By Dr. Daniel Smith, WCI Columnist
It’s not often that residents write blog posts for WCI, but I think that, especially for other residents, I can offer perspective and hopefully help make you some money. This blog post stemmed from listening to the WCI podcast #36 where Dr. Dahle and his guest, Dr. Minnick, were talking about a peculiar resident who was able to do crazy things during training like fully maximizing a 401(k)/403(b) account as well as their Roth IRA accounts and how residents like this weren’t that common. Well, not to put too fine a point on it, but I’m one of those particular residents. . .
This blog post is about things that I did well . . . and the things that I did poorly during residency. Hopefully, you can benefit in part from my example and in part from my mistakes. So without further ado, here is my list of “smart” and “not so smart” personal financial decisions I made during residency.
My Smart Money Decisions Made During Residency
#1 I Married the Right Person
Now wait a minute, you may say. This is more of a personal or social interaction than a financial one, and I would say you’re exactly right! That aside, being married to my wife has saved/made us far more than if I’d married the wrong person or even not gotten married at all.
First, she and I share the same moral and social values. So, like WCI says, marry once and stay that way. Or like Jeff Foxworthy used to quip, “If she ain't happy, you ain’t happy. And if she ain’t happy long enough, you’re gonna be unhappy with half your stuff!”
Second, she’s an income-earner. My wife is a physical therapist and thus is the bigger breadwinner in our house currently! Her salary beats mine by about $20K per year, and I couldn’t be happier to have a woman who brings home the bacon so to speak. Her income allows us a tremendous amount of flexibility. Residents who are married, carefully weigh the pros and cons of your spouse or significant other, working. Banking on a large future salary isn’t just short-sighted, it could cause lots of short-term cash flow restrictions and even lots of marital troubles. There isn’t a one-size-fits-all answer, but it’s absolutely worth the discussion.
Third, she and I share similar (not the same) money values. Though my spouse currently bemoans our “take home” income, she and I agree that living well within our means now means flexibility and freedom for us both in the future.
#2 I Made a Point to Make a “Reverse Budget”
I know there are other names for the kind of budgeting that I did (and do), but I can’t think of them, so I’ll call it a reverse budget. That’s basically how it works anyway. Instead of taking my monthly income and calculating what comes out in terms of bills or savings, I compiled all of our expenditures and worked backwards. I noticed that when folks made a budget, they had a tendency to short-change giving/charity and saving for retirement and might make rather large allocations toward food or clothes or travel. For my wife and I, we first calculated all of our fixed expenses: mortgage, utilities, average food costs (not restaurants), insurances, etc. The very next thing we did was to factor in charitable giving (which for us is 10% of income) and retirement. Retirement was calculated so as to fully fund our hospital-sponsored, tax-advantaged 403(b) account by the end of the year. That was a priority. With what was left over, we parsed out a little bit for our money market account (emergency fund) and some into date nights and future travel. While it is more fun to spend money on a nice meal or outing for date night, your evening out with your spouse doesn’t have to cost a lot of money. The advantages of my “reverse budget”: bills are always paid (on auto-pay), giving is always done, and our retirements are always appropriately funded.
#3 I Read a Few Financial Books During Residency
My first financial book was actually Dave Ramsey’s Financial Peace, which was great, but I wasn’t by nature a big go-into-debt person. So a lot of what Dave says was more repeating what I felt like was common sense: don’t use high-interest credit cards, pay cash where you can, don’t buy things on credit at all if you can help it, set a budget, etc. My second book was . . . you guessed it, The White Coat Investor! It was recommended by, of all people, one of our EM attendings at our hospital, Dr. Russ (hey, Dr. Russ, thanks again!). The WCI book is truly what made me take a harder look at retirement, insurances, and long-term perspective on what wealth currently does look like and what it probably should look like for physicians. Instead of waxing poetic on the rest of the books I’ve had a chance to read, I’ll give the (admittedly short) list below.
- Financial Peace – Dave Ramsey. Great if you’re in a ton of credit card debt and don’t seem to have a handle on spending, especially if you’re of a religious background.
- The White Coat Investor – Dr. Jim Dahle. Great overview of financial institutions as they pertain to physicians, vernacular, debt, retirement/investments, insurances, and common doc pitfalls. Ninety percent of what I’ll use for the rest of my career as a physician in regards to my financial life will probably be found in this book.
