If you’re heading into your last year of residency as a young doctor, congrats! Medical training is tough and you’re almost done. As you celebrate and start reserving your vacation weeks, don’t forget about some large expenses that may be coming your way. As a former senior resident who just started fellowship, there were quite a few large expenses I had that I wasn’t fully prepared for. I ended up having to make some extra money on the side in order to cover all the costs. Learn from my mistakes and plan ahead for these large expenses that may be coming your way:
1. Board Certification Exam
As you finish your residency, you will become eligible to take the board certification exam for your specialty. While some specialties like Ob/Gyn and Surgery have oral components that may take a lot longer to study or qualify for, almost all specialties require you to pass a written exam. In case you weren’t aware, that written exam isn’t cheap. I’m in family medicine and I paid around $1300. Yep, you read that right $1300. And yes, I had to pay the full cost before I was able to schedule the exam. Be sure to look up how much the board exam costs for your field. For some specialties and subspecialties it may cost over $2,000.
2. Full Physician Medical License
Residents in training usually practice medicine and see patients with a post-graduate training license. Once you finish residency, (whether you decide to do a fellowship or not) you are usually required to get a full physician license. This is not a national license. It is a state license which means you must have a full medical license in each state you practice medicine. Unfortunately, the cost of a full medical license isn’t cheap. I paid at least $500 in application fees for my initial Georgia license. Then I paid $230 a couple years later to renew it. Because I am doing a fellowship in California, I needed to pay for an initial California medical license along with the application fee which was around $1200. I also had to pay to get official fingerprints, medical transcripts, and USMLE scores sent to the state medical board. These costs were not cheap either. If you have already signed an attending contract, you may be able to get some of these expenses paid for by your new employer. Try to negotiate that into the contract or plan ahead so you have the money available for it.
3. DEA License
If you’re like me, you may be surprised to learn that getting a full physician license in each state you practice in, isn’t sufficient. You also need a license to prescribe medication, otherwise known as a Drug Enforcement Administration (DEA) license. The cost of this license isn’t cheap. I paid $888 for mine. If you’re a physician in training at a state institution or residency you may be able to get this fee waived, but there’s a caveat. Technically speaking, you need a DEA license for each state in which you practice medicine and you may have to pay for it yourself if your employer does not provide funds for this cost. I have a DEA license associated with my Georgia medical license and another DEA license associated with my California medical license. These costs can add up quickly.
4. Moving Expenses
Whether you are moving to a different state for fellowship or starting your attending job in a new area, most doctors-in-training move after they finish residency. In case it’s been a while since you moved, let me catch you up to speed: it’s expensive. I moved to California from Georgia and this cross-country move was not cheap. Simply traveling to California to look at apartments was costly. The cost of moving my clothes, transporting household goods, and shipping my car was expensive as well. Plus, there are other moving costs to consider too. You may need a new driver’s license and car registration which can lead to additional expenses and insurance fees. You may also need furniture or kitchen appliances. Once you account for these costs, you can easily spend $2,000 to $4,000 if not more.
5. Housing Costs
Many people finish residency and want to buy a home. We have so much delayed gratification in training that we finally want to accomplish the ultimate sign of adulting: homeownership. Unless you’ve been living under a rock, you know that inflation is through the roof and housing prices have increased over the last couple years. Many people are offering over the asking price and paying with cash which has made it more difficult and costly to find the home you desire. Be prepared. For those of us who plan to rent for another year, things may not be as good on our end either. Rent prices have gone up tremendously and many places still require a rather large security deposit. Whether you decide to rent or buy, beware that your housing costs may be higher than you anticipated.
6.Celebratory Vacation
Residency is hard. We were on call for over 24 hours at a time, worked nights and weekends while missing out on time with our families, and were drastically underpaid for the work we did. Finishing this training is quite an accomplishment and you deserve to celebrate. If you’re like most people, you will want to take a break before you start working as an attending. Most people take at least 6 weeks off to refresh and recharge and one of the most popular things to do during that time is travel. Go to Greece, Belize, Europe, Hawaii, or whatever bucket list location tickles your fancy. This may be one of the only times in your life where you have an extended time off without work obligations so take advantage of it. Just be aware that these vacations aren’t cheap. They can cost thousands of dollars and usually require you to save for them ahead of time.
My point? The end of residency or fellowship can be exciting, but it can also be quite costly. Expenses tend to add up quick. If you’re not careful, you can find yourself charging way more things on your credit card than you ever imagined. Be sure to plan ahead.
