It seems that more and more of the internet friends we admire are diving into the economic pressures that are facing the healthcare industry as a whole. We know that we typically write on this blog and website about traditional personal finance topics, but we couldn’t resist the opportunity to give some updated numbers and a fancy graph about physician salaries. The summary is that younger docs are (still) financially much worse off then their slightly older colleagues.

I know that the most savvy of our followers [hi mom!] will recognize the graph and topic from a previous post that we published in 2018. Not much has changed then, at least in these data trends. The methodology we used to create this graph stands from them as well, and since we want to follow all of the cool kids (ie our friends that actually get published in peer reviewed journals), we have decided to simply direct you to the index with the methodology so that we can keep this post to the designated word limit. Also, writing is hard and we are lazy.

An Updated Graph

Not unexpectedly, the increases in medical school tuition continue to far outpace any gains in physician income. The graph below plots increases in medical school costs vs wage data for general pediatrics and internal medicine over the past 20 years. These two specialties represent a large proportion of primary-care physicians, a critical component of our healthcare system and to patient care. These salaries have not kept pace with average (non-physician) wages, let alone medical education costs.

Expectation Disconnect

We feel much of the burnout facing physicians results from a major disconnect between job expectations and reality. Being a happy, well-adjusted resident is difficult when working 80 hours a week (and only staying for additional time when it really is highly educational). And when those training years are over and a young physician finally arrives at their ‘grownup’ job, it’s not usually what they expected. Our goal is to educate people about their finances, so they can plan ahead. One can plan for almost anything, but it is difficult to plan for the unknown unknowns. 

We’ll continue fighting to educate physicians about personal finance and the financial realities of working as a physician, even when those realities might not be as rosy when seen through your future glasses, compared to those you wore the first time you met your cadaver in anatomy class.

[The general methodology for the graph is as described in the 2018 version.]

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During our lectures and workshops, we often explain that while financial planning can sometimes be difficult, investing itself is typically straightforward. Choosing investments is much easier now that there are “Target Retirement” type investment choices readily available. These investments have various other names, such as “Target Date” or “Lifecycle” funds, but the general idea is the same. You can choose ONE investment, in all of your accounts, and never have to do anything different, ever. Almost sounds too good to be true, right?

What’s the Catch?

There is no catch or gimmick. You probably all have a Target Date mutual fund in your 401k or 403b. These are simply “all-in-one” funds which contain a mix of 1) US stocks 2) International stocks and 3) Bonds. These three components represent the bulk of any healthy portfolio. Target Date funds simply combine those three asset classes into one package. Just choose a Target Date fund, and you’ll own everything you need, and everything you’ll ever need.

How do they Work?

Target Date funds are available in a series, with a date associated with each fund. For example, Vanguard’s “brand” of funds are called Target Retirement funds. There is a Target Retirement 2060, Target Retirement 2055, Target Retirement 2050, etc. The date represents the approximate year one is likely to retire or stop working. For example, a 30 year old today might assume they’ll retire around age 60. Which would be 2051, and thus a Target Retirement 2050 or 2055 would both be fine choices. You typically aren’t stuck with any particular date if you change your mind later, especially within retirement accounts (i.e. 401k, 403b, IRA, etc).

It is a generally accepted principle that younger investors should have a stock-heavy portfolio (with a smaller amount in bonds), but that the ratio of stocks to bonds should decrease as one approaches and enters retirement. Target Dates funds have a “glide path” such that they gradually adjust this ratio for you. You keep the same Target Date fund through the years, and your stock to bond ratio will automatically be adjusted for you. It’s like having a free investment manager!

Glide Path? Sounds Complicated.

Nope, not complicated. And the fund will do all the work for you. Below is a schematic taken from a very helpful page at Vanguard. In fact, that page is so helpful you probably don’t need to read THIS one. Sigh. Anyway….

The graph shows that as one ages the amount of “stocks” (US Stocks and International Stocks) decrease, while “bonds” (the blues and greens, lol) increase. During the “accumulation phase” of your career (that is, when you are actually saving and growing your retirement savings) you simply continue to buy additional shares of the same Target Retirement fund. Later when you actually need to use your savings to live on, you just sell portions of the same fund as needed.

Each mutual fund “brand” (e.g. Charles Schwab, Fidelity, etc) has a slightly different glide path and a different composition each for stocks and bonds. But the general principles are the same and there is not necessarily one “fund family” that is better than another, except for…COST.

Cost? Aha, I Knew There Was a Catch!

No, not really. Every investment has some cost to you. For mutual funds (and a similar type of fund/investment called an “ETF”) the cost is represented by the “Expense Ratio” which is expressed as an annual percentage of your total investment. You want to keep your fees as low as possible, the lower the fee, the more money you make or keep.

Mutual Fund Fees, in the “Wild”

The image above shows the list of investment options from the 403b of a very large hospital system. The Target Date funds are on the right, with an associated fee of 0.09%. Trust us, that’s considered very low (i.e. very awesome) as is typical of Vanguard funds. We consider anything under 0.1% to be “free”, essentially. It’s a trivial investment expense. But compare this to other options in the 403b on the left. You can see there are other very low fee choices (arrows). But there are also “traps” (circles) designed to ensnare the uneducated. These are exceedingly high fee investment options that no prudent investor need select. In one manner of speaking, 403b participants who choose these high-fee traps subsidize the employees who choose the low-fee options. Don’t get trapped! We mention mutual fund expense ratios to warn you that despite the awesomeness of the Target Retirement fund concept, there are some brands of Target Retirement funds which have very high fees and which are sometimes high enough to make them a poor choice for those who have significant investments.

Highly Recommended Additional Reading

Christine Benz at Morningstar (an investment related website/company) wrote a wonderful article discussing the benefits of Target Date funds. Now that you understand the basics of Target Date funds, you’ll appreciate her additional insights and education.

Not sure if a Target Date fund is right for you? Well in that case, IT IS.

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[This is a refresh of our FIFTH annual “medical school graduation” post. Same irreverent tone, same lame jokes, but otherwise the similar yet updated awesome information for 2021.]

Congrats! You’ve just matched and internship is around the corner. Enjoy this time (you’ve earned it!) but don’t get too comfortable. There are several key financial tasks you need to address so that you can start your professional life off on the right foot. Or as the ophthalmologists like to say “PD” (pedis dexter, "right foot" get it?). Some of these financial items need to be done BEFORE you start internship, while other considerations represent long-term mentalities you should adopt. Also, we lied in the title, there are more than "ten" items you should think about.

But first, a friendly reminder to spread the love. We here at DOCTORED MONEY want to empower you to be great clinicians and we hope you find our advice helpful. We just have one request, share this blog post with anyone you think may benefit from it!

And as always, if you have more questions or think something is totally bogus, just reach out to us and let us know! We will do our best to help out.

Immediate Actions

Learn about and understand Federal Loans

Have federal student loans? You absolutely need to understand your loans inside and out. In addition, you need to become an expert in PSLF, even if you don’t think you will pursue PSLF. Making a mistake could literally cost you $100,000+ (we’ve seen $400,000 errors, sadly). So check out our presentations about loan basics. PSLF is not just for people going into primary care or for people working in specific locations. Anyone working for a university or non-profit such as a 501(c)(3) hospital (which is almost all hospitals) is likely eligible.  For example, you are almost certainly employed by a non-profit during your residency. But exceptions exist, so make sure.

File Your Taxes
for Free

If you have federal loans and hope to benefit from PSLF, you’ll want to consider filing taxes for 2020 even though you had no income and are not required to file. Go here and check it out. If you made "$0" income, you'll likely have to mail in a paper return rather than e-filing. You may wonder why you should even bother filing if it’s not required. The reason is that you can use your tax return as documentation of your (lack of!) income when starting loan payments. If your income was zero, your payments will be zero for 12 full months. Filing taxes is the easiest way to prove your lack of income for 2020. This isn't critical, but it's prudent. And don’t worry if the April 15 (May 17 for 2021) tax “deadline” has passed. You can file at any time if you don’t owe taxes. So file, and do it before you graduate.

Consolidate your Federal Student Loans

THIS IS IMPORTANT for anyone with loans. You want to strongly consider consolidating your loans immediately after graduating, and well before residency starts, for four main reasons (this advice is valid despite the current COVID loan forbearance which waives both payments and interest until the fall): Number one is because certain loans, such as Perkins loans, are not eligible for PSLF, but become eligible upon consolidation. Number two is because consolidation ends your grace period immediately, which means your payments are credited towards PSLF earlier than otherwise. For those hoping for PSLF, the grace period HURTS you. Number three is because if you consolidate loans and begin repayment prior to residency, you have no income yet to report, which means you loans payments for the next 12 months will be zero, yet you still get credit for 12 months of (zero dollar!) PSLF payments. But if you wait to start payments after starting internship, your payments can be as high as $300 per month. Finally, by consolidating you get "credit" for paying off interest in the form of consolidation. And this allows you to claim a student loan interest deduction when you file your 2021 taxes, which can save you $500+ on your taxes (i.e. a $2500 deduction).

Go check out this blog post by our friend Ben White that elaborates on this strategy. And after you do that head over to StudentLoans.gov to get started. Be careful however, some federal loans have special benefits which you lose with consolidation. “LDS” loans for example. You’ll have to weigh whether PSLF eligibility is a better deal than any existing benefits on those loans.

Choose a Loan Repayment Plan

If you have federal student loans there are a number of repayment plans available to you. Some plans qualify for PSLF, but many don’t. Read our Student Debt page to learn about your loans and repayment plans. If you are still unsure about what to do or what your life goals are, assume for now that you should try for PSLF and sign up for either REPAYE or PAYE. Even if you have no plans for PSLF, choosing the REPAYE plan in your first year or two after graduation will likely save you significantly when compared to refinancing to private loans.

Do not defer or forbear your loans during residency! You really can afford the monthly payments on an income driven plan. If you don't make payments you will miss out on valuable years of payments towards PSLF. Even if you don't end up doing PSLF down the road, you will still be eligible for immediate interest subsidies under the REPAYE repayment plan. These subsidies do not depend on PSLF, and are granted immediately. A bird-in-the-hand, if you will.

You also should know that if you don't choose a plan you will automatically be enrolled in the standard repayment plan, which, if you have a high loan balance, can be difficult to afford.