- Common Sense on Mutual Funds – John C Bogle. The guy who pretty much started low-cost index funds and subsequently the financial juggernaut, Vanguard, gives you the dusty but necessary remonstrations against historical actively managed, “stock picker” mutual funds and their expensive management styles. It also delves into a little bit of necessary history of actively managed funds versus just the S&P 500 index.
- The New Coffee House Investor – Bill Schultheis.
- To Read: The Only Investment Guide You’ll Ever Need – Andrew Tobias. The Millionaire Next Door – Thomas J Stanley. The Millionaire Mind – Thomas J Stanley. The Art of Investing: Lessons from History’s Greatest Traders – The Great Courses.
I’m trying to read two books per year and follow the WCI blog posts as my “financial CME.” Pro tip from one resident to another, see if you can purchase some of these on audible and listen while you drive, fly, or perform housework. I listened to most of Mr. Bogle’s book while flying to fellowship interviews.
#4 Moonlighting Has Been a Decent Help for Me in My Third Year
My job pays about $85/hr for urgent care work in rural Georgia, and it has netted me a few thousand dollars this year. While $85 an hour is much more than you’ll make per hour as a resident, I listed this #4 because, with a full-time job already, I haven’t been able to do it much. That being said, if you’re of the mindset to do so, give some local urgent care places a look. Other places that residents have done moonlighting is in rural ERs, in radiology centers (some states require they have a doc on site if they’re infusing IV contrast), hospitals for admissions or weekend hospitalist work. Also, check out the locum tenens websites. Some places need residents to help with Medicare exams or similar kinds of odd medical jobs that don’t require you to be BC/BE (board certified/board eligible) yet.
#5 I Started Investing in My Retirement
The next example is particular to those who might have some tax-inefficient investments lying around. I happened to have a brokerage account from my high school and college days when I thought investing meant picking a stock or two and trying your best to guess right. I had actually done pretty well in that brokerage account, and, after reading WCI, realized I needed the put that money in a tax-advantaged IRA, naturally a Roth. So I called my brokerage manager and told her that I wanted to sell my stock. I opened up my IRA through Vanguard and placed $5,500 into a series of passively-managed index funds. The rest of the money I left in the brokerage and bought a total stock market index fund offered by Vanguard.
To everyone who says “Well, hey, I don’t have money lying around in a brokerage account.” I would agree with the suggested implication that I was fortunate enough to have one in the first place. But I would also say that the principle remains the same. If there’s money you have (outside of your emergency fund) sitting in a savings or money market account that you could move to a tax-advantaged account, then I would move it!
#6 I Started to Contribute to a Health Savings Account
This next bit is hospital-specific, but it is still worth looking into. My hospital offers, de facto, a Health Reimbursement Account to residents. HRAs are a great thing. They’re funded by your employer, you can use them for qualifying medical expenses, and the distributions are tax-free. However, they aren’t as good as HSAs (Health Savings Account) in two big ways. One is that the HSA is portable. If I were to build up a certain cash value in my HSA, I could then take it with me when I leave that business. With an HRA, the money that’s put into the HRA by the employer goes back into their pockets once you leave. The second way an HSA>HRA is that the HSA is triple tax-free and can be invested. So my contributions to an HSA (you can’t contribute to an HRA, only an employer) come out pre-tax, grow in my investments tax-free, and are disbursed tax-free. Much better? In pretty much every way. *Bonus, you can leave an HSA to your kids!* The big win here for me and my family is that I can opt to change the HRA into an HSA if I contribute to it. So my employer will give me $250 per quarter in an HRA if I don’t contribute to it. If I do, they’ll deposit that $250 into an HSA instead along with my contribution. Win-Win.
#7 I Ate for Free at the Doctor's Lounge
This is pretty self-explanatory, but on days that I was at the hospital, I largely ate at the gratis doctor's lounge or cafeteria. For those residents who work at a hospital generous enough to provide meals for you, by all means, do it. Even if you spend $3 per meal for food at home, you can save ~$1,000 per year by eating at the hospital for one meal per day. I don’t know about you guys, but I’ll take $1,000 in free food a year for sure.
