The 3 Most Important Things Resident Physicians Can Do With Their Money
May 25, 2016Updated for 2019 numbers
You’ve made it through eight grueling years of schooling, been accepted into a residency program, and you finally have a salary. Even though the average salary for a first year resident is a little over $50,000, it can still feel like hitting the lottery. It’s easy to start thinking about how you’ll spend that money on luxuries you’ve postponed like a nice car or an apartment in an upscale neighborhood while deferring your student loans until you’re making real money in your chosen field. After all, your friends who chose business or law have been living it up through their 20’s and you’re ready to join them.
Not so fast
Before you find room in your budget for things you may not be able to enjoy to the max while working 80+ hours per week, first make sure you’re setting yourself up for optimal financial success. I’m not saying you shouldn’t treat yourself to that luxury car you’ve been dreaming of ever since that first day of class, but first make sure you’re making the most of the savings opportunities you may not have available after residency.
I ran these past my physician husband just to make sure I wasn’t being unrealistic and he agrees. Here are three really important things you should set up before you make your residency budget.
1. Max out your Roth IRA. Take advantage of your lower salary by contributing the full $6,000 allowed into a Roth IRA. There are income limits that could eventually prohibit you from depositing to this account (they start at $122,000 for single people in 2019), so use it before you lose it. A Roth gets money into savings after tax, then allows the money to grow tax-free for life. For eventual high income earners, it’s especially critical to contribute while you can and you’re young, when the money has lots of time to grow.
2. Start paying your student loans. It can be tempting to postpone those payments as long as you can, but I caution against waiting until you feel like you can better afford it. First of all, you’re probably going to be working so much over the next three to four years that you won’t really miss the money, but second of all and more importantly, you’ll avoid throwing money away on interest. It’s all about making your money work harder for you, and using it to pay down loans with an interest rate of 6% or more in some cases can even exceed what you might earn investing the money.
3. Contribute at least to the match in your hospital’s 401(k) or 403(b) plan. Just because you don’t plan to stay at your residency hospital for the rest of your career doesn’t mean you can’t or shouldn’t participate in their retirement savings plan while you’re there. You get to take that money with you when you leave.
Most hospitals offer some type of match for employees who contribute and unless they have a longer than average vesting schedule, that match will be yours when you’re done as well. That’s free money, so don’t pass it up. If you can afford to save more than the match, consider doing so. Time is on your side right now and the more you can save while you’re young, the more the effect of compound interest will have on your future savings.
Becoming a physician in the first place is a great way to ensure a prosperous future for yourself and your family. But even doctors are prone to over-spending and under-saving, especially as the competing costs of real life (buying a house, kids, college, travel, etc.) set in after residency. By buckling down for these last few years, you can doubly ensure your long-term financial security. After all, I’ve never had anyone tell me they regretted saving more money.