Research your benefits

For many of you, internship will be the first time you’ve had to decide on a long list of financial benefits and options. Don’t wait until the last minute, when you are under pressure. You’ve just matched, so you can contact HR at your new employer for benefits options and a list decisions you’ll have to make. Do you really need to pay for pet insurance? Critical decisions await you. Be prepared!

Fill out your W-4

You need to fill out a W-4 form before you start your job as a resident, and any new job actually. This form (often confused with the “I-9”) instructs your employer how much tax to take out of your paycheck based on information you provide. We made a great page (patting ourselves on the back, yet again) that explains how to fill it out. You may as well figure it out from now. And this calculator will show you how much federal tax will be taken out of your paycheck, depending on how you fill out the W4.

Know how to
look up your Credit Report

Your credit report contains your credit history and lenders look at it when determining specifics of loans and other things you are applying for. It has information about your loans, credit cards, and other information such as bankruptcies. You can look up your own credit report for free at AnnualCreditReport.com once a year. You should do this to make sure the information is accurate.

Note: Your credit report is different than your credit score. Your credit score is a number that is calculated from your credit report and different institutions use different methods to calculate your number. Focus more on your credit report and make sure the information is accurate. Don’t worry about your credit score unless you are actively seeking a new loan or looking to move to a new apartment.

Get Insurance

The main purpose of insurance is to cover you or others financially if something terrible happens. There are several types of insurance that are essential you have. We aren't going to go into all the details of each type of insurance, just know that you need it and need to do your research about what you are getting. Some insurance you’ll certainly get through your employer when you start your job (e.g. health insurance). But other insurance types you’ll want to get independent of your employer (such as life/disability insurance, car insurance, etc.)

Health Insurance - Everyone needs health insurance. Not only is it required by law (currently) but large medical bills can be devastating without it. Fortunately, if you are heading to residency, your new employer usually has you covered. But it's up to you to make sure you understand the insurance options they have for you.

Disability Insurance - [Check out our disability FAQ!] What happens if you get into an accident (or have an illness) and can’t work? How are you going to pay your bills and put food on the table? That is where disability insurance steps in. This insurance replaces a portion of your income if for some reason you can’t work. The details of how much income, for how long, and what constitutes disability differ between plans, so make sure to read the fine print. As with health insurance, many employers offer “group” disability insurance, so you may not need to go and purchase a policy on your own. But keep in mind that when you leave a job (i.e. finish residency) your employer’s insurance doesn’t follow you. In addition, group disability insurance is usually fairly flimsy. Plan to purchase your own personal policy in the last year of your residency or fellowship (at the latest).  

Term Life Insurance - [Check out our life insurance FAQ!] Are there people that depend on you and/or your income? Maybe a spouse or children? Will your parents be relying on your future income for their needs? In these cases, you need term life insurance. It will pay out to them in case you die from that beekeeping hobby you decide to pick up. Also notice that we specifically said “Term life insurance.” Not life insurance with any other words or names attached. Term Life Insurance. Say it with us. Term Life Insurance. You should almost never purchase other types of life insurance (no permanent life, no whole life, no indexed life, no convertible life, no universal life, etc etc etc).  Some life insurance is typically offered to you by your employer but it will very likely be insufficient for your needs and you should plan on purchasing your own policy. You can go here to get instant quotes without needing to reveal any personal information. Note that you can usually buy extra life insurance through your employer. In general this is NOT a good deal compared to purchasing life insurance on your own if you are in good health. However, if you have previous or current health issues, buying “guaranteed issue” insurance at the time you start your job may be your only option, and you need to take advantage of it.

Renters or Homeowners Insurance - A disaster at your home can be a disaster to your finances. And even if you are renting you still need to cover the expenses of replacing your property if something happens. If you own a home, you need homeowners insurance. If you rent, you need renters insurance. Simple.

Car Insurance (if you own and drive a car) - Many state laws dictates the minimum car insurance you need if you drive. Make sure you get the insurance you need, and preferably much more than the minimum.

Umbrella Insurance - This insurance does not protect you against lost or faulty umbrellas. Umbrella allows you to purchase cheap liability insurance in excess of your auto or home policies. It also covers some non-auto and non-home liability related risks. It’s VERY cheap (because you’ll likely never need it). For example, $300/year for $1,000,000 coverage.  Plan to have umbrella insurance (at the latest) prior to finishing residency/fellowship.

Calculate your take home pay

You are probably aware of what your salary is going to be in residency, somewhere between $50,000 - $80,000. Which means you will probably have around $5,000 - $6,000 a month to ‘play’ with, right? Nope. Don’t forgot about the tax collector. Good old Uncle Sam gets a part of your income, and depending on where you live, your state (and maybe local) government get in on the action as well. State and City taxes can vary widely depending on where you matched.

For an easy way to broadly estimate your after taxes, take home pay go here and plug in your gross salary (what your residency program said they are going to pay you) as Household Income. It will give you an estimate of your annual take-home pay.

But! Keep in mind that any income tax withholding taken out of your pay may or may not represent the actual tax you will owe. So don't make your budget for the year based simply on what ends up in your paycheck. 

Longer Term Goals

Your financial education is a lifelong pursuit. The above items are steps that you should take very soon. But the following items fall into a longer term window. You don’t have to do them tomorrow but you should start working on them soon. And yes, that means during intern year. We wouldn’t go as far as saying this is more important that studying for Step 3, but maybe it is.

Build an Emergency Fund

Having an emergency fund that can be quickly accessed in, well, an emergency is very important. Most experts recommend having 3 to 6 months worth of expenses built up. Given that residency is typically a “stable” job, you are likely fine being on the short end of that. Having a solid budget will help you figure out what those expenses are. Now, we realize that magically having 6 times the amount of money you spend in a month isn't going to happen. So start small and build up. Shoot for 1 month of expenses and start putting money towards that. Unfortunately in this age of coronavirus, physicians are going to be find significant disruptions to their jobs or income. You need to prepare in advance for previously unforeseen emergencies.

Note: A Roth IRA can double as both a retirement account and an emergency fund. That is because Roth contributions can be withdrawn at any time for any reason without tax or penalty. So consider opening a Roth IRA to start holding your emergency fund money (and choose a safe/conservative investment for now, that won't fluctuate much). If you have an emergency and need access to cash, it’s there. If the years go by and there is no emergency, you will have built up a sizable Roth IRA balance, and gotten a head start on retirement investing by not missing out on contributions (which are currently capped at $6000 per year).

Make
Financial Goals

Take some time to think about what you want out of life and set some financial goals to help get you there. Do you want to save up for a house? Pay off your student loans? Set up an education fund for your kids? Buy a car? Retire early? Doctors Without Borders? Whatever you want to do, write it down and work towards it. It's definitely easier to delay gratification when you have a good picture of what your gratification is going to be.

Redefine Retirement

Retirement is the point in life when you can choose to stop working if you’d like to; it is the point where you have enough saved/invested to be able to do whatever you want with your life. Retirement is not necessarily the day you actually stop working. In order to really understand this idea you'll need to forget all your previous associations with the word "retirement". Most people think of retirement as some distant point in the future when you are too old to do anything. But that is not how you should think about retirement!

Retirement "starts" when you have amassed enough assets so that you can be financially independent. That last sentence had a lot of jargon in it. To put it another way, retirement is the day when you have enough saved that you never HAVE to work another day in your life but instead you can decide to do whatever the heck you want. And that is truly a magical day.

We had an old professor call this your “point of choice”. When you can choose what you want to do on a daily basis. Of course you can choose to continue working, not because you need the paycheck to pay the bills, but because you love your work (who else is going to check all of those 'review of system' boxes?). Or you can work for free at a rural clinic in Costa Rica living the Pura Vida. Or you can choose to never work again and make it your life goal to find the best tacos in every city in the world! Or you can choose to be that really awesome person who gets to relax in his retirement community eating applesauce with a smile. Saving for retirement isn’t just so you can give up on life, it is so that you can live life, no strings attached.

Learn about Investing

If you want to retire, you need to invest. And that means investing in the stock market (typically though mutual funds, and through a nearly identical type of investment called an “ETF”). We wish we had an amazing couple of pages explaining investing. Unfortunately we don’t. Yet. But fortunately for you there are lots of people out there that have written some great things about investing. Check out our reading recommendations here.

But if you have any money to invest, and have no time to learn right now, just do this: put as much away in your hospital’s 401k/403b (if you have one available to you), and choose a “Target Date” or “Target Retirement” fund with a date which corresponds to about the year you turn 60. If you don’t know enough to know if a Target Date mutual fund is for you, trust us, it’s for you. Don’t let indecision delay your retirement fund contributions.

Spend Less Than You Earn

We cannot emphasize enough that spending less than you earn is the most important financial action you will ever undertake. It doesn’t matter if you are a hotshot surgeon making a seven figure salary, if you spend more than you have you will be hurting. We realize that it sounds really simple, and it is really simple, but for whatever reason most people don’t follow that rule. Instead they buy things because they think they “deserve” them. Honestly, there are very few things in life that you deserve and most of the “stuff” you can buy doesn’t fit into that category. You simply cannot assume your post-resident or fellowship salary will be sufficient to pay off today’s overspending.

But what about the immortal advice of Tom Haverford? We would say that you should “treat yo’ self” to a solid habit of saving and investing. Unfortunately, most people don’t follow that advice. The average American individual savings rate is 5.7% according to the U.S. Bureau of Economic Analysis. Spoiler: That is way too low.

As a physician you probably need to be at a savings rate closer to 20% of your pre-tax salary. That 20% savings rate might go to paying down loans, building up an emergency fund, investing in a Roth IRA or a 401k/403b, or some combination of those. You’ve got 4 years of med school with no salary plus 6 or so years of a really low training wage to make up for. Now, we understand that living on a resident’s salary isn’t always a walk in the park but getting used to ‘living within your means’ is a skill that you really need to start developing now. So, if you and your significant other are contemplating some big purchase, keep in mind what a wise man once said: The three most loving words are “I love you,” and the four most caring words for those we love are “We can’t afford it.”

In order to spend less than you earn you will need to set up a budget. There is a mountain of writing out there about budgeting; we aren’t going to rehash everything thing that is out there, but there are two important things to keep in mind about budgeting.

