[Editor's Note: This is a guest post from Joseph Chiweshe, MD, who blogs at Med School Financial. Joseph is a Physician in Preventive Medicine. Connect with him @ChiwesheMD and by signing up for his newsletter. His professional interests include health care leadership, personal finance, investments and the business aspects of medicine. We have no financial relationship.]
A good place to start this story is with the best and worst financial decisions I have made to date. To this day, the financial decision I am least proud of was taking a loan to buy my first car in high school. Instead of opting to drive a hand me down, I figured now that I was working, I would be able to quickly pay it off. Long story short, I learned the harsh economics of minimum wage and only working part time as a high-school student. Needless to say, I did not pay off it quickly and because of that decision by the time I finished paying off my first car, I had paid way more than I ever should have. However, there is a silver lining to this experience–It taught me a valuable lesson early in life about money, credit, loans, depreciation, and the concept of assets vs liabilities.
In contrast, the best financial decision was to invest in myself through education, like many of you here at WCI. However, with the rising cost of attaining a professional education today the issue of opportunity cost is one that many are having to wrestle with. Education has always been heavily emphasized in our household, and although I have not yet recouped a return on this investment, I am confident I will and thus maintain it to be the best financial decision I have made to date. It is an intangible asset with enormous growth potential and for that I am grateful.
Fast forward to present day where I am in the last few months of residency, and what better parting gift than to be staring at my very own personal mountain of debt? I have started to refer to my student loan burden as “the summer home I’ll never get to visit”. I call it the “summer home” partly because for roughly the same price I could be enjoying one, but mainly because placing it in this frame of thought has the added benefit of creating a sense of urgency to get it paid off in a timely manner as I don’t like making payments on something I don’t use.
The Benefits of Preventive Medicine
But first, a quick side note for some of you that may not be aware of Preventive Medicine as an option for training. I did not stumble onto preventive medicine until after I had already completed a year of surgery and in my opinion is perfect for those interested in the business side of medicine.
Preventive Medicine is the medical specialty that focuses on the health of individuals, communities, and defined populations. Its goal is to protect, promote, and maintain health and well-being and to prevent disease, disability, and death. As Benjamin Franklin is famously quoted as saying “an ounce of prevention is worth a pound of cure.” In my mind, bearing an immense financial burden without a clear path to financial independence should be listed as a comorbidity attributing to poor health and disease.
My Debt Elimination Plan
Now back to paying off “the summer home.” I am working to eliminate my debt using this nine step plan.
# 1 Financial Literacy
Over the years I have made a concerted effort to build my financial literacy. It is not taught in our programs, so you have to become an “autodidactic” and have a passion for it. For better or worse, like most people, I learned about investing through trial and error. I started with small amounts in mutual funds, then direct stock purchase plans to save on cost, and eventually Sharebuilder to assist me with individual stock purchases.
I also tried to gather experience through direct application. I have always had an interest in the financial aspects of medicine and spent a couple years interning in a tech transfer office learning about how investments in intellectual property and patents are commercialized. Following my year in surgery, I worked for an investment firm focused in the health care space and then started considering specializing in population health. The firm was investing capital in areas that promised to decrease cost by improving how we deliver healthcare. Over the last couple years my masters in health services management has been concentrated in health finance, economics, and policy. As for my investments, now I simplify contribute to pre-tax and Roth accounts invested in index funds.
# 2 Spend less and/or Make More
As is commonly shared, the road to wealth is through spending less and/or earning more and investing the difference over time. However, the emphasis here is you have to do it to the point that you actually feel it, and on a resident salary for me I worked to spend less and capped myself to living on 24,000 or less a year.
# 3 Apply LEAN Principles by eliminating waste
Throughout residency I have kept a pretty LEAN lifestyle, by living in low cost studios and being disciplined about staying within the set budget. When I say LEAN, it's both figuratively and in the literal sense-I did not buy any furniture for my apartment nor internet for the past year which has allowed me to save more. I do all my work at the hospital or a local coffee shop.
# 4 Track Everything
I started tracking all my finances and kept myself on a budget. Initially I used Excel templates but with a lot of free software out now, I prefer the latter as it can keep updated on the fluctuations in my loans and interest.
# 5 No More Car Payments
Prior to intern year, I needed something more dependable so I purchased my second car and paid it off in nine months.
# 6 Max Out
From that point on, I calculated what I would need to save pre-tax to max out the retirement plan, and made sure that was done with no excuses. This was not easy but it is doable, even as a resident. I figure now is the best time to get in this habit as my expenses are currently low but will most likely increase over the years.
# 7 Have a Plan for Debt
I also made it a priority to start making payments that count toward the Public Service Loan Forgiveness (PSLF) program as a resident, so I could keep the non-profit sector as a possible option and part of the overall repayment plan. The earlier you start these payments, the more forgiveness you will eventually see, and the program can be especially beneficial for those with longer residency tracks.
# 8 Prevention
As I now embark on my first post-residency job, my plan is to keep the momentum I have started by continuing to live on the same budget as I do now until I have eliminated my educational debt. Engaging with others like Jim and the WCI community as well as my blog is part of staying committed and encouraging each other to reach financial independence.
# 9 Live LEAN, Max Out, and Pay off Debt
If you can maintain your lifestyle on less than $30,000 even as an attending until your financial house is in order you will undoubtedly set yourself up for success. 51% of the nation makes less than $30,000 with a median wage of ~$28,000. Thus, it is entirely possible to have quality of life and resist lifestyle inflation until you are financially ready for it.
[Editor's Note: You guys thought I was strict when I told you to live like a resident. Heck, I even tell you that you can give yourself a 50% raise after residency, just not a 400% raise. It just goes to show you that just like there will always be someone more wealthy than you, there will always be someone more frugal than you!]
What do you think? What is your plan for getting rid of your debt and achieving financial independence? How long did it take you to get rid of your educational debt? Comment below!