Life during residency is hectic. Between rounds, boards, moonlighting, conferences, and the occasional opportunity to sleep, there’s not much time left over to tend to your personal finances. But taking these six steps now will help you lay the groundwork for a lifetime of smart financial decisions.
1. Student Loans
Coming up with a thoughtful plan for dealing with your student loan debt is critical to building a solid financial foundation. If you think you may pursue Public Student Loan Forgiveness (PSLF), getting setup on the proper income-driven repayment program could save you tens of thousands of dollars. If you’re not planning on going the PSLF route or you have private student loans, you should investigate whether you can refinance them to a lower rate. Doing so will reduce your interest payments and allow you to pay off your loans quicker.
2. Emergency Fund
If you haven’t done so already, you need to establish a cash reserve for emergencies. Having 3 months of your expenses set aside in savings will prevent sudden unexpected expenses from throwing you into financial crisis.
3. Disability Insurance
You’ve invested a lot of time, money, and effort to get to this point in your career. Protecting that investment only makes sense. Getting your own disability insurance policy during residency keeps coverage affordable and protects future income potential. Getting expert help will allow you to get coverage that contains important physician-specific policy provisions.
4. Life Insurance
If there are people in your life who depend upon your income, including parents with student loans in their names, then you have a need for life insurance. Don’t fall for the predatory sales pitches for cash value life insurance that are often presented to unsuspecting residents. Most residents should consider buying at least $1M to $2M of the least expensive long-term, level premium term life insurance you can find from a highly rated life insurance company.
5. Roth IRA
As a resident, you are undoubtedly in the lowest tax bracket of your career. So, funding a Roth IRA is practically a no-brainer that allows residents to begin saving for retirement on a tax-advantaged basis. Roth IRA’s are funded with after-tax dollars—meaning you don’t take any tax deduction for your contribution. But, when you withdrawal these funds in retirement, all your contributions and the investment earnings you achieved over the years come back to you tax-free.
6. Employer Retirement Plan.
Chances are that during your residency, you can contribute to your employer’s retirement plan. Since most employers offer to match a portion of your contributions, the first investment move you should make is to fully take advantage of any employer matching. For example, if your hospital offers a 100% match on your first 4% of contributions, you should elect to have 4% of your income go into your plan. If there is a Roth option available in your plan, be sure to direct your contributions to go there.
During residency, you should try to learn enough about personal finance so that you know enough to prevent being taken advantage of. But, at the end of the day, your time is much better spent becoming a truly great physician than a novice financial buff. Financial planning for physicians can be challenging and complicated. One of the best moves you can make, call it the seventh savvy financial move, is to find a great financial advisor that you like and trust, and hire them to help you with your financial planning needs over the course of your career.