First, your budget should work for you. There are lots of fancy software and methods to budgeting but if it doesn’t help you meet your goal it doesn’t work for you. It might take a little time to figure out what exactly works for you and you may fail at first. Don’t give up; adjust as you need to and change budgeting styles when life changes. Second, a budget is not a review of the past month’s expenses. A budget is something you can refer to help determine if you can “afford” something. You need to figure out what money you take in every month and then you designate how that money is going to cover your expenses.

Whatever method you choose for budgeting (and whatever technology) stick to it. And if you want a recommendation, we are big fans of zero-sum budgeting and YNAB.

Priorities and Summary

You may be wondering what order you should act on all of the above information (emergency fund? debt pay down? invest? insurance?). In reality many of these things will probably happen simultaneously and we'll have some guidance on that shortly. Unfortunately, we can't give advice about every situation (unless you email us and ask a specific question) but we will try to simplify it somewhat and give you some order.

#1 - File your taxes, consolidate your federal loans, and pick your repayment plan. As you are going through that, learn about PSLF and make a plan of how you will pay off your student loans. Your plan might change, and that’s okay, but make a plan now regardless.

#2 - Figure out your take home pay after accounting for taxes and benefits; set a budget accordingly. Make some financial goals and think about what you want your priorities to be.

#3 - Get all of the insurance you need and start building up a 1-month emergency fund (possibly within a Roth IRA).

#4 - Aggressively pay down your expensive debt; that means credit card, consumer, and auto loan debt. Certainly do not accumulate any additional debt.

#5 - Redefine retirement for yourself and start to learn about investing.

Beyond that, keep working, keep learning, keep budgeting and keep moving into the future.

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There are almost a dozen federal student loan repayment plans, five which qualify for Public Service Loan Forgiveness. But newer borrowers (i.e. no loans over 13 years old) only need to consider two of those: Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE).

One Video, All the Info

The video below walks you through all the key features to consider when making a PAYE/REPAYE decision in consideration of PSLF. There are no convoluted tables and there is minimal text. There is also a catchy soundtrack recorded by the Doctored Money studio band. We believe this is the best PAYE vs REPAYE video on the internet, based on a poll of Doctored Money volunteers. The fact that it took us dozens of hours to write, animate, record and render the video did not bias our opinion in the least.

Here It Is

Please share this page with your colleagues if you find the video useful, particularly new graduates. By the way, the video looks great in full-screen mode, and high quality headphones will allow you to appreciate the audio. A 4K resolution video with Dolby Atmos 3D sound is in the works.

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[This is a refresh of our FOURTH annual “medical school graduation” post. My my, where has the time gone?]

Congrats! You’ve just matched and internship is around the corner. Enjoy this time (you’ve earned it!) but don’t get too comfortable. There are several key financial tasks you need to address so that you can start your professional life off on the right foot. Or as the ophthalmologists like to say “PD” (pedis dexter, "right foot" get it?). Some of these financial items need to be done BEFORE you start internship, while other considerations represent long-term mentalities you should adopt. Also, we lied in the title, there are more than "ten" items you should think about.

But first, a friendly reminder to spread the love. We here at DOCTORED MONEY want to empower you to be great clinicians and we hope you find our advice helpful. We just have one request, share this blog post with anyone you think may benefit from it!

And as always, if you have more questions or think something is totally bogus, just reach out to us and let us know! We will do our best to help out.

Immediate Actions

Learn about and understand PSLF

Have federal student loans? You absolutely need to understand your loans and PSLF inside and out. Seriously, you need to become an expert in PSLF. Making a mistake could literally cost you $100,000+ (we’ve seen $400,000 errors, sadly). So check out our presentations about loan basics. PSLF is not just for people going into primary care or for people working in specific locations. Anyone working for a university or non-profit such as a 501(c)(3) hospital (which is almost all hospitals) is eligible.  For example, you are almost certainly employed by a non-profit during your residency. But exceptions exist, so make sure.

File Your Taxes
for Free

If you have federal loans and hope to benefit from PSLF, you’ll want to consider filing taxes for 2019, even though you had no income and are not required to file. Go here and check it out. If you made "$0" income, you'll have to mail in a paper return. You may wonder why you should even bother filing if it’s not required. The reason is that you can use your tax return as documentation of your (lack of!) income when starting loan payments. If your income was zero, your payments will be zero for a whole year! Filing taxes is the easiest way to prove your lack of income for 2019. This isn't critical, but it's prudent. And don’t worry if the April 15 tax “deadline” has passed. You can file at any time if you don’t owe taxes (and besides, the deadline for 2020 has been extended to July). So file, and do it before you graduate.

Consolidate your Federal Student Loans

THIS IS IMPORTANT for anyone with loans. You want to strongly consider consolidating your loans immediately after graduating, and well before residency starts, for four main reasons: Number one is because certain loans, such as Perkins loans, are not eligible for PSLF, but become eligible upon consolidation. Number two is because consolidation ends your grace period immediately, which means your payments are credited towards PSLF earlier than otherwise. For those hoping for PSLF, the grace period HURTS you. Number three is because if you consolidate loans and begin repayment prior to residency, you have no income yet to report, which means you loans payments for the next 12 months will be zero, yet you still get credit for 12 months of (zero dollar!) PSLF payments. But if you wait to start payments after starting internship, your payments can be as high as $300 per month. Finally, by consolidating you get "credit" for paying off interest in the form of consolidation. And this allows you to claim a student loan interest deduction when you file your 2018 taxes, which can save you $500+ on your taxes.

Go check out this blog post by our friend Ben White that elaborates on this strategy. And after you do that head over to StudentLoans.gov to get started. Be careful however, some federal loans have special benefits which you lose with consolidation. “LDS” loans for example. You’ll have to weigh whether PSLF eligibility is a better deal than any existing benefits on those loans.

Choose a Loan Repayment Plan

If you have federal student loans there are a number of repayment plans available to you. Some plans (4, in fact) qualify for PSLF, but many don’t. Read our Student Debt page to learn about your loans and repayment plans. If you are still unsure about what to do or what your life goals are, assume for now that you should try for PSLF and sign up for either REPAYE or PAYE.

Do not defer or forbear your loans during residency! You really can afford the monthly payments on an income driven plan. If you don't make payments you will miss out on valuable years of payments towards PSLF. Even if you don't end up doing PSLF down the road, you will still be eligible for immediate interest subsidies under the REPAYE repayment plan. These subsidies do not depend on PSLF, and are granted immediately. A bird-in-the-hand, if you will.

You also should know that if you don't choose a plan you will automatically be enrolled in the standard repayment plan, which, if you have a high loan balance, can be difficult to afford.

Research your benefits

For many of you, internship will be the first time you’ve had to decide on a long list of financial benefits and options. Don’t wait until the last minute, when you are under pressure. You’ve just matched, so you can contact HR at your new employer for benefits options and a list decisions you’ll have to make. Do you really need to pay for pet insurance? Critical decisions await you. Be prepared!

Fill out your W-4

You need to fill out a W-4 form before you start your job as a resident, and any new job actually. This form (often confused with the “I-9”) instructs your employer how much tax to take out of your paycheck based on information you provide. We made a great page (patting ourselves on the back, yet again) that explains how to fill it out. You may as well figure it out from now. And this calculator will show you how much federal tax will be taken out of your paycheck, depending on how you fill out the W4.

Know how to
look up your Credit Report

Your credit report contains your credit history and lenders look at it when determining specifics of loans and other things you are applying for. It has information about your loans, credit cards, and other information such as bankruptcies. You can look up your own credit report for free at AnnualCreditReport.com once a year. You should do this to make sure the information is accurate.

Note: Your credit report is different than your credit score. Your credit score is a number that is calculated from your credit report and different institutions use different methods to calculate your that number. Focus more on your credit report and make sure the information is accurate. Don’t worry about your credit score unless you are actively seeking a new loan or looking to move to a new apartment.

Get Insurance

The main purpose of insurance is to cover you or others financially if something terrible happens. There are several types of insurance that are essential you have. We aren't going to go into all the details of each type of insurance, just know that you need it and need to do your research about what you are getting. Some insurance you’ll certainly get through your employer when you start your job (e.g. health insurance). But other insurance types you’ll want to get independent of your employer (such as life/disability insurance, car insurance, stc.)

Health Insurance - Everyone needs health insurance. Not only is it required by law (currently) but large medical bills can be devastating without it. Fortunately, if you are heading to residency, your new employer usually has you covered. But it's up to you to make sure you understand the insurance options they have for you.

Disability Insurance - [Check out our disability FAQ!] What happens if you get into an accident (or have an illness) and can’t work? How are you going to pay your bills and put food on the table? That is where disability insurance steps in. This insurance replaces a portion of your income if for some reason you can’t work. The details of how much income, for how long, and what constitutes disability differ between plans, so make sure to read the fine print. As with health insurance, many employers offer “group” disability insurance, so you may not need to go and purchase a policy on your own. But keep in mind that when you leave a job (i.e. finish residency) your employer’s insurance doesn’t follow you. In addition, group disability insurance is usually fairly flimsy. Plan to purchase your own personal policy in the last year of your residency or fellowship (at the latest).  

Term Life Insurance - [Check out our life insurance FAQ!] Are there people that depend on you and/or your income? Maybe a spouse or children? Will your parents be relying on your future income for their needs? In these cases, you need term life insurance. It will pay out to them in case you die from that beekeeping hobby you decide to pick up. Also notice that we specifically said “Term life insurance.” Not life insurance with any other words or names attached. Term Life Insurance. Say it with us. Term Life Insurance. You should almost never purchase other types of life insurance (no permanent life, no whole life, no indexed life, no convertible life, no universal life, etc etc etc).  Some life insurance is typically offered to you by your employer but it will very likely be insufficient for your needs and you should plan on purchasing your own policy. You can go here to get instant quotes without needing to reveal any personal information. Note that you can usually buy extra life insurance through your employer. In general this is NOT a good deal compared to purchasing life insurance on your own if you are in good health. However, if you have previous or current health issues, buying “guaranteed issue” insurance at the time you start your job may be your only option, and you need to take advantage of it.

Renters or Homeowners Insurance - A disaster at your home can be a disaster to your finances. And even if you are renting you still need to cover the expenses of replacing your property if something happens. If you own a home, you need homeowners insurance. If you rent, you need renters insurance. Simple.

