Resident

Physician with Student Loans

The Physician Guide to Evaluating Student Loans

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 toContinue reading “The Physician Guide to Evaluating Student Loans”

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 Loans

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?

Housing

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.

Cash Reserve

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.

Retirement

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.

Read my post about this published by the White Coat Investor.

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.

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