Today I have a guest post by Amy Nickson about financial wellness. She is a self described web enthusiast. She completed her graduation from Oglethorpe University, Atlanta, Georgia (my cousin is also an alumni from Oglethorpe) and works as a financial writer. She writes about money management, money saving ideas, debt, and so on. You can follow her on Oak View Law Group where she shares her expertise on personal finance field. We have no financial relationship.
6 Strategies young doctors should follow for financial wellness
While in medical school and residency, every young physician wants to be a remarkable doctor. But what if they don’t care about their financial wellness? You’re wondering what is the relation between being a remarkable doctor and financial wellness?
Well, as per a recent survey, most of the young medical professionals face a lot of financial challenges. Young doctors are beginning with $200,000 in student debt. They are facing difficulties in starting a family and buying a home. In addition, young doctors have to work hard (80 hours a week) at the beginning of their career. So, work pressure and the financial burden cause stress in most of them. (DDD: There is definitely a lot of financial pressures when you get out of training. I came out with $180K in school debt and another $60K+ in consumer debt. Not a great way to start your “adult” life.)
The most crucial point is how can they manage a low income at the early phase of their careers?
It is unfortunate that medical schools and residency programs do not provide any financial courses. (DDD: I completely agree. I know The White Coat Investor is starting to make the rounds and help teach residents throughout the country.)
This article aims to help young doctors to get grip of their finances.
1. Start with a budget
It’s enticing to think that you will earn a lot of money after becoming the full-time MD, but not having a proper budget makes the big salary disappear quickly. Creating a budget is easy. You can take help of free online budgeting apps to get started. Focus on the main three big costs – food, transportation, and housing, while creating the budget. Make sure the 3 biggest costs only take up half of your income and your target should be to set aside a certain portion of income for saving after managing other necessary expenses. (DDD: I have discussed budgeting here. My main cost is housing and these three items definitely are less than half my income. This is good advice to follow.)
2. Set your financial priorities
It doesn’t matter how big are your monthly or yearly income, you should take some fruitful action to secure your financial future.
And nothing is as good as setting your priorities. Thus, you will know what your target is and what to do to achieve it.
If the student loan is your prime concern, then start with it and after getting rid of it concentrate on the second one – it can be buying a house, planning to get married, a big trip, starting to save for retirement, or a profitable investment as well.
(DDD: I would argue paying off consumer debt should be goal number one, then student loans, and finally a house or family. Personal finance is personal, so figure out what works for you.)
3. Get rid of your highest interest rate debt first
Most of the young doctors are carrying thousands of dollars of debt. What is more painful is the interest rates. To get rid of them you should plan some solid debt repayment strategies. Debt settlement program can be a good choice to get rid of the debts. But, it is a bit costly and can drop your credit score.
There are some effective debt repayment strategies that you can follow on your own. If you have started with a good income, then target the highest- interest rate debt first. Keep making payments on others. Following this strategy can help you to get rid of the highest interest rate debt soon and boost your credit rating.
(DDD: I did a debt snowball method discussed here to get rid of my consumer debt.)
4. Think judiciously before opting for a mortgage or starting a family
Starting a family in a rented house or your own can be a major decision. Remember, a marriage and having a baby is expensive. It can take a toll on your finances if you add mortgage payment to it. You need to be financially prepared as much as possible to experience each of the big events joyfully.
Consider some thought to how you plan to manage a mortgage payment, student debt loan payment, utility, and child-care cost. It is advisable for physicians to overcome their first 2 biggest milestone (student loan and home buying) before starting a family. Thus, you can lead a peaceful financial life while concentrating on your work.
(DDD: There are physician home loans, but I would recommend holding off until you have a down payment if you can. I personally did not follow this advice, but do what I say, not what I do in this instance?)
5. Don’t underestimate your retirement planning
Investing money in 401(k) account is always a super idea to secure your retirement days. Usually, the higher the salary is, the more expensive lifestyle people lead. So, saving some extra money may not be possible as you have so many big plans (marriage, mortgage, car, student loan) during your early career. So, it is always a wise idea to start with a 401(k) account to secure your financial future. In addition, try to save at least 15% of your monthly income in a savings account. It will boost a sense of confidence in you.
(DDD: I think getting your 401(k) match should be numero uno of most important money decisions. After maximizing your match, you can then consider paying off that high consumer debt. I discuss traditional vs. roth 401(k) plans and why I went with a traditional 401(k) here.)
6. Stay away from early financial mistakes
Dealing with money is tricky, you may think what you’re calculating is right, but you can be wrong. Don’t commit some deadly mistakes like inappropriate tax management, opting for wrong insurance, too much risky investment, etc.
Before making any crucial financial decision, consult with a financial advisor to avoid mistakes.
If anything wrong happens (closing a practice and having a divorce) with you that you think can affect you financially, talk to an efficient financial advisor for the best possible solution. Thus, you can avoid the costly financial mistakes that can be ruinous for financial health.
(DDD- Financial advisors are not for everyone. Consider just reading some blogs and books to avoid making mistakes. I have made more than a few discussed here).
So, in short, you need to have a budget, a proper debt repayment plan, and save money for retirement days. But what about the unforeseen emergencies? Even doctors can face a fatal emergency in their lives. The best thing that you can do to handle an unforeseen emergency is to build an emergency fund. Building an emergency fund help you to keep your savings untouched even when you experience the worst time of your life. Open a separate bank account for it and set aside a certain amount each month to make it fatter with time. Earlier, I have mentioned saving at least 15% of your monthly income but I would suggest to save 5% more in an emergency fund. Saving 20% from your monthly income at the beginning of your career is recommended. With time, increase the rate of savings as doctors earn more when they get grey hair.
(DDD: Emergency funds are important and you should start one. I keep about 10K at hand, but there are some arguments that you may not need a emergency fund if you are in a good financial position as a doctor as discussed here.)
So there you go. Thank you Amy for taking the time to write this post. Any thoughts readers?
Also published on Medium.