Car Insurance (if you own and drive a car) - Many state laws dictates the minimum car insurance you need if you drive. Make sure you get the insurance you need, and preferably much more than the minimum.

Umbrella Insurance - This insurance does not protect you against lost or faulty umbrellas. Umbrella allows you to purchase cheap liability insurance in excess of your auto or home policies. It also covers some non-auto and non-home liability related risks. It’s VERY cheap (because you’ll likely never need it). For example, $300/year for $1,000,000 coverage.  Plan to have umbrella insurance (at the latest) prior to finishing residency/fellowship.

Calculate your take home pay

You are probably aware of what your salary is going to be in residency, somewhere around $60,000. You can look up 2018 salaries for several programs as part of our ongoing housestaff salary collection project. [The data is now a little stale, but you might be curious about the range of salaries.] Which means you will probably have around $5,000 a month to ‘play’ with, right? Wrong. You forgot about the tax man. Good old Uncle Sam gets a part of the $60,000 and depending on where you live, your state (and maybe local) government get in on the action as well. For example if you live in Washington State your after-tax budget will probably be something around $3,800 but if you live in NYC it's closer to $3,300. You need to plan accordingly.

For an easy way to estimate your after tax, take home pay go here and plug in your gross salary (what your residency program said they are going to pay you). It will give you an estimate of your paycheck. Remember to check your first couple paychecks when you start working to confirm your actual take home pay.

But! Keep in mind that any income tax withholding taken out of your pay may or may not represent the actual tax you owe. So don't make your budget for the year based on what ends up in your paycheck. You don't know if that's accurate unless you have already estimated the tax you will owe in April! 

Longer Term Goals

Your financial education is a lifelong pursuit. The above items are steps that you should take very soon. But the following items fall into a longer term window. You don’t have to do them tomorrow but you should start working on them soon. And yes, that means during intern year. We wouldn’t go as far as saying this is more important that studying for Step 3, but maybe it is.

Build an Emergency Fund

Having an emergency fund that can be quickly accessed in, well, an emergency is very important. Most experts recommend having 3 to 6 months worth of expenses built up. Having a solid budget will help you figure out what those expenses are. Now, we realize that magically having 6 times the amount of money you spend in a month isn't going to happen. So start small and build up. Shoot for 1 month of expenses and start putting money towards that. Unfortunately in this age of coronavirus, physicians are going to be find significant disruptions to their jobs or income. You need to prepare in advance for previously unforeseen emergencies.

Note: A Roth IRA can double as both a retirement account and an emergency fund. That is because Roth contributions can be withdrawn at any time for any reason without tax or penalty. So consider opening a Roth IRA to start holding your emergency fund money (and choose a safe/conservative investment for now, that won't fluctuate much). If you have an emergency and need access to cash, it’s there. If the years go by and there is no emergency, you will have built up a sizable Roth IRA balance, and gotten a head start on retirement investing by not missing out on contributions (which are currently capped at $6000 per year).

Make
Financial Goals

Take some time to think about what you want out of life and set some financial goals to help get you there. Do you want to save up for a house? Pay off your student loans? Set up an education fund for your kids? Buy a car? Retire early? Doctors Without Borders? Whatever you want to do, write it down and work towards it. It's definitely easier to delay gratification when you have a good picture of what your gratification is going to be.

Redefine Retirement

Retirement is the point in life when you can choose to stop working if you’d like to; it is the point where you have enough saved/invested to be able to do whatever you want with your life. Retirement is not necessarily the day you actually stop working. In order to really understand this idea you'll need to forget all your previous associations with the word "retirement". Most people think of retirement as some distant point in the future when you are too old to do anything. But that is not how you should think about retirement!

Retirement "starts" when you have amassed enough assets so that you can be financially independent. That last sentence had a lot of jargon in it. To put it another way, retirement is the day when you have enough saved that you never HAVE to work another day in your life but instead you can decide to do whatever the heck you want. And that is truly a magical day.

We had an old professor call this your “point of choice”. When you can choose what you want to do on a daily basis. Of course you can choose to continue working, not because you need the paycheck to pay the bills, but because you love your work (who else is going to check all of those 'review of system' boxes?). Or you can work for free at a rural clinic in Costa Rica living the Pura Vida. Or you can choose to never work again and make it your life goal to find the best tacos in every city in the world! Or you can choose to be that really awesome old guy who gets to relax in his retirement community eating applesauce. Saving for retirement isn’t just so you can give up on life, it is so that you can live life, no strings attached!

Learn about Investing

If you want to retire, you need to invest. And that means investing in the stock market (typically though mutual funds). We wish we had an amazing couple of pages explaining investing. Unfortunately we don’t. Yet. But fortunately for you there are lots of people out there that have written some great things about investing. Check out our reading recommendations here.

But if you have any money to invest, and have no time to learn right now, just do this: put as much away in your hospital’s 401k/403b (if you have one available to you), and choose a “Target Date” or “Target Retirement” fund with a date which corresponds to about the year you turn 60. If you don’t know enough to know if a Target Date mutual fund is for you, trust us, it’s for you. Don’t let indecision delay your retirement fund contributions.

Spend Less Than You Earn

We cannot emphasize enough that spending less than you earn is the most important financial action you will ever undertake. It doesn’t matter if you are a hotshot surgeon making a seven figure salary, if you spend more than you have you will be hurting. We realize that it sounds really simple, and it is really simple, but for whatever reason most people don’t follow that rule. Instead they buy things because they think they “deserve” them. Honestly, there are very few things in life that you deserve and most of the “stuff” you can buy doesn’t fit into that category. You simply cannot assume your post-resident or fellowship salary will be sufficient to pay off today’s overspending.

But what about the immortal advice of Tom Haverford? We would say that you should “treat yo’ self” to a solid habit of saving and investing. Unfortunately, most people don’t follow that advice. The average American individual savings rate is 5.7% according to the U.S. Bureau of Economic Analysis. Spoiler: That is way too low.

As a physician you probably need to be at a savings rate closer to 20% of your pre-tax salary. That 20% savings rate might go to paying down loans, building up an emergency fund, investing in a Roth IRA or a 401k/403b, or some combination of those. You’ve got 4 years of med school with no salary plus 6 or so years of a really low training wage to make up for. Now, we understand that living on a resident’s salary isn’t always a walk in the park but getting used to ‘living within your means’ is a skill that you really need to start developing now. So, if you and your significant other are contemplating some big purchase, keep in mind what a wise man once said: The three most loving words are “I love you,” and the four most caring words for those we love are “We can’t afford it.”

In order to spend less than you earn you will need to set up a budget. There is a mountain of writing out there about budgeting; we aren’t going to rehash everything thing that is out there, but there are two important things to keep in mind about budgeting.

First, your budget should work for you. There are lots of fancy software and methods to budgeting but if it doesn’t help you meet your goal it doesn’t work for you. It might take a little time to figure out what exactly works for you and you may fail at first. Don’t give up; adjust as you need to and change budgeting styles when life changes. Second, a budget is not a review of the past month’s expenses. A budget is something you can refer to to help determine if you can “afford” something. You need to figure out what money you take in every month and then you designate how that money is going to cover your expenses.

Whatever method you choose for budgeting (and whatever technology) stick to it. And if you want a recommendation, we are big fans of zero-sum budgeting and YNAB.

Priorities and Summary

You may be wondering what order you should act on all of the above information (emergency fund? debt pay down? invest? insurance?). In reality many of these things will probably happen simultaneously and we'll have some guidance on that shortly. Unfortunately, we can't give advice about every situation (unless you email us and ask a specific question) but we will try to simplify it somewhat and give you some order.

#1 - File your taxes, consolidate your federal loans, and pick your repayment plan. As you are going through that, learn about PSLF and make a plan of how you will pay off your student loans. Your plan might change, and that’s okay, but make a plan now regardless.

#2 - Figure out your take home pay after accounting for taxes and benefits; set a budget accordingly. Make some financial goals and think about what you want your priorities to be.

#3 - Get all of the insurance you need and start building up a 1-month emergency fund (possibly within a Roth IRA).

#4 - Aggressively pay down your expensive debt; that means credit card, consumer, and auto loan debt. Certainly do not accumulate any additional debt.

#5 - Redefine retirement for yourself and start to learn about investing.

Beyond that, keep working, keep learning, keep budgeting and keep moving into the future.

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We are suspending this feature for now. COVID related activities have disrupted our ability to provide timely responses. We are devoting more of our time to patient care, and any remaining free time is preferentially going to our families. Be safe.

We have an new venture to share with you! Doctored Money has been striving to educate physician borrowers on debt management and PSLF for over 5 years, both in-person and online. It is a labor of love and we volunteer our own time and money to answer questions for all who reach out. We are happy to report that demand for this help continues to increase! Unfortunately, our time has not. To try and bridge that gap, and better answer the questions put to us, we are rolling out a new mechanism to provide more efficient ‘one-on-one’ consultations with individualized education on PSLF and student loans.

Fillable Form Equals Fewer Emails

We have created an on-line form for collecting information so that we can get exactly what we need to give a comprehensive analysis of your individual situation. This will hopefully cut down on the back-and-forth emailing previously required to ensure we received all relevant information. We are still ironing out the wrinkles but we are looking forward to the new opportunities this will open up for us and for you. To learn more and send your information for an individualized analysis, check out more details here.

Optional Donation

If your submission is selected for an analysis, you will be provided with an option to donate to Doctored Money. We hope that you will find the information helpful and will want to help us with our mission to enhance physician financial literacy. While this donation is encouraged, it is NOT required and we will not hound you or guilt you going forward. We are grateful for any donation you may give us.

All of that being said, we are excited to move forward with this new aspect of Doctored Money and to bring you along on this journey. Check it out, and let us know what you think!

We’ve updated our tax pages to include taxes information for 2019. We have a walkthrough of taxes for interns, with a sample “1040” for a non-married intern. We can’t help with the mechanics of entering the information in to tax-prep software, but we can ensure your output looks reasonable. In addition, even if you use a paid tax preparer, you still need to ensure the taxes are done correctly. And of course, you need to be educated about how taxes work despite your choice to outsource the preparation.

