5 Ways to Start a Nest Egg While You’re Still A Resident

Today we have a guest post from Ricardo Roberts at Doctor Loans USA (https://www.doctorloanusa.com/) , a company that connects doctors to mortgage lenders. Of note, we have no financial relationship. Ricardo gave me a few ideas and articles he wrote and out of those I picked this one on starting a nest egg to share with you all. Some advice for residents. So read on…

If you want to save enough money for retirement, you need to start early. Financial advisors, investment firms, and money management gurus agree that most adults will need 80% of their pre-retirement income during their first year of retirement. Doctors who earn over $100,000 a year may need millions of dollars to retire comfortably, and the best way to build a sizable nest egg is to start saving as a resident.

As you know, medical residents do not have the same salaries as their fully licensed counterparts. Fatigue, fear, and crippling student loan debt can discourage even the savviest of interns from saving for retirement, and instead of investing in their future many residents decide to wait until they’ve finished their programs to start building their nest eggs.

Although there are plenty of reasons that residents decide to put off saving for retirement, statistics show that young adults that start saving in their 20s will earn more money over the course of their lifetimes than older adults who decide to wait (visit NerdWallet.com to learn more about compound interest). Medical residents also have fewer financial obligations and work commitments than experienced physicians, and they can use their youth, passion, and willingness to learn to save thousands of dollars for retirement.

Are you ready to start saving for the future? Use these techniques to save money, invest, and start building your nest egg.

Create A Budget…And Stick To It

Like many residents, you may already have a long list of expenses that you have to pay for. If you want to save money for the future, you should write down those expenses so that you can make sure that you have extra money at the end of every month.

Budgeting is an effective way to keep track of your income and your monthly payments, but it will only work if you adjust your spending habits so that you can save money. There are dozens of budgeting apps that can help you keep track of the money that you spend. Visit Forbes.com to learn more about the budgeting applications that can help you build your nest egg.

When I was training in residency the iPhone had not even come out, so there were no apps. Still it was not a good excuse for the rampant spending I did on nights out. If I had even thought to look at my expenses, let alone budget than maybe I would have saved more money.

Make A Savings Plan

As soon as you figure out the amount that you can reasonably afford to save every month, you should open a savings account and start making regular deposits. Whether you decide to write yourself a check or set up automatic payments, make sure that you set aside a specific day and time each month to transfer money into your savings account. Avoid impulse purchases that will force you to take money out of your savings account, and make sure that you consistently deposit the same amount without diverting money to other expenses. For additional advice on savings plans and long term banking strategies, look at “How to Build a Successful Savings Plan and Start Saving Money” on Bankrate.com.

Hard to argue with this point. An easy way to start saving is the retirement accounts Ricardo discusses below. I think if you are saving in a 401k or IRA during your residency years then you are doing better than most.

Set Up A Retirement Account

A 401k is the most popular option for interns and fellows who are looking for a simple way to start saving for their future. Your employer should have multiple plans available so that you can choose the investment strategy that will allow you to save the right amount of money for retirement.

If you want to make more contributions to a separate retirement account, you can set up a Roth IRA. Unlike a traditional IRA, you will pay taxes on your contributions upfront so that you can withdraw money from your Roth IRA without any penalties or taxes when you retire. For more information about choosing a retirement account, look at “Everything You Need to Know About Choosing a Retirement Plan” on LifeHacker.com.

I could not agree more with this aspect of saving. Once I set up a 401k account in fellowship, I saved enough to get my full match but did not invest over that. Still, I think if you are saving in a Roth or 401k in training then you are doing well. So consider saving enough to hit the maximum match offered by your employer.

Start Investing

Whether you choose to work with a financial advisor or manage your own portfolio, you should start investing in products that will help you grow your nest egg. Diversify your portfolio by investing in a wide variety of stocks, bonds, and mutual funds, and make sure that you balance any high risk investments with stable products that will provide you with income for decades. Visit The Motley Fool for more information, advice, and practical tips that can help young investors.

Once you have the saving part down it is important to get an investment strategy together. It could be as simple as a S and P index fund or a three fund portfolio as discussed by the Bogleheads. https://www.bogleheads.org/wiki/Three-fund_portfolio

Purchase A Home

From bedroom communities to luxury condominiums, the real estate market has plenty of options for young buyers who are interested in making a long term investment. Medical residents also have a wide variety of mortgage options to choose from. In addition to FHA and conventional home loans, residents can apply for physician mortgage loans that will allow them to purchase a house without making a down payment or paying for private mortgage insurance (PMI). For more information on physician mortgage loans and loan providers, visit DoctorLoanUSA.com.

