My first overnight call as a resident was on a very busy trauma service in August 2003. Our service was 4 interns, 3 residents, and an attending. We had 55 patients on the service between the floor and the ICU, responded to half a dozen or more trauma alerts a day, and occasionally tried to comply with the brand new 80 hour work week. Only three of us spoke Spanish, so the job of informing a patient and his family that we were shipping him to Mexico now that we had stabilized his injuries often fell to me. I was the only EM resident on the service, and all of the inpatient computer systems and procedures were completely new to me. To make matters worse, our chief resident had the biggest Napoleon complex of anyone I had met before or since. I went home after that first 36 hour call with several easily diagnosed PTSD symptoms. I suffered a great deal that month, but I learned a lot. For most of us, our first year of post-graduate training is the single hardest year of our life. We adopt a “survival mentality” and just try to make it to the light at the end of the tunnel. I can’t prepare you to run dueling codes (actually I probably can, but I won’t), round on 20 patients in less than an hour, or deal with an abrasive attending, but I can give you a few tips that will help you to come through your first year financially unscathed.
Tip # 1 – Live within your means
This is a very difficult transition for many graduates to make. After four years of living on borrowed money, often without a budget of any type, many new doctors just can’t get in to the habit of budgeting their limited income, and stopping spending when it runs out. They overcommit to big rent (or mortgage) payments, cell phone bills, and car payments. They are suffering so much at work they feel a need to reward themselves when away from the hospital, and too often do so by spending frivolously. Remember that a resident salary is what an average American household lives on. You can do it too. This is the most important financial habit you ever establish, and now is the time to start. Many residents have a hard time saving much money during residency, but at least don’t add to the pile of debt you already have. Don’t reward yourself with a new car upon graduation. If you have to have a car during residency, and the one you had during med school won’t cut it, at least buy the cheapest thing you deem reliable enough to get you to the hospital. One of my residency classmates bought a new Jaguar. The rest of us just rolled our eyes. People with an income of $45K don’t drive Jaguars, even if they have two letters behind their name.
Tip # 2 – Appropriately manage your student loans
For most people, this means signing up for the Incentive Based Repayment (IBR) program (or the new version Income Contingency Repayment or ICR-A). If your spouse is also working, you may wish to file your taxes as Married Filing Separately while you’re in residency. This will lower your required IBR payments, freeing up cash and increasing the amount that possibly may be forgiven later via PSLF.
Tip # 3 – Buy some disability insurance
Although a few people buy disability insurance during med school, residency is really the time when most of us buy it. Buy a good, expensive (disability insurance is a little different from investing in that you often do get what you pay for) individual disability policy from an independent agent who can sell you a policy from any company, and buy as much of it as they’ll sell you.
Tip # 4 – Evaluate your retirement plans
Many hospitals offer a 401K, 403B, and/or a 457 plan. The only reason you’d probably want to use it is if they give you a match. No matter what job you have, if you’re not getting your entire employer match, you’re leaving part of your salary on the table. If there is a Roth option available, you should probably use it unless your spouse is a highly-paid professional. In that case you may wish to contribute a large chunk of your pre-tax income to your retirement plan, lowering your taxable income (and taxes) but more importantly decreasing your required IBR payments (as long as you file MFS).
Tip # 5 – Favor Roth Investments
As a general rule, a resident should prefer a Roth retirement account (post-tax) and an attending should prefer a tax-deferred (pre-tax) investment. There are exceptions to every rule, of course, but most residents will be in a higher tax bracket as an attending and in retirement than they are currently. So when in doubt, go with the Roth. If you are moonlighting, you can use a SEP-IRA, but convert it to a Roth IRA the same year you contribute it. This will preserve the backdoor Roth option you’ll want as an attending.
Tip # 6 – Don’t Buy A House
I’ve written before about how residency is probably a good time in life to be a renter. There is a lot less hassle (and money) required up front, and you don’t have to spend any of your precious free time upgrading and maintaining a house. It is also far easier for you to move away or simply move into your “attending house” even if you stay in the same area. The often-touted financial benefits of owning aren’t nearly as great as your realtor will tell you when you’re in a low tax bracket and only staying put for 3-5 years. You’re just as likely to come out behind as ahead by buying a home as a resident. There are exceptions to every rule, of course, and a long residency plus a working spouse may shift the balance. You don’t have to own the house you live in to be happy or to have “made it,” contrary to popular belief.
Tip # 7 – Buy Life Insurance If Necessary
Residency is also a great time to buy some life insurance. You probably can’t afford as much as you need or want, but if someone is depending on your income (spouse, kids, or other dependent), it would behoove you to at least buy some of the coverage you’ll want eventually. Most new attendings are going to want $2-3 Million in long-term, level-premium, term life insurance. A resident should buy as much of that as he can afford (at least $500K-$1M) as 30 year level term. The price often isn’t as bad as you might think. Interns are generally young (26-30), have good health, and don’t have time to engage in dangerous hobbies (or at least can take a break from them for long enough that they don’t have to lie on their application.) A 26 year old female can buy a $1M, 30 year, level-premium, term life insurance policy for as little as $500 a year. That’ll last until she turns 56. If she follows the advice on this site, she’ll be financially independent by then.
Tip # 8 – Consider Hiring An Advisor And Start Your Own Financial Education
I’m a do-it-yourselfer when it comes to financial planning and investment management. But I recognize that the vast majority of physicians are not. Many advisors will cut you a break on fees as a resident, and it is a time in life when you can really benefit from the assistance of an expert (not a salesman.) I’ve written a number of articles on how to hire a good advisor. Even if you decide to hire an advisor, it doesn’t relieve you of the burden of learning about personal finance, investing, and business. Start your financial education. Try to read one good financial book a year during residency. It will help you work with an advisor better, and you may even find that after a while you don’t need one.
What do you think? What financial advice would you pass on to a new intern? Comment below!