Written By Ben Lacomis, CSLP®
You're juggling long hours, intense responsibilities and constant pressure. The last thing you need is financial stress weighing you down. But here’s the thing: a few smart financial decisions now can have a huge impact on your personal finances in residency and early career. That's why we've put together this essential guide with 10 critical money moves for residents and fellows.
Remember, no one is getting rich in residency. The goal isn’t to amass wealth overnight. It’s about building a solid foundation and making choices that benefit you in the long run. Let’s explore how you can set yourself up to reduce financial stress and focus on your personal and professional growth.
1. Aim for a 7/10 understanding of your monthly cash flow
Cash flow clarity is your best friend. You’ll make better decisions and have more confidence if you understand where your money goes — it’s that simple.
Aim to keep it simple! I say 7/10 because you have plenty of other responsibilities, and being overanalytical here creates undue stress.
Here’s how to start:
- Determine your paycheck amount.
- Identify fixed and regular expenses.
- Prioritize discretionary spending.
Fixed and regular expenses are costs that happen no matter what, like rent, utilities, car payments, phone payments, etc.
Then, think through what else you enjoy spending money on (e.g. clothes, material things, etc.) and prioritize what’s truly important to you. Even though you might not have these discretionary costs every month, these are probably where your money would go if you’re looking for a guilt-free spending spree. For me, that’s experiences or treats since I never really buy clothes.
You can do this on a piece of paper and be effective, but I suggest using a tool or software to help you get started. Pre-built or self-made Excel templates, or budgeting apps, can be great places to add your data.
2. Build your emergency fund and credit score
Money that’s not being spent must first build the foundation of your plan. It starts with an emergency fund. You’ll find plenty of financial advice to say how much you should save. The rule of thumb is three to six months of expenses, but your needs might vary.
Save enough cash for emergencies, planned purchases and expected expenses that will pop up in the next two to three years, such as traveling and interviews.
After stashing away one to two months of expenses in your regular checking or savings account, you can transition into optimizing your credit score. Having good credit makes your life easier and future purchases cheaper.
Start by eliminating debt with high interest rates, like credit cards and personal loans.
If you’re on top of your debt, consider carving out the remainder of your safe-savings in something less top-of-mind that earns more interest. A high yield savings account or money market fund are excellent options.
3. Tackle student loan debt with savvy repayment decisions
Being informed about student loan repayment and loan forgiveness options can save you tens of thousands of dollars and countless headaches.
Despite internet hearsay and your conservative uncles, your education was probably an unfathomably great investment. But big numbers on a student loan balance can make you question your choices. Generally, the emotions and misinformation surrounding student loans are what push you to make less-than-helpful decisions.
Understanding income-driven repayment (IDR) plans
To avoid this trap, learn about income-driven repayment (IDR) plans for federal loans. IDR plans can lead to great benefits, regardless of whether you work for a nonprofit employer to qualify for Public Service Loan Forgiveness (PSLF).
For instance, the newest IDR plan, Saving on a Valuable Education (SAVE), can help tremendously. It keeps your balance from growing with its 100% unpaid interest subsidy. If navigated well, most residents can get their first three years of monthly payments locked in at $0 and avoid interest accumulation — whoa.
I see it all the time, and it’s still crazy to think about! If you want to learn more about this, then I’m sure this isn’t your first — or last — stop on our site.
4. Protect your income with occupation-specific long-term disability insurance
You’ve already invested a considerable amount of time, dollars, effort and energy to get here. Don’t leave your future income to chance.
Medicine is often a labor of love, and the income that comes with the work is a great perk of the job. Here’s an oversimplified look: $250,000 per year for 25 years = $6,250,000! Is this income guaranteed? No, unfortunately not.
Why protect your income?
If any injury or illness impacts your ability to generate income for yourself or your family, that’s a problem — income funds your spending, saving and investing. Understanding how to protect it is key.
I’d much rather see physicians “waste” $100 to $200 each month on individual occupation-specific long-term disability insurance than see them lose some or all of their income potential without fulfilling their needs, their families' needs or their financial goals.
The timing of disability insurance
Good risk management means making your best-case scenario negligibly worse to make your worst-case scenarios way better.
Many residents and fellows try to game the timing of the decision to buy disability insurance. However, with the nature of risk being uncertainty, there’s no right time to get it. If the cost of owning long-term disability income insurance keeps you from your goals, you’re probably doing something else wrong.
Let me preemptively answer two of the most common questions I get about this:
- No, your hospital-provided benefit is often not enough.
- Yes, training years are the best time to buy a policy because of the contract-length discounts and simplified underwriting criteria. Any negative health changes can make this more difficult.
5. Maximize employer matching contributions, and don’t stress the rest
The gold standard of savings and investing advice is to meet your employer retirement contribution match because it’s “free money” — anywhere else you’re offered free money is usually a scam!