How to Get Money for Moving Expenses
It’s late spring. This means lots of med students and physicians are preparing to start new jobs or hoping to advance forward in their current one. This is an exciting time, but it can be stressful as well, especially when it comes to finances. Gathering money for moving expenses, housing costs, as well as basic living expenses can be quite daunting. As someone who is moving across the country to start a fellowship myself, I completely understand the sentiment. When people ask me about ways to get money for all these expenses here are the 4 things I tell them:
1. Moonlighting. As a physician one of the things we know how to do is work. Moonlighting is when we as doctors work extra shifts for added pay. Some people work in the hospital, others work in the urgent care, some even take call from home. Each employer has their own set of rules or stipulations regarding moonlighting but if your program allows it, working a little extra to cover the cost of moving expenses can be a great way to earn extra cash.
2. Uber/Lyft/Doordash/Amazon. Some folks, especially med students may not have the credentials to moonlight or work extra shifts. If that’s the case for you, there are other options to consider. You can try driving for Uber or Lyft or even sign up for food and package delivery services like Amazon and Doordash. While these jobs may not be the highest paying, the flexible hours may be a great fit for your busy schedule.
3. Monetize your talents. I’m a huge fan of having multiple income streams and encourage all young professionals to do so as well. Perhaps there’s a skill you have that other people would pay you to learn? For example, some of my friends are good at tennis and charge others for tennis lessons. I also have friends who are great at cooking and charge their friends for meal preps or who are great at photography and charge others for headshots. Can you think of a skill you have that you can monetize? If so, let your med school classmates or co-residents know and get started!
4. Get a side hustle. Side hustles can be great. They are jobs that we do for others or passion projects that we make money from. For example, some people have started a blog or podcast and charged companies for ads. Other people do some consulting on the side. Some folks make money from social media or act as ambassadors for other companies. Think of ways to leverage what you know or who you know in order to bring in some extra cash.
5. Personal Loans. When all else fails and you need some money quickly, you can always consider a loan. I’m not a huge fan of taking out debt you don’t need, but even I had to borrow money at some point, especially when I was waiting on my first residency paycheck. Moving can be expensive and trying to get money for housing and living expenses can require cash that you may not have on hand. As long as you don’t take out more than you need, getting a personal loan at a low interest rate can be quite beneficial. While there are several companies that may offer relocation loans, Doc2Doc is a company for physicians by physicians that offers loans at low interest rates to graduating med students and physicians. If you have a pressing need for cash, these types of personal loans can be a great option as well.
The Benefits of Having an Emergency Fund
If you’ve ever listened to Dave Ramsey or ventured along the journey of personal finance, you’ll hear a lot of people talking about the importance of an emergency fund. An emergency fund is money that you have readily available, usually in a savings account, in case you incur some type of emergency or unexpected expense. If the air goes out in your home, your car breaks down, or heaven forbid you lose your job, you can quickly access money in your emergency fund to cover expenses.
Many folks have found emergency funds to be quite useful. We can’t always predict when we will incur various expenses but most of us know that they will inevitably occur. Emergency funds help lessen the shock. If the brakes need to be replaced on your car or your iphone stops working, yes you may be annoyed and inconvenienced, but with an emergency fund, the expense itself stings a little bit less. When you know you have money to cover the costs, you tend to be less stressed or bothered by these unexpected expenses.
Is an emergency fund necessary?
For those of us who are still building wealth or who may be 1 or 2 paychecks away from being unable to pay our bills, then yes. An emergency fund is necessary. If we are going to build wealth or at least become financially stable, we have to minimize our need to take out high-interest consumer debt, like credit cards, when expenses arise. One way to do that is to save money in advance, via an emergency fund.
How much do you need?
Like a lot of things in finance, it depends. How much money do you already have saved or invested? How reliant are you on your paycheck to pay your bills? How stable is your job? How consistent is your income? Do you spend most of your paycheck or do you frequently have money left over?
The general rule of thumb for young professionals is to start with $1,000. $1,000 is usually enough to cover minor car repairs, a new phone, a laptop, or a last-minute flight home. As prices have risen lately, perhaps $2,000 is a more accurate number. Regardless, the point is to start off with a reasonable amount to cover expenses and unexpected costs.
The next step, and where most people land, is to save up 3 to 6 months’ worth of expenses. Notice I said months of expenses, not full paychecks. You need enough to cover you in case you lose your job unexpectedly, have to quit, or get laid off. The importance of having this type of emergency fund was ever so present in March of 2020 when the world shut down from the COVID pandemic and even folks with stable jobs, like doctors, were forced to take pay cuts or close their clinics for months at a time. Having money that you can tap into during unexpected times like this is key. The exact amount is up to you.
