Have you ever been on your last day of vacation and thought, “Gosh, we should do this more often.”? Don’t get me wrong—I could go somewhere every quarter and still have that feeling. Have you had an argument with your significant other over a big purchase? Most of us have been there. We all struggle…
If you are a physician and early in your career, you probably have student loans. According to the Association of American Medical Colleges, the median amount of student loans for a physician entering residency in 2019 was approximately $200,000. Most have Federal loans and are on an income-driven repayment plan. As a CFP® married to…
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Buying a home after residency is a common financial topic among residents nearing graduation. It was a major conversation topic in our Squirrel Hill apartment during the last couple of years of Kerry’s residency. You want to avoid becoming house poor, but also want a nice place to raise a family in. The question becomes,…
When investing, the how depends on the why. Many people ask questions like “Is now a good time to invest?” or, in some form, “What is the best investment?” There is a saying that goes something like “The best time to invest was 20 years ago. The second best time is now.” As for the…
The Financial Planning Guide for Residents
Well… that’s probably not the best way to handle it. But on the rare occasion you’re not drowning in patient care or documentation and thinking about financial planning for residents, your student loans are probably at the forefront.
I know your time and energy is limited. That’s why I’ve listed the areas of high impact below so you can limit your focus to these areas.
Student loan repayment and first home purchases are two of the most common and impactful financial planning areas for residents.
Most of you probably have Federal Direct Loans and are on an income-driven repayment plan. Not only are there many different repayment plans in addition to income-driven repayment, but there are different income-driven repayment plans with different pros and cons.
Some will allow you to exclude your spouse’s income from your payment calculation, some will use a higher percentage of your pay in your payment calculation, and some will reduce the amount of interest you will pay.
Depending on your income, family size and personal situation, one of these options will be a better fit for you. For a step by step process to evaluating student loans, click here.
If you have private loans, the evaluation process is a lot less complex.
First, can I get a better rate?
And second, do I want to pay the least amount of money, have the most flexibility, or a blend of the two?
Given time is a scarce resource, most residents want to live somewhere close to work, but they also want to know ‘how much is too much?’
If you can keep your housing cost at or below 15% of your pre-tax income, you set yourself up for success. I’m not advocating you live somewhere unsafe just to save money, but you’re not going to spend much time at home either.
Each person has a unique set of circumstances, most notably student loans, family size, and family income relative to housing cost in your area.
If you are thinking of buying a home after residency, this is one of the most crucial financial decisions you will make.
Build up three to six months’ worth of expenses in a savings account, plus more if you will be buying a home in the next few years. Of course to do that, you must be a diligent saver, which goes back to the importance of how much of your income is spent on housing now.
Do enough to get the match. You can consider doing more but setting yourself up for a successful transition from resident to attending is more important, which might mean putting your extra savings elsewhere.
With regard to how you invest within your retirement account, don’t let market swings get to you. You are young, and time is on your side. More money is lost trying to predict the crash than in the crash itself.
If you are a resident with decades until retirement, your retirement account investment mix should have a high percentage in broadly diversified stock funds and a low amount in bond funds. This could also be accomplished by a Target Date fund nearest your age 65.
Final Year of Residency?
It’s time to get serious about where you will be living and working. Along with that comes some of the most financially impactful decisions you will make.
You’ve worked hard to get to this point and soon you will finally start to feel like you can enjoy the fruits of your labor. I can’t stress enough how important it is to think about what is truly important to you and keep that at the forefront of every decision you make.
If this is not your area of expertise, it could be worthwhile to talk to a financial planner with experience in financial planning for residents.