As far as home purchases, I think it can go either way. If you are in a high cost city I would be hesitant. Additionally if you plan on moving in 3 years I would be hesitant. That being said, if you do buy, then plan on holding for as long as possible. I bought a 800 square foot home in fellowship and sold it 4 years later. If I had held onto it until now (10 years later) I could have earned 150% gains, not to mention the years of rental. If you do decide to purchase a home, I would seriously consider using a physicians mortgage loan. I am on my 3rd and will continue to use them as long as it is the cheapest option.

If you follow these steps, you will have the resources you need to retire comfortably. Don’t let your fears limit your earning potential; start building your nest egg today!

There you have it, some simple steps to end the year on nest egg building. Any thoughts on Ricardo’s recommendations?

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I am a Dad and Doctor trying to find financial freedom by owning my dollars and debts. Helping dads with their finances so they can focus on the family.

8 thoughts on “5 Ways to Start a Nest Egg While You’re Still A Resident

  • December 26, 2017 at 8:42 am

    One of my friends is a resident, and his thinking is basically “why save now, when every dollar I earn in the future will be so much more? E.g. I can save $5k this year, or in 5 years I can save $50,000 as a specialist”.

    Not sure I agree with his thinking, but that’s one way of looking at things.

    • December 26, 2017 at 8:56 am

      That was partially my thinking at his stage. It is not a great philosophy but with a high income he can easily catch up.

    • December 28, 2017 at 8:23 pm

      I can understand where your friend is coming from. But it’s not how much you save, but the habits you form by saving that are important. If you read financial books, budget, and invest while in training, you set yourself up for success as a newly minted attending.

      • December 28, 2017 at 9:06 pm

        I agree with your statement. The habits needed to be an effective saver are the ones that will take you places. Not just the act of saving. Like any good FI person will tell you, the habits are what makes this work.

  • December 23, 2017 at 8:49 pm

    Excellent advice!

    I’m +- on a home purchase till you are long term settled.

    +++ on a budget or at least some kind of expense tracking. I use Mint.com When I started tracking I was amazed how much I could have diverted into investing, and it also disciplines you to invest.

    +++ on investing early and monthly. The most important dollar you can invest is the first one and the sooner the better. If you start say at age 30 to put away $1000 a month as a resident in something like the ETF VTI and continue that for 30 years you wind up with something like $1,015,000 worth of stock.

    • December 24, 2017 at 11:52 pm

      Home purchases are brutal. We have done 3 and the only one that may end up being financially beneficial was the one we recently lost to a fire…not that I would wish this upon anyone.

      Expense tracking is more our jive these days and even that loosely. Early on I think it is quite important.

      Wish someone had really hammered home that I should save young and hard. Unfortunately I was not that wise but a high salary and still being under my 40’s will help to a very stable future.

      • December 25, 2017 at 12:59 pm

        I’ve read and I believe it, that a home is not an investment like in my parents time. On the average it is something like a 1% drag on your portfolio. So everyone gets all anal about whether a mutual fund costs .08 or .12 but in the mean time the house is eating 1% Overall I like owning my own place but I’ve been here 25 tears, the mortgage is long paid off, I live in the middle of nowhere with low taxes, and no nosy neighbors or HOA so it fits my Libertarian nature just fine. If that costs me 1% money well spent. Big ERN did an analysis on renting v owning that is worth a look

        I was pretty aggressive with saving but didn’t have as well thought an investing plan in the first decade, which was the 1990’s. Tax shelters like IRA’s were very different back then with max investment around $2000 per year and SEP’s something like $25K per year, also it was the time of the dot.com era individual stock picking and mutual fund picking a very different picture compared to today. It was during this period I picked up quite a bit of LT cap loss following the dot.com bust. I think if you know what you are doing you can beat a Bogelhead portfolio but if you start early with a simple Bogelhead and feed it monthly you will die rich as hell. The sooner and the longer with as much money as possible.

        The 30 year $1000 per month plan yields over 1,000,000 a 15 year $1000 per month plan yields only $300,000. A 7 year plan yields only $100K so every later dollar means less to the bottom line than the earliest dollar by a huge amount.

        Yesterday was the 29th anniversary of my house fire

        • December 26, 2017 at 9:10 pm

          I am not convinced about home ownership either. I think in the future, if I do it I, I will buy small/reasonable and maybe try and buy cash. That way I avoid the mortgage, etc.


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