How do you save up this money?
Unless you have an extremely high income, it may take time to save up this emergency fund. And that’s okay. Most people have to save money from several months’ paychecks in order to reach their desired amount. When I first started my emergency fund, I wasn’t making much money and I was always tempted to spend that money on something else. In order to prevent that from happening. I had a certain amount from each paycheck deposited into an entirely different checking account. I used some of the money in that separate account to pay down debt and left the rest of the money in the account to build over time as my emergency fund. Before I knew it, I had saved $1,000. It increased even more from there.
To summarize, emergency funds can be quite useful, especially when you are starting out in your career. Having money to use in emergencies prevents you from having to take out high interest credit cards when expenses occur unexpectedly. Tell me, have you started saving for an emergency fund?
6 Reasons to Understand How your Money is Invested
I love to read books, listen to podcasts, and watch videos on personal finance, but some of you may prefer to hire someone to take care of that for you instead. And that’s okay. Whether you decide to manage things yourself or get a financial advisor, it is vital that you understand the basics. Don’t blindly follow someone else’s investment plan without fully understanding it and don’t naively trust a financial advisor to have your best interest at heart. No one is going to care more about your money than you. Before this year ends, make sure you fully understand what is happening with your money. This is why:
1. To ensure you are not being taken advantage of. Many doctors and young professionals who are unaware of how their money is invested and know very little about personal finance get taken advantage of by people they thought had their best interest at heart. They may overpay for things, have their money invested the wrong way, or be overcharged for assistance in managing their assets. When people know you have more money, they tend to raise their prices and fees because they assume “you can afford it.” Having some knowledge of personal finance will allow you to better discern if you are getting charged a fair price for good advice, or not.
2. To ensure you aren’t being charged high fees that decrease your investment returns. In order to have your money grow over time, it needs to be invested. When you invest money, you usually do so by purchasing assets that will increase in value over time. The cost of acquiring those assets can vary but the key is to make sure the fees you are being charged to have those assets are not too high. This is especially true when it comes to real estate and the stock market. Overpaying for a home or investment property can cause you to lose money quicker than you think. Investing in mutual funds (groups of stocks or bonds) with high expense ratios can cut into your profits and minimize the growth of your money. For example, if the average mutual fund has a yearly increase of 8% per year but inflation is 4%, the fund fee is 1% and your advisor fee is 1% then the growth of your money is really only 8% minus 6% which is 2% per year. We cannot control inflation but minimizing the fees we are charged on our investments is within our control. Be aware of what you are being charged for certain investments and make sure it isn’t too high.
3. To ensure you are not invested in things that underperform the market. Another disadvantage of not understanding personal finance is having the wrong investments. Although personal finance is personal, double check that you are actually making good investments, which I define as things that have a high chance of increasing in value over time. There are lots of “good” investments but there are also investments that underperform the market or change in value too frequently to be useful. Learning about personal finance helps ensure that you are investing in things that will increase at an appropriate rate over time.
4. To ensure your investments aren’t just things that provide bonuses and commissions to your advisor. Believe it or not, there are some advisors who will use your money to enrich themselves. They will come to you claiming to help, all the while investing your money in questionable ways and buying products that result in a large commission to themselves at your expense. Although some are sneaky, others have simply been trained or groomed to believe that the things they sell are good. They attended a seminar or class that taught them all the potential benefits of certain products without mentioning the drawbacks of the investments they offer. As a result, they come to you with good intentions but bad information. They may try to talk to you about the benefits of whole life insurance and conveniently fail to mention the large commission they get for selling you the policy. They may suggest that you purchase an annuity but fail to mention the high fees and lifelong commitment to suboptimal mutual funds it requires. Having some knowledge of personal finance will help you avoid this and ensure that your advisor isn’t charging you money to enrich him or herself.
5. To ensure your investments align with your risk tolerance and investment goals. Another perk of knowing about personal finance and investing is being able to ensure that you are investing in ways that give you a good chance to make a profit (with little fees) with minimal risk. You want to make sure you aren't invested too heavily in one thing. It's also important that you plan for the unexpected. If you switch to a low paying job, your child care expenses increase, or the stock market or real estate industry crashes again, do you have room in your financial plan to handle it? You need to take some risk in order to make a profit but be careful not to take too much risk. You don’t want to lose all you have over one unexpected event. Diversify your investments, buy assets in different industries and consider using the combination of stocks bonds and real estate to protect yourself against the unexpected.
