Medical residents are in a tough spot: They’re not yet reaping the benefits of a doctor’s salary, but have already amassed a ton of student loan debt. To help you navigate a tricky financial situation, here are eight money moves to make post-medical school graduation.
1. Plan to pay your students loans
Most medical student loans come due six months after graduation. Some grads defer payments until they’ve completed residency, but that move usually costs you. Balances in forbearance and even deferment can continue to accrue interest. Plus, you won’t start the clock on Public Service Loan Forgiveness, a program that forgives the federal student loan debt of physicians working at nonprofits after they make 120 on-time payments over 10 years.
2. Look into an income-driven repayment plan
You’re generally best-served setting up an income-driven repayment plan for your student loans. Ask your servicer about other programs that might ease your debt burden — and what you need to do to qualify for them — before your 80-hour work week takes a toll.
3. Line up disability insurance
The disparity between your residency paychecks and your post-residency ones puts your long-term financial health at a unique risk. If you become too ill or injured to work before you reach peak earning potential, you’ll still have to pay back the lender that bankrolled your medical school education.
Disability insurance can prevent you from becoming a cautionary tale — and, thanks to special discounts and features for residents, it’s also more affordable than you think. (We can help you compare disability quotes here.)
4. Draft a budget
The average medical resident makes around $50,000 to $60,000 a year. Many are carrying upward of $200,000 in medical school debt. That puts residents on a tight budget. In other words, you need a solid financial plan. A budgeting app or even a simple Excel spreadsheet can help you track money coming in versus money coming out. You can use this one to get started.
5. Set up an emergency fund
Everyone should have at least three months worth of income socked away for a rainy day. The easiest way to hit that number? Pay yourself first. You can do that by incorporating a monthly savings goal into your budget. Arrange to have that portion of your paycheck directly deposited into a savings account.
6. Automate everything
You're surely busy, so preclude missed bills or student loan payments by setting up auto-pay. (Bonus: Most student loan servicers will discount your rate for doing so.)
7. Consider a Roth IRA
It's easy to put retirement on the backburner when you're balancing a boatload of debt and a tight budget. But look into opening a Roth IRA. Why? Unlike traditional individual retirement accounts, Roth IRAs aren't tax-deferred. You pay taxes on your contributions, not your withdrawals. Sounds like a bad idea, we know, but Roth IRAs are actually a great tool for medical residents, because the tax bracket you're in now is going to be much lower than the tax bracket you're in when you withdraw the money. Plus, you won’t pay taxes on any investment gains each year.
8. Live within your means
We're talking literally here. While it's tempting to lease or even buy an abode that screams "the doctor lives here", avoid over-stretching your slimmer paychecks. The general rule of thumb is to keep your rent well below 30% of your income.
Looking for more money tricks? We've got five ways to save in five minutes or less here.
Image: Steve Debenport