#8 I Worked Out for Free at the Hospital Gym
I love exercising. It’s a stress-reliever, it’s healthy, and it reduces medical costs when you get older. However, some residents choose a pricey gym membership or just don’t go at all to avoid the costs. I would highly recommend workout out at your hospital-associated gym if you have one. Our hospital gives us free access to their gym, and while it doesn’t have all the amenities that I would like to have, it’s free. Some friends of mine have actually schmoozed the physical therapists at their hospital in order to use their PT gym area when patients aren’t using it. I suppose that works just fine as long as you wipe off the Bengay before you use the machines!
#9 We Did Small Home Repairs on Our Own
This one ties into something I did that was “not too smart.” Long story short, we bought a house (see #2 below). I’ll get more into that later, but for now, let’s talk about the silver lining. We bought a 1970s ranch-style house in our town and loved the house, but the paint and fixtures . . . not so good. My wife and I spent a few hours here and there doing small things that we could fix up ourselves: paint, replacing baseboards, swapping light fixtures (did you know you can change the blades on your ceiling fans?? And it’s easy!), etc. Nowadays, with YouTube and an assortment of screwdrivers, you can do a lot of small home repairs/upgrades yourself!
#10 I Found a Side-Hustle
This one is last because, as of yet, it hasn't brought me any income; however, I hope someday to reap some financial benefit from it. I started a website called www.exercisewitharthritis.com that is geared toward patients and athletes who have arthritis and want to start or continue with physical activity and exercise to ameliorate pain and improve performance and function. I actually asked WCI back last year for his advice on the site, and he said that if you continue to provide value and help to people, some of that value will trickle back to you. So, if you’re so inclined, find a side hustle, something that you’re already good at or something that people ask you about. It’s easy to monetize physical items/crafts, but with the advent of websites like WordPress and Wix, the making and designing of websites have become easier as well. I’m by no means a coder, but the process of making a website was much easier than I thought.
My Not So Smart Money Decisions Made During Residency
While fewer, these are arguably just as important if not more so.
#1 I Leased an Expensive Car
First, I leased a car, and not just a car, a BMW. When I matched, I was stoked. I thought the world was my oyster and that I needed a car to match my newfound status as a physician. In my mind, my “old” car was wearing out (it was 7 years old), and for the record, it was a stick shift, and the transmission was starting to wear. In hindsight, I could have driven that car for a while longer, and, if the transmission really had gone out, bought a used economy car instead of leasing an entry-level luxury car. Expensive gas, expensive maintenance, fretting over potential dents or dings, combined with the fact that I moved to a state with a 7% ad valorem tax on vehicles for car tags (Darn you Georgia!) quickly took the shine and new out of my fancy car and made me wish for my old Honda Accord I had in college. Long story short, get a luxury vehicle in residency at your peril. Nothing bites harder than high upkeep and maintenance costs except maybe the cynical chuckle of hindsight.
Second big oops here. Like I alluded to above, we love the house and did a little work ourselves, but that was a huge financial misstep in my now-slightly-more-experienced opinion. Between the closing costs of 3% (and another 3% when we sell it), county property taxes, upkeep, maintenance, repairs, and small upgrades we probably wouldn’t break even on the house until we owned it for about 7-8 years based on some rough math.
For other residents, some hospitals offer housing options. Our hospital opened last year a beautiful housing complex just for residents and visiting medical students. It’s gorgeous, fully furnished, close to the hospital, and only about $600/month with utilities. That’s uncommon to say the least, but there are lots of other opportunities to rent apartments, townhomes, or even full houses and not financially obligate yourself to something with a six-figure price tag in residency.
#3 We Paid Off the House
Next big oops, we paid off the house. Some of you guys may say, “How is paying off a house a bad financial investment?” Well, for some folks, it might not be; however, for my wife and I it was. To be brief, we had a financial windfall of a significant amount about a year after we bought the house which was nearly equivalent to the house’s principle. We decided that the safe thing to do would be to pay off the house and live in it payment-free. Again, not a bad decision per se, but going back, I would do it a little differently. In 2016 and 2017, I would go back and carry the mortgage and invest the difference in an S&P500 index fund. Two big reasons I would have done this. First, the mortgage interest is deductible on your taxes (I think it’s a “below the line” deduction), so it lowers the effective interest rate you’re paying on your mortgage. Second, the return (even after taxes) of most reasonably-invested portfolios in 2016 and 2017 was far above the 3.675% I was paying for use of the bank’s money for my mortgage.
