For many resident physicians, intern year reflects the first time you’ve had a paycheck. Unfortunately, that paycheck isn’t very large, especially depending on where you live and what your family situation is. That said, there are still opportunities to do it “right” and ways to really mess up your finances at this stage of your financial journey. The good news is that unless you have a significant side gig or have a significant other who has income (or if you happen to be independently wealthy), your finances shouldn’t be too complicated. Below, we’ll cover goals to try and hit to establish a solid financial foundation while in residency or fellowship training .
PS, if you’re about to graduate from training, be sure to read our Transition to Practice: A Guide to Personal Finance for Graduating Residents, Fellows, and Early Career Attending Physicians.
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Steps to Establish Your Financial Foundation in Residency
Understand Your Financial Situation and Create a Budget
The first step to building your financial plan is understanding your finances. Your first paycheck may be smaller or larger than what you were hoping for when taxes come out and your monthly bills start piling up (possibly including student loan repayments), so you’re going to want to establish a budget. Your goal at this stage should be first and foremost to try not to incur any more debt.
If you’re new to budgeting, you can read our article Budgeting for Physicians as a primer. Start by tracking your monthly expenses and categorize them into non-discretionary and discretionary. Your goal is going to be to minimize the discretionary expenses (trade the expensive cup of coffee at the hospital Starbucks for a coffee maker at home). This will free up some money to hit some of these financial goals as well as leave more money for occasional splurges.
Since your ins and outs likely aren’t very complicated at this stage, chances are you can manage with a spreadsheet. However, if you need some help with your budget, there are many apps. We recommend the following for those who really want to get serious about budgeting:
YNAB (You Need A Budget) is an impressive app that's laser focused on budgets and very customizable. They have a REALLY loyal following, and people swear by it. It's not free (but also not expensive) - there's a free trial if you want to try it out and play with it.
Get Disability Insurance (And if Needed, Life Insurance)
This is one of the first essential steps that resident physicians should take to secure the financial stability they’re working so hard to build. If for some reason you find yourself unable to practice as a physician, this is what is going to provide you with physician level income despite that.
We recommend getting your disability insurance as early as possible, even though it may seem expensive, as you don’t want anything to preclude you from qualifying if an unexpected diagnosis or trauma pops up. Additionally, rates are generally much cheaper if you secure your policy during training since you qualify for trainee discounts, and you are younger and healthier. Look for ‘own occupation’ policies that provide sufficient monthly benefits to cover essential expenses and consider adding riders for cost-of-living adjustments and future income increases.
We’ve had many residents post on our physician communities that they wish they got disability insurance earlier as they didn’t qualify towards the end of residency due to unexpected issues. Remember that while none of us think we’ll have anything come up in our medical history, given how long training is, many residents and fellows will encounter their first medical issues during the course of training (for example, pregnancy can bring up pre-eclampsia, gestational diabetes, and more that may affect your ability to qualify).
Life insurance should also be considered if you have anybody that depends on your income (spouse, children, parents, etc.).
Learn more about purchasing disability and life insurance as a resident or fellow.
Contact our recommended insurance agents for physicians for help purchasing a policy. These include:
Pattern: http://www.patternlife.com/partner/psg. This convenient option will allow you to enter your information and immediately begin generating quotes from the major disability companies, as well as schedule a meeting with the Pattern team to discuss the options and figure out which plan is best for you. Many in the group have had a great experience with this process.
Moment Insurance: Complete your quote inquiry information in less than five minutes and easily schedule an appointment to speak with a dedicated, experienced disability insurance expert who will walk you through the process from start to finish and help you compare different options. Many in the group have worked with their experts previously, and had a great experience! Contact them here.
Build Your Emergency Fund
While it may be hard to save money, slowly start building an emergency fund. For attending physicians, we always recommend an emergency fund of 3-6 months worth of living expenses, but in residency, where the risk of job loss is less, you may be able to have a little less. You primarily want to make sure you can cover unexpected expenses without having to go into credit card debt or having to take out a personal loan.
Learn more about emergency funds and where to keep them.
Create a Plan to Address Student Loans and Other High Interest Debt
If you graduated with student loan debt in the six figure range, you are in good company amongst physicians.
If you have private student loans, you should look into student loan refinancing, as this may be a way for you to get a lower interest rate and have more of your payments go to principal.
If you have federal loans, you may want to consider PSLF (Public Service Loan Forgiveness) or an income driven repayment plan. Know that there is a lot uncertain about the repayment plan options at the moment in the United States, and get educated about the various options available to you.