Tax Pages

Go to our main Tax page to see the list of topics. We suggest digging in an learning about your W2 form. It’s fascinating, really, ok, not really, but important. You can also read about W4 and withholding rules. And be sure to use the sample 1040 above and follow along with the explanation of all the relevant lines. Welcome to the world of taxes! We know you are thrilled. But always remember, only people with income pay income taxes. Go back to school and your tax problem will disappear. Your loan problem on the other hand, well…

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In 2020, each increase in your family size will decrease your payment by exactly $55.25 per month if your payment plan is either REPAYE or PAYE and $82.88 if on IBR, assuming no change to your AGI.

The Math

Annual payments for PAYE and REPAYE are calculated based on 10% of discretionary income. Discretionary income is defined as your adjusted gross income (AGI) minus 150% of the federal poverty level for your family size. The 2020 poverty level increases by exactly $4420 for each additional family member.

Let’s take an AGI of $100,000 and a family size of 2 as an example. The poverty level for a family of 2 is $16,910. So we take 150% of this number to get $25,365. Discretionary income is $100,000 - $25,365 = $74,635. Annual PAYE and REPAYE payments are 10% of this number which gets us $7463.50. That’s $621.96 a month.

Now suppose this family has a baby. Family size is now 3. The poverty level increases by $4420. Thus, discretionary income goes down by 150% of this amount, or $6630. And since payments are 10% of discretionary income, annual payments go down proportionally by $660 per year, or $55.25 per month.

Doing similar math for IBR (where payments are based on 15% rather than 10% of discretionary income), an increase in family size will reduce payments by $82.88 per month

Exceptions

Payments cannot be less than zero, so any decrease in payment is obviously limited by your total payment if it’s already very low. Also, remember that PAYE and IBR have a maximum payment based on your loan details, above which neither AGI nor family size come into play directly. If your income places you far enough above the maximum payment, increasing your family size will not affect your payment amount.

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Get all the info on our newly revised W-4 page, and be sure to check out our Withholding Calculator, which will allow you to determine, in advance, what amounts will be withheld from your paychecks based on your taxable salary if you fill out the 2020 W-4 in the most straightforward manner.

This is the final part of a three part review, which covers the final three chapters of his book, followed by a critique of the design and layout. If you have already, go read Part 1 and Part 2 of the review. Remember this is not simply a review, but also includes some commentary and additional information.

Step 10 - Saving for College

We’ll remind people:  You cannot afford to save for your child’s college until your own student debt is paid off and your own retirement savings are well on track. The tax benefits of 529 plans are usually meager in most states. 

We’ve met many dozens of docs struggling to pay off their own debt, while contributing to a 529 plan for a child. That’s equivalent to taking out new student loans NOW to pay for your child’s future education. In certain cases, it may make sense to contribute to a 529 prior to paying off your loans if 1) you get a state tax deduction 2) you have maxed out all your available retirement accounts such as 401k/403b, HSA, Roth or backdoor Roth, etc. and 3) shooting for PSLF, where paying off loans any faster than necessary is not a good idea.

Step 11 - Estate Plan

Very short chapter. Our additions: 1) Make a will, it’s usually very easy 2) If you have kids, you likely need a trust, as you don’t want your toddler inheriting your estate and life insurance directly 3) Make sure you have a living will. You all have seen situations in the hospital where not having one has created a mess.

Step 12 - Asset Protection

Selling or promoting complicated asset protection strategies to paranoid docs is a big business. As this chapter mentions, make sure you have sufficient liability insurance (i.e. malpractice), make sure you get an umbrella policy (they are very cheap!), and don’t do stupid things.

When talking about asset protection, we’re (mostly) discussing what happens if you lose a lawsuit (professional or personal) which exceeds the amount of coverage you have. In general, this is very rare. Certain things like asset protection trusts and titling homes in specific ways are common suggestions for physicians. We’re certainly not experts in such matters. When you find yourselves with “significant” assets which are outside of retirement accounts, consult a good estate planning attorney for advice on these matters. But just keep in mind we’ve seen a few docs pay for very complicated asset protection strategies they didn’t need.

Does it Matter What the Book Looks Like?

A few thoughts on one way to improve the book. Here at DM, we think that design really matters and that people are more inclined to read and use resources that are designed well. We found the overall look and design a little distracting and we think a stronger focus on design would make the information presented more powerful. [As a side note, we highly recommend Matthew Butterick’s online book Practical Typography for anyone doing any sort of writing and design.]

Let’s face it, there is not a lot of ‘new’ information or discoveries in personal finance. We don’t know who first said “spend less than you earn” but we do know that it was probably a really long time ago. All personal finance writers (ourselves included) are just repackaging old wisdom in new ways to try and help people continue to follow that advice in our shiny modern lives. And with the creation of the world’s largest copy machine, the internet, we have even more ways to manipulate old information in new pretty fonts, sizes and types of media. We honestly think that this repackaging of information is meaningful (we don’t make this site just to pad our CVs).

All of the above is to say we think good content deserves a little attention to thoughtful design, and unfortunately this book doesn’t come up to that standard. A few examples: lists of unnecessarily long urls at the end of every chapter; images and tables that are too large or unhelpful; the way the anecdotes are presented throughout the book. We realize this is opinion and dependent on one’s personality. Content comes first, especially when writing a book on the cheap (that is not meant to be an insult, btw). But, to use a Power Point analogy, it’s distracting to the content to have unnecessary clip art, swirly text, slide transition animations, and slides which one can’t read for whatever reason.

Conclusion

That wraps up our thoughts, opinions and musings on Jim Dahle’s most recent book “Financial Boot Camp”. We hope that it has shed some light on great financial literacy content and how that content is presented.

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This is the second part of a three part review, and focuses on chapters 4 to 9 of the book. If you haven’t already read it, start with Part 1, which is here.

Step 4 - Student Loan Plan

This chapter could be an entire book on it’s own. Actually, we really recommend these books on student loans. If you have federal student loans, you need to become an EXPERT on repayment plans and PSLF. Keep in mind that PSLF is a robust plan and no one has ever proposed making changes for existing borrowers. We strongly dislike the term “grandfathered” when referring to any potential future changes, as that implies an “exception” would have to be made. Instead, the likelihood that future changes will affect current borrowers is so close to zero that you shouldn’t spend any time thinking about it. Although, we are indeed fearful for those in high school or college who are considering a career in medicine!

We like that the chapter explains the REPAYE interest subsidies, which most people seem not to understand that those are yours to keep regardless of PSLF. We have our own page describing REPAYE subsidies, which includes a video tutorial on how to use our calculator to calculate subsidies for any set of balance and income.

Regarding federal loans, we’d like to add that many forget that accumulated interest is interest-free. If you pay extra towards your loans in order to pay down the interest, it will NOT affect the rate of future interest accumulation. And we’ve now seen three borrowers who have refinanced loans into a HIGHER interest rate. How does that happen? It’s because the “printed” rate on your federal loans may not be the actual rate. Consider a 5% loan with a principal of $100,000 and interest of $20,000. The rate of annual interest accumulation is only $5000. But on a total debt of $120,000, your actual interest charged on the debt is 4.2%. See our blog post which has a chart illustrating effective vs actual interest rates on federal loans. You very much need to understand this concept completely if you have federal loans.

Step 5 - Boosting Income

A two page chapter that touches on salary, negotiations, and side jobs. Not much meat here, just introduces ideas. 

Step 6 - Housing Plan

We agree strongly with Jim that renting is not “throwing money away”. One could counter with “paying taxes, interest, and maintenance on a home is throwing is throwing money away.'' A home is not an investment. It’s a place to live. There are significant transaction costs with moving into or out of a home one owns. Given that many docs are moving between jobs more than ever (it seems), owning a home can tie you to one location and prevent one from taking advantage of job opportunities. So rent without guilt! As always, location matters and everyone’s situation is different. This New York Times rent vs. buy calculator is amazing. However, we usually see people put in WAY too rosy assumptions for both future real estate price appreciation and maintenance costs which of course makes owning seem comparatively better than renting. Any bias regarding owning a home very likely influences the economic assumptions you enter into the calculator. Be careful.

Step 7 - Retirement Accounts

A few things we’d like to add about this. If you are shooting for PSLF (and eventually receive it) making contributions to an HSA and a deductible 403b/401k is like getting a 10% or 15% match from the government (unless you are already above the payment “cap” which comes with IBR or PAYE), because such contributions lower your income for income-driven repayment plan purposes, which then increases future forgiveness, not to mention it increases your current cash flow.

Next, there is no correct answer when it comes to deciding whether to pay off debt or invest. But if you are not going for PSLF, then you’ll likely have refinanced to a low(ish) rate, and we tend to advise docs to max out a 401k/403b and a Roth IRA (please learn about the “backdoor Roth”!) prior to paying down debt. This decision however, is as much a personality issue as it is a math issue. The tables in this chapter are a bit cartoonish and take up way too much space (an issue we discuss at the end of Part 3 of our review). 

Step 8 - Investing

Here’s our addition to some topics brought up in this chapter. 1) Fees matter. Learn what a mutual fund “expense ratio” is and what fees your investments cost you. 2) If you choose to hire an advisor, paying as a percentage of your assets is usually much more expensive than other options. And advisors who make commissions on selling you insurance are not advisors, they are salespeople. 3) If you wonder whether a “Target Date” mutual fund is right for you, the answer is “yes” (We take credit for coming up with that expression). If you do nothing other than invest in one of these “all in one” funds your entire life, you’ll do just fine. Later, you can make incremental improvements to a Target Date type of fund if you are motivated and want to put in just a little extra effort.

Jim is a big fan of real estate investing, which is probably in line with his personality. We find the majority of docs are content to just have ONE job, and do not want to start a new business (i.e. real estate investing). Many have told us they feel stupid or inadequate for not wanting to buy a rental property or directly invest in real estate in some way, given how much time all the the doctor advice blogs/businesses spend on the topic. We’ve also seen people reluctantly buy a rental property as if not doing so was akin to not taking advantage of an employer match! If you want to invest a little in real estate type investments, but don’t care to learn to run a business unrelated to your existing skills (medicine!) you can do so easily through a type of mutual fund called a “REIT”. 

Step 9 - Correcting Past Mistakes

Doctored Money’s audience tends to be early career MDs. We hope to help you prevent mistakes you have not yet made. But there are some good warnings in this chapter which relate back to previous chapters: avoid whole life, avoid expensive advisors, etc.

