One of the biggest lessons I learned during my first year of medical school is that there simply isn’t enough time. Not enough time to lead the same life I once did. Not enough time to study every last origin and insertion. And definitely not enough time for faculty to cover all the essential information. Some of the information that is inevitably left out is what happens after medical school.
How can we as residents and physicians manage both our newfound salary and our mounting pile of debt? What is a 401k? Roth? How do I save money for retirement without living like I am in college? These questions are incredibly important to answer sooner rather than later, because gaps in financial knowledge can have monumental consequences later in life. My suggestion to all medical students is to learn the basics of investing and budgeting now, so you won’t regret it later.
After realizing that this knowledge needed to be acquired on my own outside of medical school, I purchased a book called The White Coat Investor, which was published in 2014 and written by James Dahle, MD. This book is an easy read about financial information specific to future and current physicians. The bulleted information below has been paraphrased from Dr. Dahle’s text. All of the statements are his personal findings.
Pertaining to pre-med students
- Be cautious when considering taking a gap year or more. Each year you take off is one year less of earning potential as a physician you may have. Take time off if it is to do something you are truly passionate about.
- Apply to medical schools you can actually get into, and apply to many. It would be a large inconvenience to have to reapply because you did not apply to enough schools to begin with.
- Go to the cheapest school at which you will be happy. There isn’t a huge difference in education from school to school.
Pertaining to med students
- Choose a specialty wisely. Consider income and lifestyle, while still keeping yourself happy with the work you want to do (i.e. if Emergency Medicine and OB/GYN both make you happy, but Emergency has a better lifestyle and pay, go with that choice).
- “Be a poor medical student.” Dr. Dahle states it’s a lot easier to be poor when all your friends are too. This will pay off later.
Pertaining to residents
- Try not to buy a house. Likely you don’t have the down payment and it takes about three years to break even on this investment. Once you are at the end of residency or a physician, chances are you will want a different house (i.e. space for an incoming family).
- Invest in a Roth 401(k) or traditional 401(k) if the Roth isn’t available, and do this up to the match by your employer. (Roth 401(k): You contribute money to this fund after taxes have been taken out and your employer will match the amount you put in, up to a set amount. This money accrues interest and can be taken out during retirement post age 55 ½ with no penalty. Dr. Dahle explains the Roth option is the way to go during residency because you are in a lower tax bracket than what you will be in the future. Traditional 401(k): You contribute pretax money to the account and your employer matches up to a predetermined amount. When you withdraw the money in retirement, you pay taxes then on the money. This is still a great option if the Roth isn’t available, because your employer is basically giving you free money).
- Establish an emergency fund for up to 3-6 months of living cost.
- Purchase disability, life, and liability insurance.
- Pay down high interest debt (i.e. credit cards) and student loan debt.
Pertaining to physicians
- Live like you are on a resident’s income (for three to five years, or as long as you can manage).
- Live somewhere affordable, unless your dream is to live in California. Understand that higher living costs don’t necessarily correlate with higher wages.
- Educate your family and make sure they are on the same page as you financially.
- Don’t buy a house that has a price tag more than double your gross income. Try to put 20% down on the house.
- A few things to consider if you want to hire a financial advisor: make sure they are fee-only, have gray hair, don’t mix insurance and investing, and offer physician specific help.
- The biggest risk to your financial wellness is divorce. Spend time with your significant other and consider a prenuptial agreement.
- The book contains much more on investing in stocks and real estate, plus additional info on protecting assets, taxes and how to make sure money goes to the right people in the event of your death.
Tom Gores: Investing by Tom Gores
