This essay is from a winner of the 2019 Student Loan Planner Scholarship.
Medical school and medical residency are demanding – mentally, physically, and financially. Medical trainees will spend many thousands of hours as well as hundreds of thousands of dollars to complete their training.
For many medical students and residents, myself included, loans are a necessary part of the process. With huge loans looming over our heads, it’s easy to make excuses and feel powerless to make any financial progress while we wait on the “attending paycheck”.
Even in the financial community, there are folks who would say it’s impossible to meet your financial goals until your loans are paid.
However, I would argue there are many ways to improve your financial health while in medical school and residency.
I want to share, from one indebted person to another, 9 ways I have found to minimize loans and meet your financial goals before your first attending paycheck. Each of these tips is inspired by my own real-life experience as a medical student and resident.
1. Invest in your education.
Okay, so this is clearly not what you had in mind when you started reading this article. Investing in your education is a prerequisite to doing anything else on this list.
Do I mean spending $500,000 on private medical school tuition? Nope. I mean spending your time and energy to study during medical school so you can excel in the classroom and on the wards.
Remember that medical school is not the end destination, but a stepping stone to residency and future career. You must stay focused in medical school to match into a residency and you must maintain that focus in residency to become a competent physician, ready to practice independently and earn that attending paycheck.
Getting distracted from your studies and not matching or not finishing your residency leads to a terrible return on your financial investment. Take care of your studies, then move on to tip #2.
2. Know where your money is going.
This is really the foundation of a budget, but nobody likes the word “budget.” Knowing where your money is going allows you to redirect it as needed to meet your goals.
There are many ways to keep track of your money. You can write it out on paper, keep an Excel spreadsheet, use a free app, or use a paid service. I’m currently loving Mint because I can sync all of my accounts for automatic updates. Whichever method you choose, stick to it!
3. Minimize expenses.
Now that you know where your money is going, are you happy with what you see? Do you really need that luxury apartment? Could you get a roommate and lower your housing costs significantly? Do you need cable, or could you be equally happy with a Netflix subscription?
Evaluate all of your expenses and decide what you can do without. This will be different for each individual, but I guarantee you can find something to cut.
Minimizing monthly expenses and improving cash flow reduces stress. Thinking about the bigger picture, minimizing cost is also something to think about when applying to and choosing a medical school.
Is the private school really worth an extra $15k per year for a marginally better reputation than the state school down the road? Probably not.*
Your decisions on where to attend medical school and where to live in that city will be the easiest ways to minimize your overall loan burden.
*I may or may not have turned down a large scholarship to a local medical school to attend a big-name state school and I only sometimes feel bad about it, so take my advice here with a grain of salt.
4. Earn more.
You might be thinking, “But I’m a medical student/resident, I’m busy and this is bad advice.” You’re partly right. You are busy. You might also be ignoring income opportunities.
As a medical student and first-year resident I earned over $20,000 (excluding scholarships) without sacrificing my education, sleep, or relationships. It is possible.
The highest yield for your investment in the income department is to find a way to get paid for what you’re already doing in the form of scholarships or research stipends. I took advantage of a summer research stipend during my first year of medical school that ultimately paid me to complete research that advanced my medical career.
Tutoring is another way to leverage your education and skills to generate income with an extremely flexible schedule. You could teach a specific subject, strategize test-prep, or edit personal statements for a hefty hourly fee.
As a resident, moonlighting can be worth thousands of dollars and renting out a spare room to rotating medical students can offset living expenses. I even had classmates who worked typical part-time jobs during the pre-clinical years of medical school.
Earning income as a medical trainee is absolutely possible, just remember to focus on your education first and income second.
5. File your taxes properly.
Boring. I know. Technically, single filers under age 65 who have minimal income are not required to file taxes. However, even those folks could be missing out on valuable refundable credits like the Earned Income Tax Credit or American Opportunity Credit.
Refundable credits can put money in your pocket, so you don’t want to miss out on them by not filing.
For those who do have significant income in medical school or residency, you will want to be sure you understand your tax status and are not overpaying or underpaying. Know about deductions you might be eligible for and know if your income is considered “self-employment” since this is taxed differently.
The first year I earned significant income through “self-employment” I was surprised to find out I owed the IRS more than $2,000 in April and I didn’t have it. Of course, I panicked and paid the bill with a credit card, which I would not recommend.
6. Don’t pay credit card interest.
Just don’t do it. Nothing has the power to sabotage your financial goals quite like high credit card interest. A credit card should only be used for usual purchases to accrue rewards and it should then be paid in full every month to avoid interest fees.
Credit card companies are banking on consumers buying things they can’t totally afford so the company can then collect more dollars in interest than they give away in rewards.
Be the person who gets the rewards, not the person who pays the interest. Those rewards can be used for leisure or for your career. Redeeming my fly miles for free flights to my residency interviews made me feel a tad less bad about my tax mistake.
7. Fund your retirement accounts.
This advice applies to any medical students with earned income and to all medical residents. Know what your employer-offered retirement plans and benefits are.
An employer match for retirement contributions is essentially free money. If you have access to this, make contributions to that account to take full advantage of the employer match.
If you do not have access to a retirement account with an employer match and you are a medical student or resident, a Roth IRA is likely in your best interest.
A Roth IRA is a type of retirement account that allows you to pay taxes on your money now (at the lowest tax rate of your career) and take that money out for retirement with no taxes on the growth. The limit for a Roth IRA is relatively low and can be an attainable goal for residents.
8. Protect yourself.
As a medical student or medical resident, your greatest asset is your future earning potential. If you are among the majority of young physicians who rely on having a regular income, you need to protect that income against a major disability that would prevent you from working and earning it. Purchasing disability insurance will give you peace of mind, I promise.
9. Understand your loans and make a pay-off plan.
You might not be able to make a significant dent in your student loans as a medical student and resident. That is totally okay.
What you can do during this time is to understand the types of loans you have, know your balance and interest rate, get on the right repayment plan for you, avoid forbearance, and make a plan for the future.
Finding the balance and interest rate for your loans should be relatively simple. Understanding repayment options is a bit more complicated, especially for federal loans. I used studenloans.gov to learn more about my loans and student loan planner’s free calculator to make a plan. Having that plan makes my loans feel less like a burden because I know when and how I will get rid of them.