Stay Tuned

Part 3, the final part of our review, will be along shortly!

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Jim Dahle graciously sent us copies of his new book “Financial Boot Camp”. Many of you know Jim Dahle from his original book “The White Coat Investor” and from all of the work he does with his website. It is not an exaggeration to say the Jim Dahle is the biggest name in physician personal finance. We read his new book and we want to share some of our thoughts about the book and about personal finance in general. So this is a combination of a review and additional information/commentary. We’ll list the main topics, organized by chapter, and try to rip his book to shreds provide corroborating or alternative opinions.

We’re going to spread our review out over three posts. Here’s part 1!

Our Overall Take

Simply put, the book is good and it is a quick read. And you should buy it (or borrow it). It nicely summarizes the important basics, which (if followed) will put you ahead of most of your peers. Each chapter is concluded with a list of action items, which is a major strength. These help to simplify seeming complicated topics into concrete steps. We also like that the book advocates for a written plan to achieve your financial goals, whatever those goals may be. Goals and plans in writing will always have more power than nebulous financial goals or dreams in your head. 

Does this book bring any new information or have information that you couldn’t find elsewhere? Not really. But it does do a good job of organizing information into a single resource. You could instead choose to sign-up for his newsletter and get much of the same information in the book emailed to you over the course of 12 weeks. In fact, that is what the book is based off, a set of 12 emails Jim Dahle had composed to be a financial primer or ‘boot camp’. We prefer to sit and read a physical book compared to reading online, but we might opt for a few free emails over paying for a book that has the similar information, except with additional reader’s anecdotes (which you are going to find either distracting or informative, depending on your personality). 

Why You Won’t Read This Book

Despite our recommendation, will you pick up this book? Will you read it? Probably not. Why not? Jim explains why, and we agree. In his discussion of paying for a financial planner (Step 8) he divides people into three groups. Simplified and also mixing in our take, 10% of people love learning and reading about finance, and this book will be basic for them so they don’t need it or will read it for fun and not education. 80% of people dislike this stuff, find it stressful, and would rather ignore it or outsource it via paying for financial planning. The cost of financial planners is often steep (usually because most will charge you based on a percentage of your investments rather than a flat fee or hourly), but this group may not mind paying or won’t do the math to learn how much such planning really costs them over time. So who’s left? The 10% who are willing/able to take some time and self-educate. Let’s face it, if you can pass Step 1 of your licensing exams, you are certainly capable of learning enough about personal finance to manage your own money. It takes far less time than you may think, and most of it is EASY.

If you are reading this review, you are likely already in that last 10%. But if you are in the 80% group, in the time it took you to read this far you could have gotten through his first two chapters. However, as long as you are here, don’t stop reading! We have some useful additional information or advice not found in the book.

Note About Financial Advice

We want to echo what Jim says about financial ‘advisors’ and financial salespeople: you need to understand how they get paid to understand where their incentives are pushing them. Even if you do end up paying for financial help, you need to understand the basics of personal finance and investing, and also understand how financial professionals get paid and whether that influences their advice. He does a good job explaining this in the book and we agree that it is something that shouldn’t be overlooked. But we would also repeat the same for everything you read about finances regardless of the medium: how is any particular book or website or blog post making money and does that affect what is written? The book regularly directs readers to the advertisers on his website. Does that influence his advice? What about Doctored Money? What are our motives, incentives, conflicts? There are always conflicts of interest, and you should be on the lookout for these with respect to any financial advice offered to you.

Onward!

Now that we got all of that intro information off our shoulders, let’s dive in the each chapter. The first few chapters are included below and the in subsequent posts we will break down the rest. Enjoy!

Step 1 - Disability Insurance

This is a general introduction to disability insurance, with explanations of the various options (aka ‘riders’) available. We have our own lengthy FAQ on Disability Insurance that we are quite proud of and is essentially a book chapter of its own. We encourage you to read it as a free companion to the information in this book. We agree with most of the advice in the book, which includes buying your own private policy, and buying it as early as possible. But we disagree with his suggested “elimination period”.

The elimination or waiting period is the time between the start of your disability and the first payment. Common options are 30, 90, 180, and 365 days. The book recommends 90 days, but we suggest an 180 day elimination policy. A longer elimination period is cheaper. Statistically, you will NOT be disabled (although, you DO need a policy). And thus, saving a couple hundred dollars a year on a policy will add up over time. What do you lose? Well, compared to a 90-day elimination policy you’ll lose out on an additional 3 months of income, but only if you become disabled. We think you should make plans to self-insure for the first 6 months of disability. You’re total loss and maximum ‘regret’ if you are indeed disabled and had chosen 180 days over 90 days, is 3 months of payments. Compared to your total lifetime income (pre- and post-disability) this is a trivial percentage. Have some sort of emergency money (cash, Roth IRAs, and even employer retirement accounts can be used in this case).

Step 2 - Life Insurance

Like the book, we strongly discourage you from purchasing any life insurance which is not “term” life. That is, avoid whole life and other “permanent” life insurance policies. Otherwise, this is a short, basic introduction to life insurance. Additional and overlapping information can be found on our own life insurance FAQ.

Step 3 - Spending Plan

Not much to say here. It’s a standard chapter on budgeting.

More to Come!

Keep any eye out for more of our review. Part 2 covers chapters 4 through 9, while Part 3 covers chapters 10-12 along with a critique of the design.

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As all student loan borrowers who are paying off loans under an income driven repayment plan (IDR) realize, there can be confusion and uncertainty in the income reporting rules. It seems that, either via error or fraud, there are many thousands of potential IDR applications which have understated income, or overstated family size.

In a subsequent article, we’ll list some common ways or techniques that borrowers have used to minimize income, and comment on which methods might pass future scrutiny, and which might be “at risk”.

Where is the Oversight?

The Government Accountability Office (GAO) says that the Department of Education has been lax in their oversight. Not surprisingly, the current administration is blaming the previous one. Regardless, it seems there may be efforts underway to scrutinize past and future income verifications. In an AP/ABC news article Betsy DeVos is quoted as saying “Misrepresenting income or family size is wrong, and we must have a system in place to ensure that dishonest people do not get away with it.”

The GAO has reported thousands of cases where borrower reported income did not seem to match federal income data, including cases where no income was reported despite federal data suggesting they indeed had substantial income. The GAO writes “These results indicate some borrowers may have misrepresented or erroneously reported their income or family size. Because income and family size are used to determine IDR monthly payments, fraud or errors in this information can result in the Department of Education losing thousands of dollars of loan repayments per borrower each year and potentially increasing the ultimate cost of loan forgiveness. Where appropriate, GAO is referring these results to Education for further investigation.” 

GAO Report Excerpts

“We analyzed about 878,500 approved IDR plans held by about 656,600 borrowers for our income analysis, and approximately 5 million approved IDR plans for over 3.5 million borrowers for our family size analysis.”

[Explaining the “significantly changed” language on the IDR application] “Education does not define what is meant by ‘significantly changed.’ However, the application includes examples of why income may significantly change, including losing a job, experiencing a drop in income, or getting a divorce.”

“We identified IDR borrowers who both (1) reported zero income on their IDR application, and (2) had wages recorded in NDNH during the same quarter in which their IDR plan was approved”

“...our analysis cannot identify borrowers who may have earned additional taxable income that is not part of NDNH data, but should be included on IDR applications, such as income for individuals who are self-employed [DM note: which would include moonlighting income] or receiving alimony.”

Here is the full report.

So What Does This Mean for Borrowers?

Well, the first and most obvious point, is (as always) to be truthful on your income certification forms. We’ve unfortunately heard several borrowers claim “how will they know?” or “what are the chances they’ll find out?” This is not exactly the way to approach a form which warns at the top:

“WARNING: Any person who knowingly makes a false statement or misrepresentation on this form or on any accompanying document is subject to penalties that may include fines, imprisonment, or both, under the U.S. Criminal Code and 20 U.S.C 1097.” 20 U.S.C. § 1097 establishes penalties for certain offenses with respect to federal student aid funds; for example, any person who knowingly and willfully embezzles, steals, or obtains by fraud any such funds may be subject to a fine of up to $20,000 and imprisonment of up to 5 years.”

The form also has the following text in THREE places: “Note: Remember, any person who knowingly makes a false statement or misrepresentation on this form can be subject to penalties including fines, imprisonment, or both.” 

In the near future there will be a LOT of borrowers who obtain a ton of dollars via loan forgiveness, and there is certain to be public backlash (whether justified or not) which will likely lead to a close examination of forgiveness applications (that’s our guess).

Keep an eye out for a future post of ours where we go through some of the more common tips/tools borrowers (especially physicians) rely on with respect to IDR plans, and which might not pass scrutiny by the Department of Education.

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A year and a half ago we started an ambitious project; we attempted to aggregate housestaff salaries at every US program. We collected and organized salary data from many hundreds of programs, and organized them by specialty for easy reference. We also began to collect some pilot data concerning 401k/403b and other benefit information. You can see our results at this page, for 2018-2019 salaries. We felt this information would show medical students the wide range of salaries across programs, and also allow them to pre-calculate things such as taxes and prepare potential budgets for each potential city they might match in to. For example, the higher salaries in some high cost of living areas often don’t make up for the increased costs. In addition, for those seeking PSLF, a higher salary results in higher loan payments and decreases affordability and can also potentially decreases future forgiveness.

We also wondered whether making salaries readily comparable might cause programs to increase salaries to stay competitive. Or perhaps the opposite, by making collusion among programs easier. Hmmm…

There is no update.

We are writing this post to announce that we do not anticipate updating the page with 2019-2020. It turns out that it was difficult to find GME salary data on the program websites, and very few places returned our calls and emails requesting such information. We suspect they thought Doctored Money was a commercial endeavor and thought our email was spam (which is understandable). In addition, there did not seem to be demand for this information (at least as measured in web-traffic or links to the page on the web). Thus, we feel our our time is better spent on our other educational and advocacy activities.

Any volunteers?

BUT, if there are any medical students (or others!) that think this data is useful, and would like to help out with collecting the information, we’d be happy to keep the page current. Send us an email at our “contact us” link.

