This is a very special time of year as freshly minted doctors begin their residency training. It also marks the time that junior residents transition to their senior training years. So, to all of you, congratulations!
With this time of year in mind, I would like to share some financial advice for residents (even though the same can go for attendings!). But this is not your usual financial advice. My goal here is to distill things down to their most important and basic components.
I was a resident just a few years ago. So, I haven’t forgotten what it is like. The hours are long, and your focus is, rightfully so, exclusively honed on becoming the best doctor you can become.
However, ignoring your overall well-being during this time is a mistake. Trust me, I know from experience. And financial well-being is a huge component of overall well-being. It is also the most commonly overlooked.
Even more, as a resident, it can seem like there are no finance plays that will move the needle as a resident. This feeling led me to essentially write off any potential financial education during my training. I stuck my head in the sand and hoped for the best. Then, a few months before graduating, I looked my financial fears and mistakes in the face. I started my financial education and made positive changes.
Looking back, I now realize that there were a LOT of things that I could have done as a resident to put myself in a good financial place, both in training and beyond.
In sharing this list, I hope to inspire a lot of you to make these moves and avoid the mistakes that I made! In fact, these simple steps you can take as a trainee will make you over $1 million in your investing career!
1. Pay down your debt
This is #1 for a reason: you need to make this a priority as a resident! I paid down exactly $0 of my principal debt in 7 years of training. For two loans, I paid interest only for 2 years because I had run out of deferment options.
Every year, I would have to look at my ballooning loans and fill out forbearance/deferment paperwork to submit. I would get super-stressed about the absurd amounts I saw and then effectively ignore them for another year. This was the worst strategy possible.
Let’s look at the math. My average interest rate is about 6.8%. At this rate, every $1 that I did not pay off at the beginning of my training is now worth $8.60 at the end of my 7 years.
This means that every $1 that I could have paid off would have saved me about $8.60 now. If I didn’t eat out one night and used that $50 to pay off my loans, I would have $430 less to pay off now. My net worth would be exactly $430 more currently.
2. Use your retirement accounts to optimize your personal finance as a resident!
You usually will have retirement accounts available to you as a trainee. Chances are you are not aware of this. I was even contributing to a 457(b)-retirement account for 7 years and did not know it (sad, but true).
Even if you are contributing what seems like a small amount each year, the magic of compound interest is working in your favor to make you money. When you are on call in the ED all night, at least you can then imagine the money that your money is making for you. That makes things seem not quite as bad!
Assuming you are paid on a biweekly basis and average a 7% yield on your investments, let’s say you save $192 from each paycheck and put it in a retirement account of your choosing. Let’s say you do this for every paycheck over 7 years. This amounts to saving $5,000 annually. Not much. But at the end of your training, that would be $43,270.11! Now, let’s have that compound for 30 more years … it’s now over $800,000 for retirement.
As a side note, your tax bracket as a trainee will be way lower than it will be in the future as an attending. Therefore, when possible, make Roth contributions to your retirement accounts. This means that your contributions will be taxed now, grow tax-free, and will never be taxed again.
Which brings me to our next pearl …
3. Contribute to a Roth IRA
In addition to contributing to a retirement account, work really hard to contribute to a Roth IRA each year. Again, Roth contributions are taxed when you make the contribution and are never taxed again. Therefore, you are taxed when you are in the lowest tax bracket you will ever be in … as a resident.
As soon as I started learning about Roth IRAs at the end of my training, I gathered all of the money that I knew I would not need for at least 20 years, opened a Roth IRA at Vanguard, and invested it. It wasn’t much money, but it’s already grown a bunch in a short time.
4. Create a resident finance anti-budget
I’m a big fan of budgeting now. Seriously. I’m weird like that. Here’s my free budget template for you to use…
Every month, my wife Selenid and I sit together. We open our bank account and compare each expense to what we budgeted for that month. The extra goes towards additional loan payments.
We did not do that when I was a resident and she was a PhD student. Honestly, I think that was probably for the better. It would have been super-depressing to realize how little money we had to spend on groceries, etc. It’s easier to tolerate (and even fun) to do it now that we are making more money.
However, you do need to track your money as a trainee. No excuses.
The best way to do this is using an “anti-budget.”
To use an anti-budget, take a certain percentage of money out of your checking account with each paycheck. This is money allocated for loan payback, retirement savings, and general savings. The goal is to make this figure at least 20% of your earnings. But you can start with just 1% and increase by 1% each month. Then, with all of the money left in your checking account, spend as you see fit without guilt or budgeting each cent.
It’s even easier to anti-budget when your savings come out automatically before even hitting your checking account. This is what happens with your contributions to retirement accounts or automatic transfers to pay your loans. Make as much of this automatic as you can.
5. Limit credit card expenditures
Commercial credit card interest is the highest interest out there. It’s way more than even your student loans. Way more. Please, please minimize your credit card use. If you are going to use it, pay off the whole balance each month. Even if there are great rewards, the amount you will pay back in interest will dwarf any points you get back.
The only exception to this rule in my mind is if you need to pay for board or exam fees and absolutely cannot do it another way. These are necessary expenses for your career.
I had to do this a few times and did not feel bad about it. I felt bad about all of the other unnecessary credit expenses that I accumulated, though.
6. Read one finance book each year as a resident
Your financial success is directly related to your financial knowledge and education. In training, your medical knowledge is obviously a huge priority. As is family and your personal well-being. Financial well-being is a major, but often neglected, component of personal well-being. Make your financial education a priority.
This can easily be accomplished by making it a goal to read at least one personal finance book each year of your training.
Here is a great place with resources to get started. Pick one and just try to read 10 pages a day – starting with the day that you actually get the book in your hands. Don’t procrastinate. You’ll be hooked in no time.
Even better, you will feel your financial prowess expanding, enhancing your well-being.
When you finish the book, lend it to a co-resident and keep spreading the word.
I hope these steps give you the high-yield information you need to create simple, automated habits that put you on the road to financial freedom!
If you’ve been keeping track, these very doable finance moves that you can make as a resident will easily add up to make you over $1 million in net worth over the course of your investment career. That’s insane!
Integrate and automate these simple finance steps into your life as a resident and you will be better off than 99% of your attending colleagues — let alone your co-trainees.
And you will 100% be way ahead of where I was as a resident!
Disclaimer: The author is not an attorney, accountant, or financial advisor. His expertise is in the field of medicine. Any information in this op-ed and its links should not be considered personalized financial advice.
Jordan Frey, MD, is a plastic surgeon at Erie County Medical Center in Buffalo, New York, and founder of The Prudent Plastic Surgeon.
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