If your employer will match your 403(b) or 401(k) contributions up to a certain percent of your income, you should make that contribution for the freebies.
Beyond that, yes, investing as a resident is important. It’s not more important than your health and security needs, though.
Keep in mind that you’re only a handful of years from your income multiplying usually by at least 4X. You’ll have no issue “catching up” and getting on track for your long-term goals if you practice lifestyle creep rather than explosion, and don’t 4X your spending and lifestyle costs.
Related: The Truth About Retirement Contributions: Debunking Common Misconceptions
6. Put yourself first: Prioritize mental and physical health
Financial health will come. But financial health means little without the rest in place. I care far more about you experiencing less burnout, anxiety or depression in training years than I do about you having another $10,000 or $20,000 in a retirement savings account by the time you complete training.
It’s all about balance.
A personal anecdote
I don’t want to throw my lovely brother, an anesthesiologist, under the bus here, publicly. But, my goodness, is he great at saving and investing, and not spending his money. He wore the same shoes from high school to medical school because he values function over material purchases — Dr. Frugal at his finest.
He started practice this year, and I asked if we could celebrate his achievement with a trip to Iceland. He said he’d need to wait and mentioned a lot of financial stress. Considering he doesn’t overspend, this surprised me, and I wasn’t sure what was going on.
It turns out he’s probably over-saving and over-investing, and beyond his emergency fund, every dollar is going somewhere productive.
Scale back those beyond-the-match retirement contributions, or stop contributing to your Roth IRAs and brokerage investment accounts if they keep you from happiness or create stress.
My brother and I don’t always agree, and we won’t be going to Iceland this year. But it’s important that I remind him and others that financial planning is about living richly within your means and priorities, and not about dying rich.
7. Trim the fat, but don’t cut corners
When managing your finances, it’s smart to cut unnecessary expenses, but you should never compromise on financial products that can move the needle for your financial life. Here are a few places you shouldn’t cut corners.
Disability income insurance
A disability insurance policy without the proper bells and whistles can leave you in a difficult financial situation if you’re ever in a situation where you need to rely on it. One reason to purchase an insurance policy in addition to the one your employer offers is so you can design it to fit your exact needs. It can cover your exact duties at the time of disability rather than ending your benefit if you could work in “any occupation”.
Do you need your disability insurance to cover your student loan repayment on federal loans? Probably not. This is some of the “fat” you can trim from your policy considering your student loan payment could be $0 on an IDR plan if you don’t have taxable income.
Auto insurance
For auto insurance, it’s wise to choose liability limits above the state minimums, even though it costs more. Otherwise, you might need to triple the size of your emergency fund (or wish you had).
Life insurance
If you’re starting a family or co-financial planning with a spouse, you need the right amount of life insurance. Skip the more expensive permanent insurance products and go with a term life insurance policy.
8. Explore employee benefits for more value
You should receive a document detailing your employee benefits when you’re hired. The list should define much of what we’ve discussed already in terms of a retirement plan and risk management, but look for other opportunities as well. A few key employee benefits to watch for:
- High Deductible Health Plan (HDHP): If you have access to an HDHP, you can set up an HSA (health savings account).
- Attorneys or legal help: This can help you get estate planning basics done early and inexpensively.
- Guaranteed Standard Issue (GSI) disability insurance: With a GSI program, you can potentially qualify for long-term individual disability insurance even if you have health concerns.
Sometimes hospital benefits provide all sorts of perks if you dig deep enough. Many of my clients have had identity theft protection services provided through their benefits, too.
9. Start building your support squad
Family, friends and colleagues are good places to start when putting together your support team. Find your internet home, too — many of our followers read content like ours that’s curated to provide the advice you need.
But over time, you’ll need a more developed team of professionals.
It’s nice to have someone in your world with expertise on things you don’t, like student loan repayment, tax planning, financial planning, property and casualty insurance, estate planning… the list goes on.
Look for experience and credentials, and build trust with these folks. Remember, you should always be in the driver’s seat of your own decision-making, but having a good team is like having GPS, and I know we’d all be lost without that today.
10. Celebrate your wins: You deserve it!
Alright, so you have an emergency fund. You have healthy credit. You’ve been addressing risk management appropriately and securing your financial future. You’ve had some excess capacity in your cash flow from not overspending, and you’ve started investing and benefiting from things like your employer match. Now what…?
Iceland!
No, but seriously, the point of having a good financial plan is that it enables you to do what you want when you want it.
In one aspect, your career is only beginning. But you’ve also made it so far already and have a ton of accomplishments to celebrate. Take a moment to pause and relish how far you’ve come! And if you're a medical resident or fellow looking for personalized, occupation-specific financial planning, SLP Wealth is here to help. Our experienced team understands the unique challenges you face and can guide you towards a more secure financial future. To get started, simply fill out the form below, and one of our knowledgeable advisors will be in touch soon.