Again, how is this applicable? Well, if you don’t have a house, it’s obviously not. But in the future, we should all understand that mortgage debt is reasonably safe debt to carry (especially if you’ve got your disability insurance in place already) as long as you’re planning to stay in that place for a significant period of time and that the difference between your mortgage interest rate and a theoretical rate of return (again, no guarantees in the stock market) might behoove you to carry the mortgage and invest instead.
#4 I Decided I Needed a Financial Advisor
The fourth not so smart thing is really more of a near-miss event. We all know about near misses in the hospital, and this was one of those times where things could have gone left quickly. After reading Financial Peace but before reading WCI, I – at the behest of some other physicians – decided I needed a financial advisor. I didn’t want to try and understand “this investment stuff” and thought that paying someone who worked in the field to manage my finances would be great right? Wrong. I think WCI even has a “Fire Your Financial Advisor” course that he’s produced, but I’ll distill down the salient points of why you don’t need an advisor if you’re willing to do less studying than you did for any of your medical school exams.
- You’re intellectually capable enough to do this yourself. If you passed med school (or PT school or PA school or Pharmacy school), then you’re smart enough to read a few brief texts on finances and get 95% of everything you could even want to know.
- Most of the work has been done for you. Honestly, if you read the WCI book, you’re most of the way there already. For most other stuff, I’d definitely look into the WCI forum and blog posts. The kindle version of the WCI cost me ten bucks and two quiet nights of on-call time. [There is also the new White Coat Investors Facebook group and r/whitecoatinvestor subreddit. -ed]
- Even a financial advisor’s 1% “assets under management” fee is $5,000 if you have half a million dollars in a retirement account. If the index is doing your work for you, why pay the advisor?
- Most financial advisors (probably with the exception of the folks who advertise here at the WCI website) don’t know much about residents or doctors in general, especially student loans and how to approach those.
- Lots of advisors want to sell you insurances you don’t need. Full disclosure, I used WCI Recommended Bob Bhayani and had him compare rates for me and my wife for life insurance and for me for disability insurance. He did a good job for me. I also have no financial obligation or interest with Mr Bhayani; he just did a good job looking and going over all the details with me.
#5 I Wasted Time on the Small Things
I tried to save money on small things that really didn’t make much of a difference in our standard of living, like mowing and raking the yard myself. I actually like working outdoors, but by the time I bought a lawnmower and spent a few hours every other Saturday during the summers (which are about 9 months out of the year in south Georgia), I’d frittered away valuable time I could have spent with my wife or studying or moonlighting. Paying someone $60 every other week (what we pay actually) to mow and keep up the lawn is worth my 3 or so hours of doing it myself, especially given that I could moonlight and make that back in less than an hour.
#6 I Delayed Getting Started on Personal Finances
Last, I let inertia overwhelm me when it came to getting the ball rolling on financial decisions. I thought that I was *just* a resident and that financial decisions were something I could come back to later and figure out and that I had plenty of time and future earning potential to figure stuff out. God-willing, I *do* have lots of earning potential and time in which to do the earning and learning, but the truth is that the earlier you start, the more successful you’ll be in the future. Also, if you feel intimidated by these things, WCI has a 12 step program (kind of funny saying it that way) to get you set up for financial literacy and success. It’s got pretty much everything a resident needs to know, and is offered in bite-sized chunks to keep it from being too overwhelming.
That’s pretty much it for me as far as the things I did during residency that were helpful or detrimental to my financial success currently. I know I didn’t talk about big ticket items like student loans and insurance, but that’s because I wanted to make sure the scope focused on what I did differently well or poorly. Thanks for reading, and I hope some of this helped you! I’m on the blog at medguydan if anyone wants to send me a message on there. I’ll be happy to answer or commiserate with you there.
What smart decisions did you make during residency? What dumb decisions did you make? Comment below!
[Editor's Note: Dr. Daniel Smith is a regular reader and recent graduate in family medicine and is entering fellowship at the American Sports Medicine Institute in August. This article was submitted and approved according to our Guest Post Policy. We had no financial relationship at time of publishing, although Daniel now contributes as a WCI Columnist.]