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.
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?