If you need to pay back high interest rate debt such as car loans, credit card debt, or personal loans, prioritize the debt with the highest interest rates first. If you have a debt that has below 4% interest, it may actually be a better return on investment for you to invest your money instead of putting it directly into paying off that debt. However, if you have a higher interest around 7%, it will likely be a better usage of your funds to pay it off as soon as possible. Know that making the minimum possible payment will often mean you’re just paying off interest and not the actual debt, so pay larger sums when possible. For loans with extremely high interest rates, such as credit card debt, it is sometimes a better financial move to pay off the debt with a personal loan as personal loans typically won’t have as high of an interest rate as credit cards.
PSG has two resources we offer for personal loans:
Doc2Doc Lending: provides physicians with fast access to personal loans. Use our affiliate link at www.doc2doclending.com/psg for a $100 cash rebate with any newly funded loan, a 0.25% discount if you use auto payment, and your first payment due date held for 30-45 days.
Credible: offers options for personal loans. Explore options through our affiliate link www.credible.com/physiciansidegigs.
Max Out Your Retirement Accounts to Any Employer Match
When it comes to retirement, investing as much as you can, as early as you can is key. If your employer offers a 401(k), 457(b), or 403(b) plan, they may match a certain percentage of your retirement contributions. This is essentially free money for your future self that will grow in a tax advantaged way. If you have a Roth option for contributions, consider doing that, as you’re likely in the lowest tax bracket you’ll ever be in, at least until retirement. If you’re not sure what retirement accounts to use and why, or how you should be dividing up your contributions, check out our guide to retirement accounts for doctors where we cover frequently asked questions.
Take Advantage of Health Savings Accounts (HSAs)
If your employer offers an HSA, take advantage of this benefit if you can. HSAs are triple tax-free (come out pre-tax, grow in investments tax free, and are disbursed tax-free) and can be invested and grow tax free for many decades. There are other options like HRAs, which are probably not as great an option for residents considering that you will most likely be leaving this job in a few years. If you leave the company before you spend what’s left in your HRA account, the money will go to your employer.
Learn more about Health Savings Accounts (HSAs).
Fund Your Roth IRA
Putting money into a Roth IRA when you are in a low income tax bracket is a great idea. You’ll never get taxed on that money again, and it will grow tax free for however long you want into retirement, without required minimum distributions, and won’t be taxed on the way out. This is one of the best things you can do during training, assuming you have the cash to support it.
After you graduate from residency, there’s a good chance that you will no longer qualify for a Roth IRA. There are ways to get around this via a backdoor Roth IRA later, but regardless, take advantage of this now if you’re able and reap the benefits of decades of tax free growth.
Learn more about the power of the Roth IRA for early career physicians.
Start a Taxable Account for Excess Savings
If you’re lucky enough to have more money left over after completing all of the above tasks, then you will likely consider opening a brokerage account. We recommend starting with something that is simple that you can more-or-less manage yourself, since you’re going to be busy. There are lots of great options for lazy investing, like a three fund portfolio or a target date fund, that will offer you both a hands off approach as well as diversification..
Once you feel you’re ready to bite off a more complex financial plan than this guide provides, refer to our more in depth guide to personal finance for physicians.
Set Yourself Up For Future Financial Success
Learn as much as you can about finance and business. This will help you on so many levels as you progress through your career. We have a transition to practice series that you should sign up for, which will teach you basic personal finance for early attending physicians as well as how to negotiate your first attending contract and know your worth.
Side Hustles for Residents
While we do think your focus should be on training at this stage, and that the best way to address financial issues is by budgeting carefully, if you have both the bandwidth and desire for a side gig, there are several available to give you a little cushion in your budget. We have a great list of unique side gigs for residents and fellows that you can peruse for ideas.
10 Financial Goals You Can Complete in Your Residency
Now that you’ve garnered a beginner’s understanding of finances, here's a checklist with ten concrete goals you can focus on completing during your residency that will set you up for a strong financial foundation and future success.
Make a budget (and stick to it)
Buy disability (and life if applicable) insurance
Establish a small emergency fund
Create a loan and debt repayment plan and refinance student loans if appropriate
Take advantage of employer match in retirement accounts (free $$)
Fund an HSA if eligible
Fund your Roth IRA
Contribute beyond your employer match in retirement accounts and set up a taxable account with excess funds
Sign up for our Transition to Practice Series for residents and fellows and check out our compensation database to know your worth for contract negotiations
Consider diversification of income streams
Conclusion
Residency is a challenging but crucial time to establish strong financial habits. By creating a budget, managing your student loans, protecting your income, and starting to invest, you can build a solid financial foundation. The steps you take now will set the stage for financial success throughout your career as a physician. Don’t feel too overwhelmed, and if you’re looking for answers, know that you found the right place.