Managing money can be challenging for the average physician during post-graduate training. You might have experienced a significant income boost, but you still have substantial debt due to medical school. As a result, you must balance the enjoyment of creature comforts during your stressful residency years with payments you make out of necessity, such as your student loan.
Taking care of your finances as a busy doctor isn’t easy, but you might set yourself up for financial success by doing some of the following things.
Looking Into Loan Programs
You don’t have to stick with traditional loan programs as a physician in post-graduate training. For example, this list of doctor mortgages describes dedicated home loan options for doctors who might not be eligible for conventional mortgages due to their sizeable student loans.
If you decide to purchase a home during your residency, you’ll always have somewhere comfortable to return to after a hard day at work. However, you can also explore different student loan programs to make your financial situation better, such as government loan programs, loan forgiveness, and private loans with refinancing discounts.
Creating a Budget
When you experience a significant income increase after becoming a physician, it’s easy to start spending more as a result. You now have regular income coming in, and it’s enough to afford creature comforts that you might have missed out on before.
As tempting as it can be to spend most of your income when it comes in, budgeting can be essential for your future. Create a budget that includes all necessary expenses, including debts and savings, and try to stay within that budget to ensure you can live within your means.
If you don’t believe that you have the best budgeting skills to stay on track, consider meeting with budgeting experts to assist. With their help, you can learn about different methods to try, such as the 50/30/20 rule.
This rule involves dividing your after-tax income into three categories: needs, wants, and savings or paying off debt. Half of your income will go into your needs, 30% toward your wants, and 20% toward any debts you have or your savings account.
Setting Aside Money for Insurance
Medical staff generally require more insurance than most other professions due to the risks associated with their job. If you don’t believe your employer’s provided insurance is robust enough or want to ensure that you’re covered for every situation, organize to have a minimum of life insurance, disability insurance, andmedical malpractice insurance.
Life insurance payouts can be helpful for covering all expenses relating to your death, while disability insurance provides financial cover if you can’t work due to illness or injury. Medical malpractice insurance is essential for healthcare professionals who might make mistakes that impact the livelihoods of their patients.
Talk to an insurance broker about other necessary insurance that might ensure you’re not financially affected by a life-changing event or situation that prevents you from practicing medicine and honoring your debts. The more insurance you have, the easier it might be to manage your finances during any periods of financial uncertainty.
Considering Investments
When you start earning consistent income and have your personal finances well under control with loan programs and budgeting, there’s every reason to explore your options surrounding investments. While you might be more than happy accumulating money in a savings account for a rainy day, you might like the idea of growing a nest egg in other ways.
If you don’t like risk, many low-risk investment options exist in the United States, such as high-yield savings accounts and short-term certificates of deposit (CDs). CDs are bank-issued and are offered with higher interest rates than traditional savings accounts. With your investment, you are paid interest at regular intervals and receive your original principal plus accrued interest once your CD matures.
Short-term government bond funds might also be worth your inspection. These bond funds are mutual funds backed by the United States government. They are paid out monthly and come with minimal risk compared to other investment options.
If you consider yourself an immediate or advanced investor, explore your options surrounding dividend stock funds. These are company profits paid out quarterly to shareholders. While riskier than a savings account, they often carry less risk than growth or non-dividend stocks.
Having an Emergency Fund
We don’t know what’s right around the corner, and you might be required to take time off work for an illness, injury, or something else. With debts to cover and some insurance providers requiring a weeks-long waiting period until coverage kicks in, there might be a period of time you’re left without income.
Having an emergency fund can be crucial for such situations. Aim to set aside at least six months’ worth of income for peace of mind. In the time you don’t require it, this money can even accumulate interest so that you have more to use than your initial deposits.
Fortunately, creating an emergency fund doesn’t have to be complicated, even if you’re new to financial responsibilities. Set a goal of how much you’d like to save, such as six months’ worth of your income, and set up automatic payments from your primary bank account into a separate account that you can’t touch for anything other than an emergency. Monitor your progress, and if you feel like you can afford to contribute more, do so to shorten the amount of time it takes to reach your goal.
Alternatively, reduce your contribution and lengthen your timeline accordingly if you are struggling to cover your everyday costs because you’re putting too much into a savings account and emergency fund.
Establishing Good Credit
Building good credit can produce many benefits, such as increasing your chances of securing competitive interest rates and often making it easier to secure loans and other financing options. However, not everyone knows what it takes to establish good credit and how to ensure your credit score remains high.
Credit scores range from 300 to 850, and you’re considered to have a ‘good’ score if it’s 670 or above. A ‘very good’ score would be 740 to 799, while an ‘excellent’ score would be 800 to 850. Credit scoring companies calculate credit scores based on several things, including your payment history, credit and loan amounts, credit history timeline, new credit, and your credit mix.
While you might not give your credit score much thought, it can be worth keeping these factors in the back of your mind when you know you’ll be taking out a loan or requesting credit in the future. Always pay your bills on time and in full, as your payment history is a core part of your credit rating. Maintaining a low utilization rate is also essential, which describes your balance-to-limit ratio. The lower your debt level compared to the available credit, the better your credit score might be.
If you don’t have a loan or previous financial history, you might look at alternative credit-building options like applying for a secured card or getting credit by paying eligible bills through eligible credit service providers, such as streaming services and monthly utilities.
Managing your finances during your residency years can be challenging, especially as your income can fluctuate while you’re still required to pay off your debts. Take some of these actions above, and you might set yourself up for financial security in the future.
