perks of getting a credit card include: cash back rewards, airline mile rewards, sign on bonus, etc. Avoid credit cards with annual fees. You want your card working for you, not the other way around.
- Start an emergency fund: You should save enough money to be able to live on for 3–6 months. Look at all your bank statements and determine how much you spend on average in a month. Open a high yield savings account that is FDIC insured to stash your emergency fund. Nerd Wallet is a good resource to compare savings accounts.
- Long Term Disability Insurance: After residency, you should get disability insurance to protect your income after years of 80 hour work weeks, 24 hour shifts, and generally being bashed around by attendings. Lets say you’re walking down the street and get struck by a meteorite and have cognitive delays and memory impairment, leaving you unable to work. Well guess what, since you’re still alive, you will still owe money on your massive student loans, mortgage and rent, etc that you are no longer able to make payments on. Group disability insurance tends to be more affordable. Check with your future employer regarding this benefit. The American Academy of Pediatrics offers an affordable group disability insurance to AAP members so check with your respective medical specialty group.
- Life Insurance: If you want to save your kids and your spouse from financial hardship when you pass away, you should consider some degree of life insurance. You should only do this if you are fairly sure that you won’t end up on shows like "20/20", "Forensic Files", or "Snapped". I highly recommend The White Coat Investor’s Financial Boot Camp book for specific details regarding disability and life insurance.
- Should you buy a home? The perks of buying a home include equity building, appreciation, and tax breaks. Because the housing market can fluctuate over shorter periods, the general rule of thumb is that it makes financial sense to buy a home if you will be in a location for about 5–7 years. If you do buy a home, shop around for a Doctor Mortgage Loan which allows you to buy a home with $0 down payment without Private Mortgage Insurance. Some banks require you to have completed residency and have one year of clinical experience with an employer, but others offer loans to resident physicians. The White Coat Investor has compiled a list of banks that offer physician mortgage loans. Contact 3–4 of the banks and ask them to do a soft pull on your credit (as hard pulls will penalize your credit score by a few points) to give you an estimate on the interest rate they can offer for a 30 year fixed-rate mortgage loan. After you get 1–2 estimates, contact the banks to see if they can beat the lowest interest rate that you have been quoted.
- Avoid "lifestyle creep": After making attending money, avoid buying that $50,000 car or $1,000,000 home or going on multiple lavish vacations per year. Focus on paying off that student loan in fewer than five years. I refinanced to a seven year loan which accounts for 50% of my take home pay, allowing me a nice cushion for unexpected expenses. On top of that, I aim to pay an additional 25% of take home pay in order to aim to repay the loan in just under five years.
Dr. David Griffin is originally hails from Tampa, Florida and he completed his residency training in Savannah, Georgia, soon after moving to Birmingham where he spends his day practicing outpatient pediatrics. In his spare time, Dr. Griffin enjoys blogging on his website medgunner.com, watching movies (especially Star Wars!), and having board game nights with friends.
Previously published in MedGunner.