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Borrowers who are considering a refinance often compare the “printed” rates of their loans to the rates available from a possible refinance, without realizing that their actual current interest rate could be much lower than the printed rate. This can occur when low payments, for example while on Income Driven Repayment (IDR) plan, are too low to cover the accumulating interest. Many physicians with substantial federal student loan debt, especially those still in training, are on an IDR plan because they are either aiming for Public Service Loan Forgiveness or because it’s the only way to afford payments. But as interest accumulates, their interest RATE goes down. How?

You don’t get charged interest on the interest

Federal students loans are unlike other types of debt in that the interest is not capitalized except in certain circumstances. This means that your unpaid interest is not costing you anything. You still owe it, of course, but it represents “interest-free” debt. For example, consider an initial balance of $200,000 at 5%, which now has accumulated unpaid interest of $30,000. Although you owe a total of $230,000, interest only accumulates at $10,000/year. That’s an effective rate of 4.3% (e.g. $10,000/$230,000).

An example, with visuals

Assumptions: The graph shows the actual or effective interest rate over a 10-year period on various payments plans. This assumes one consolidates federal loans upon graduation and is making $0 payments in the first year, then has a starting intern salary of $60,000 during a 5-year training period with small raises along the way, followed by an income of $200,000 after training.

The PAYE line is smooth, because the total interest is gradually increasing (and thus the rate decreasing) over time. But what’s going on with REPAYE? REPAYE has a feature where half of any unpaid monthly interest is immediately waived. The lower the payments and the higher the interest, the greater the interest subsidy. As income grows payments increase and eventually cover all of the interest, which is when the REPAYE and PAYE plans “meet”. The stair-stepped pattern to REPAYE represent the small raises one might expect during training.

What if extra payments are made along the way? They go only towards the interest and the net result is actually an INCREASE in the effective rate, with no net savings. Instead, any extra money one has should go elsewhere (interest earning savings account, retirement accounts, etc) until one chooses to refinance or otherwise has a lump sum available with which to pay off all the interest and a significant amount of principal.

It’s clear that one cannot simply use the 7.5% rate as a reference when considering a refinance. Remember that upon refinancing, your current loans are paid off, and there is a new loan. The new interest rate is now applied to the entire balance (principal+interest of the previous loans).

Use our refinancing calculator!

We have a cool little refinancing calculator where you can calculate your effective interest rate and compare it to a private refinance loan you are considering. It will show you your interest savings with a refinance (if any!) and also calculate how much your cash flow will go down after the refinance

Questions, confused?

Hopefully this makes sense, and you understand how interest works on federal student loans. But if not, ask us a question on our forums!

The title says it all. There is now a way you can ask us questions anonymously (or not) and everyone can benefit from the discussion. Click on “Forum” in the menu bar above to learn more, or go directly to the forum to browse previously answered questions, or to register and ask your own.

If you have had student loans for a while, there is a good chance you originally chose the “Income Based Repayment” plan, aka IBR. But since the introduction of IBR, three new income-driven repayment plans have been introduced: REPAYE and PAYE and “new IBR”. So the original IBR is now “old IBR”. Confusing, huh? We won’t get into the pros/cons of these plans in this post, other than to note the following: PAYE is always better than any type of IBR. And so if you are on an IBR plan, you should very strongly consider switching to PAYE. Why? Because if you are on old IBR, your payments are 15% of discretionary income, while payments on PAYE are only 10%. For most, switching to PAYE will lower payments by about a third. And that means 1) more money in your pocket now and 2) more forgiveness later! Be careful however, there is a rare situation where going from IBR to PAYE is not the right thing to do. [If you are on IBR and have a much higher income that needed to have reached the maximum payment on IBR (aka the “cap”) you MAY not benefit from switching if you expect further increases in your income very soon]

Are you a “New Borrower”?

There are two criteria for entering (or switching into) PAYE. First, you have to be a “new borrower”. This can sometimes be hard to figure out, which is why we created this handy flowchart. Get a copy of your national student loan data file (or some other record of all your loans) and follow along.

A common question is whether you can consolidate a pre-2007 loan after 2011 to “get rid of it” and become eligible for PAYE. The answer is no. For example, if you consolidate a 2006 FFEL loan into a Direct Consolidation loan in 2012, you are considered to have a pre-2007 “at the time” of consolidation, and thus are not considered a new borrower.

Have a “Partial Financial Hardship”?

In addition to being a new borrower, you must have a “Partial Financial Hardship” (PFH) to enter PAYE. You have a PFH if your payments under the PAYE plan are less than you would pay if you were to have a 10-year payment period. You can use this calculator to determine if you have PFH. If your PAYE payments are less than the “cap” it means your AGI is less than the PAYE PFH income threshold and you have PFH. Combine this with being a new borrower, and that means you are PAYE eligible!

Questions? Use the forum!

We have a new mechanism for asking questions. Register for our (as always, free!) forums and we’re sure you’ll get quality advice and education.

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[This is a refresh of our THIRD annual “medical school graduation” post. My my, where has the time gone?]

Congrats! You’ve just matched and internship is around the corner. Enjoy this time (you’ve earned it!) but don’t get too comfortable. There are several key financial tasks you need to address so that you can start your professional life off on the right foot. Or as the ophthalmologists like to say “PD” (pedis dexter, "right foot" get it?). Some of these financial items need to be done BEFORE you start internship, while other considerations represent long-term mentalities you should adopt. Also, we lied in the title, there are more than "ten" items you should think about.

But first, a friendly reminder to spread the love. We here at DOCTORED MONEY want to empower you to be great clinicians and we hope you find our advice helpful. We just have one request, share this blog post with anyone you think may benefit from it!

And as always, if you have more questions or think something is totally bogus, just reach out to us and let us know! We will do our best to help out.

Immediate Actions

Learn about and understand PSLF

Have federal student loans? You absolutely need to understand your loans and PSLF inside and out. Seriously, you need to become an expert in PSLF. Making a mistake could literally cost you $100,000+ (we’ve seen $400,000 errors, sadly). So check out our presentations about loan basics. PSLF is not just for people going into primary care or for people working in specific locations. Anyone working for a university or non-profit such as a 501(c)(3) hospital (which is almost all hospitals) is eligible.  For example, you are almost certainly employed by a non-profit during your residency. But exceptions exist, so make sure.

File Your Taxes
for Free

If you have federal loans and hope to benefit from PSLF, you’ll want to consider filing taxes for 2018, even though you had no income and are not required to file. Go here and check it out. If you made "$0" income, you'll have to mail in a paper return. You may wonder why you should even bother filing if it’s not required. The reason is that you can use your tax return as documentation of your (lack of!) income when starting loan payments. If your income was zero, your payments will be zero for a whole year! Filing taxes is the easiest way to prove your lack of income for 2018. This isn't critical, but it's prudent. And don’t worry if the April 15 tax “deadline” has passed. You can file at any time if you don’t owe taxes. So file, and do it before you graduate.

Consolidate your Federal Student Loans

THIS IS IMPORTANT for anyone with loans. You want to strongly consider consolidating your loans immediately after graduating, and well before residency starts, for four main reasons: Number one is because certain loans, such as Perkins loans, are not eligible for PSLF, but become eligible upon consolidation. Number two is because consolidation ends your grace period immediately, which means your payments are credited towards PSLF earlier than otherwise. For those hoping for PSLF, the grace period HURTS you. Number three is because if you consolidate loans and begin repayment prior to residency, you have no income yet to report, which means you loans payments for the next 12 months will be zero, yet you still get credit for 12 months of (zero dollar!) PSLF payments. But if you wait to start payments after starting internship, your payments can be as high as $300 per month. Finally, by consolidating you get "credit" for paying off interest in the form of consolidation. And this allows you to claim a student loan interest deduction when you file your 2018 taxes, which can save you $500+ on your taxes.

Go check out this blog post by our friend Ben White that elaborates on this strategy. And after you do that head over to StudentLoans.gov to get started. Be careful however, some federal loans have special benefits which you lose with consolidation. “LDS” loans for example. You’ll have to weigh whether PSLF eligibility is a better deal than any existing benefits on those loans.

Choose a Loan Repayment Plan

If you have federal student loans there are a number of repayment plans available to you. Some plans (4, in fact) qualify for PSLF, but many don’t. Read our Student Debt page to learn about your loans and repayment plans. If you are still unsure about what to do or what your life goals are, assume for now that you should try for PSLF and sign up for either REPAYE or PAYE.

Do not defer or forbear your loans during residency! You really can afford the monthly payments on an income driven plan. If you don't make payments you will miss out on valuable years of payments towards PSLF. Even if you don't end up doing PSLF down the road, you will still be eligible for immediate interest subsidies under the REPAYE repayment plan. These subsidies do not depend on PSLF, and are granted immediately. A bird-in-the-hand, if you will.

You also should know that if you don't choose a plan you will automatically be enrolled in the standard repayment plan, which, if you have a high loan balance, can be difficult to afford.

Research your benefits

For many of you, internship will be the first time you’ve had to decide on a long list of financial benefits and options. Don’t wait until the last minute, when you are under pressure. You’ve just matched, so you can contact HR at your new employer for benefits options and a list decisions you’ll have to make. Do you really need to pay for pet insurance? Critical decisions await you. Be prepared!

Fill out your W-4

You need to fill out a W-4 form before you start your job as a resident, and any new job actually. This form (often confused with the “I-9”) instructs your employer how much tax to take out of your paycheck based on information you provide. We made a great page (patting ourselves on the back, yet again) that explains how to fill it out. You may as well figure it out from now. And this calculator will show you how much federal tax will be taken out of your paycheck, depending on how you fill out the W4.

Know how to
look up your Credit Report

Your credit report contains your credit history and lenders look at it when determining specifics of loans and other things you are applying for. It has information about your loans, credit cards, and other information such as bankruptcies. You can look up your own credit report for free at AnnualCreditReport.com once a year. You should do this to make sure the information is accurate.

Note: Your credit report is different than your credit score. Your credit score is a number that is calculated from your credit report and different institutions use different methods to calculate your that number. Focus more on your credit report and make sure the information is accurate. Don’t worry about your credit score unless you are actively seeking a new loan or looking to move to a new apartment.

Get Insurance

The main purpose of insurance is to cover you or others financially if something terrible happens. There are several types of insurance that are essential you have. We aren't going to go into all the details of each type of insurance, just know that you need it and need to do your research about what you are getting. Some insurance you’ll certainly get through your employer when you start your job (e.g. health insurance). But other insurance types you’ll want to get independent of your employer (such as life/disability insurance, car insurance, stc.)

Health Insurance - Everyone needs health insurance. Not only is it required by law (currently) but large medical bills can be devastating without it. Fortunately, if you are heading to residency, your new employer usually has you covered. But it's up to you to make sure you understand the insurance options they have for you.

Disability Insurance - [Check out our disability FAQ!] What happens if you get into an accident (or have an illness) and can’t work? How are you going to pay your bills and put food on the table? That is where disability insurance steps in. This insurance replaces a portion of your income if for some reason you can’t work. The details of how much income, for how long, and what constitutes disability differ between plans, so make sure to read the fine print. As with health insurance, many employers offer “group” disability insurance, so you may not need to go and purchase a policy on your own. But keep in mind that when you leave a job (i.e. finish residency) your employer’s insurance doesn’t follow you. In addition, group disability insurance is usually fairly flimsy. Plan to purchase your own personal policy in the last year of your residency or fellowship (at the latest).  

Term Life Insurance - [Check out our life insurance FAQ!] Are there people that depend on you and/or your income? Maybe a spouse or children? Will your parents be relying on your future income for their needs? In these cases, you need term life insurance. It will pay out to them in case you die from that beekeeping hobby you decide to pick up. Also notice that we specifically said “Term life insurance.” Not life insurance with any other words or names attached. Term Life Insurance. Say it with us. Term Life Insurance. You should almost never purchase other types of life insurance (no permanent life, no whole life, no indexed life, no convertible life, no universal life, etc etc etc).  Some life insurance is typically offered to you by your employer but it will very likely be insufficient for your needs and you should plan on purchasing your own policy. You can go here to get instant quotes without needing to reveal any personal information. Note that you can usually buy extra life insurance through your employer. In general this is NOT a good deal compared to purchasing life insurance on your own if you are in good health. However, if you have previous or current health issues, buying “guaranteed issue” insurance at the time you start your job may be your only option, and you need to take advantage of it.

Renters or Homeowners Insurance - A disaster at your home can be a disaster to your finances. And even if you are renting you still need to cover the expenses of replacing your property if something happens. If you own a home, you need homeowners insurance. If you rent, you need renters insurance. Simple.

Car Insurance (if you own and drive a car) - Many state laws dictates the minimum car insurance you need if you drive. Make sure you get the insurance you need, and preferably much more than the minimum.

Umbrella Insurance - This insurance does not protect you against lost or faulty umbrellas. Umbrella allows you to purchase cheap liability insurance in excess of your auto or home policies. It also covers some non-auto and non-home liability related risks. It’s VERY cheap (because you’ll likely never need it). For example, $300/year for $1,000,000 coverage.  Plan to have umbrella insurance (at the latest) prior to finishing residency/fellowship.

Calculate your take home pay

You are probably aware of what your salary is going to be in residency, somewhere around $60,000. You can look up 2018 salaries for several programs as part of our ongoing housestaff salary collection project. Which means you will probably have around $5,000 a month to ‘play’ with, right? Wrong. You forgot about the tax man. Good old Uncle Sam gets a part of the $60,000 and depending on where you live, your state (and maybe local) government get in on the action as well. For example if you live in Washington State your after-tax budget will probably be something around $3,800 but if you live in NYC it's closer to $3,300. You need to plan accordingly.

For an easy way to estimate your after tax, take home pay go here and plug in your gross salary (what your residency program said they are going to pay you). It will give you an estimate of your paycheck. Remember to check your first couple paychecks when you start working to confirm your actual take home pay.

But! Keep in mind that any income tax withholding taken out of your pay may or may not represent the actual tax you owe. So don't make your budget for the year based on what ends up in your paycheck. You don't know if that's accurate unless you have already estimated the tax you will owe in April! 

Longer Term Goals

Your financial education is a lifelong pursuit. The above items are steps that you should take very soon. But the following items fall into a longer term window. You don’t have to do them tomorrow but you should start working on them soon. And yes, that means during intern year. We wouldn’t go as far as saying this is more important that studying for Step 3, but maybe it is.

Build an Emergency Fund

Having an emergency fund that can be quickly accessed in, well, an emergency is very important. Most experts recommend having 3 to 6 months worth of expenses built up. Having a solid budget will help you figure out what those expenses are. Now, we realize that magically having 6 times the amount of money you spend in a month isn't going to happen. So start small and build up. Shoot for 1 month of expenses and start puting money towards that.

Note: A Roth IRA can double as both a retirement account and an emergency fund. That is because Roth contributions can be withdrawn at any time for any reason without tax or penalty. So consider opening a Roth IRA to start holding your emergency fund money (and choose a safe/conservative investment for now, that won't fluctuate much). If you have an emergency and need access to cash, it’s there. If the years go by and there is no emergency, you will have built up a sizable Roth IRA balance, and gotten a head start on retirement investing by not missing out on contributions (which are currently capped at $6000 per year).

Make
Financial Goals

Take some time to think about what you want out of life and set some financial goals to help get you there. Do you want to save up for a house? Pay off your student loans? Set up an education fund for your kids? Buy a car? Retire early? Doctors Without Borders? Whatever you want to do, write it down and work towards it. It's definitely easier to delay gratification when you have a good picture of what your gratification is going to be.

Redefine Retirement

Retirement is the point in life when you can choose to stop working if you’d like to; it is the point where you have enough saved/invested to be able to do whatever you want with your life. Retirement is not necessarily the day you actually stop working. In order to really understand this idea you'll need to forget all your previous associations with the word "retirement". Most people think of retirement as some distant point in the future when you are too old to do anything. But that is not how you should think about retirement!

Retirement "starts" when you have amassed enough assets so that you can be financially independent. That last sentence had a lot of jargon in it. To put it another way, retirement is the day when you have enough saved that you never HAVE to work another day in your life but instead you can decide to do whatever the heck you want. And that is truly a magical day.

We had an old professor call this your “point of choice”. When you can choose what you want to do on a daily basis. Of course you can choose to continue working, not because you need the paycheck to pay the bills, but because you love your work (who else is going to check all of those 'review of system' boxes?). Or you can work for free at a rural clinic in Costa Rica living the Pura Vida. Or you can choose to never work again and make it your life goal to find the best tacos in every city in the world! Or you can choose to be that really awesome old guy who gets to relax in his retirement community eating applesauce. Saving for retirement isn’t just so you can give up on life, it is so that you can live life, no strings attached!

Learn about Investing

If you want to retire, you need to invest. And that means investing in the stock market (typically though mutual funds). We wish we had an amazing couple of pages explaining investing. Unfortunately we don’t. Yet. But fortunately for you there are lots of people out there that have written some great things about investing. Check out our reading recommendations here.

But if you have any money to invest, and have no time to learn right now, just do this: put as much away in your hospital’s 401k/403b (if you have one available to you), and choose a “Target Date” or “Target Retirement” fund with a date which corresponds to about the year you turn 60. If you don’t know enough to know if a Target Date mutual fund is for you, trust us, it’s for you. Don’t let indecision delay your retirement fund contributions.

Spend Less Than You Earn

We cannot emphasize enough that spending less than you earn is the most important financial action you will ever undertake. It doesn’t matter if you are a hotshot surgeon making a seven figure salary, if you spend more than you have you will be hurting. We realize that it sounds really simple, and it is really simple, but for whatever reason most people don’t follow that rule. Instead they buy things because they think they “deserve” them. Honestly, there are very few things in life that you deserve and most of the “stuff” you can buy doesn’t fit into that category. You simply cannot assume your post-resident or fellowship salary will be sufficient to pay off today’s overspending.

But what about the immortal advice of Tom Haverford? We would say that you should “treat yo’ self” to a solid habit of saving and investing. Unfortunately, most people don’t follow that advice. The average American individual savings rate is 5.7% according to the U.S. Bureau of Economic Analysis. Spoiler: That is way too low.

As a physician you probably need to be at a savings rate closer to 20% of your pre-tax salary. That 20% savings rate might go to paying down loans, building up an emergency fund, investing in a Roth IRA or a 401k/403b, or some combination of those. You’ve got 4 years of med school with no salary plus 6 or so years of a really low training wage to make up for. Now, we understand that living on a resident’s salary isn’t always a walk in the park but getting used to ‘living within your means’ is a skill that you really need to start developing now. So, if you and your significant other are contemplating some big purchase, keep in mind what a wise man once said: The three most loving words are “I love you,” and the four most caring words for those we love are “We can’t afford it.”

In order to spend less than you earn you will need to set up a budget. There is a mountain of writing out there about budgeting; we aren’t going to rehash everything thing that is out there, but there are two important things to keep in mind about budgeting.

First, your budget should work for you. There are lots of fancy software and methods to budgeting but if it doesn’t help you meet your goal it doesn’t work for you. It might take a little time to figure out what exactly works for you and you may fail at first. Don’t give up; adjust as you need to and change budgeting styles when life changes. Second, a budget is not a review of the past month’s expenses. A budget is something you can refer to to help determine if you can “afford” something. You need to figure out what money you take in every month and then you designate how that money is going to cover your expenses.

Whatever method you choose for budgeting (and whatever technology) stick to it. And if you want a recommendation, we are big fans of zero-sum budgeting and YNAB.

Priorities and Summary

You may be wondering what order you should act on all of the above information (emergency fund? debt pay down? invest? insurance?). In reality many of these things will probably happen simultaneously and we'll have some guidance on that shortly. Unfortunately, we can't give advice about every situation (unless you email us and ask a specific question) but we will try to simplify it somewhat and give you some order.

#1 - File your taxes, consolidate your federal loans, and pick your repayment plan. As you are going through that, learn about PSLF and make a plan of how you will pay off your student loans. Your plan might change, and that’s okay, but make a plan now regardless.

#2 - Figure out your take home pay after accounting for taxes and benefits; set a budget accordingly. Make some financial goals and think about what you want your priorities to be.

#3 - Get all of the insurance you need and start building up a 1-month emergency fund (possibly within a Roth IRA).

#4 - Aggressively pay down your expensive debt; that means credit card, consumer, and auto loan debt. Certainly do not accumulate any additional debt.

#5 - Redefine retirement for yourself and start to learn about investing.

Beyond that, keep working, keep learning, keep budgeting and keep moving into the future.

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