6. To ensure that you know your true net worth. As you continue investing and building wealth you should be keenly aware of not only what you are investing in but also where you are in your journey to financial independence. This means you should be able to calculate your net worth. If you stopped working today, how much money would you have? What is the total amount of your assets (the things you own) minus your liabilities (the debt you owe)? If you didn’t make any more money, how long could you still afford your current lifestyle? Are you reliant on your next paycheck or do you have enough money saved and invested to continue to live life and function as you do now? Part of being money savvy is not living paycheck to paycheck. It’s not being dependent on your job. It's being aware of where you are in your wealth creating journey. What is your net worth?
5 Black Friday Budget Tips
I’m not sure about you, but I love a good sale. As a young professional who hates paying more for something than I could, I marvel at the chance to buy valuable items at a discount. The only thing I don’t like are the crowds at stores or the look of my bank account the weekend after I go shopping. If you are like me and would like to enjoy the sales without spending too much money, here are some Black Friday Tips to consider.
1. Plan ahead—set aside money for holiday spending. It can be easy to overspend during the holidays. Minimize the chance it will happen this year by planning ahead. Reserve some money from your last paycheck and find ways to lower your expenses on other items this month. Consider working some overtime at your job, try to make some extra money from your side hustle, and pull in cash from other revenue streams. I plan ahead for holiday expenses throughout the year by setting aside $100-$200 each month for holiday spending. I know other people who forgo retirement contributions during the month of December and instead use that money to pay for added expenses during Christmas time. There are even folks who sell some of the investments they made throughout the year and use the profits to pay for expenses. My point? Plan ahead to make sure you have the money you need for all of your holiday expenses.
2. Make a list of your expenses and expected purchases. One of the things that can hurt your finances is buying things you don’t need or didn’t expect to purchase. Try to avoid this by making a list of your expenses ahead of time. Include flights, money for gifts, and any social outings or restaurants you may go to. If you know you are going to do some holiday shopping, write down the things you plan to buy and leave a little extra room for unexpected purchases. Making a list of your expenses gives you a glimpse of how much you will spend and can help you prepare in advance for your purchases.
3. Search for deals but avoid the temptation to buy more. It can be great to find sales on the items you already plan to purchase but be careful. In the midst of looking at deals, try not to fall into the trap of buying more than you anticipated. If you know you need to buy clothes for one of your family members, avoid looking in the electronics section. If you already plan to buy a household appliance, avoid browsing the shoe section. In fact, if you already know what you need, then you may want to consider buying the items online to avoid the temptation of buying more than you anticipated at the stores in person.
4. Set a spending limit and stick to it. Sometimes we have good intentions but still fall short. One way to avoid that is to set an overall spending limit. Make a goal not spend more than a certain amount this holiday season, and stick to it. Set a spending limit each time you decide to go shopping. For example, my gift giving limit is $500 (which includes secret santa gifts, stocking stuffers, and gifts for each of my family members). Since I usually buy clothes during the holiday season, I also set an overall limit for how much money I will spend on myself. Once I reach my spending limit, I go home and avoid looking at additional sales. You should too.
5. Avoid credit card debt. It can be so easy to swipe a card and get all the things you desire. The temptation to buy something we really want can be quite strong. In fact, many people accumulate a substantial amount of credit card debt during the holiday season as a result. Don’t let this be you. Make a goal right now to avoid credit card debt. Don’t let one month of spending during the holidays derail all the progress you made toward your money goals this year. Simply put, don’t use money you don’t have to purchase things you don’t need. Avoid debt.
6 Financial Mistakes Most Residents Make in Training
As resident physicians most of us are just trying to keep our heads above water. While our time in training helps us become better doctors, many of us do some unwise things in terms of finances. Here are 6 of the top financial mistakes residents make in training:
1. Using the promise of future money to justify unwise purchases. I’ve seen numerous residents buy luxury cars and other expensive items during training. Although some have enough wealth or savings to afford these items, many others do not. There is nothing inherently wrong with having nice things, but going into debt to buy something you don’t need may not be the wisest decision, especially while you are in residency. Just because our salaries are set to increase once we finish training does not mean we should accumulate more debt before we get to that stage or finance a car with high monthly payments. Many of us already have six-figure student loan debt. Adding a high car loan to that amount at a time when we are only making around $60,000 a year can decrease our monthly cash flow and delay our ability to build wealth.
2. Not having a plan for their student loans. Some residents, especially those who live in high cost of living areas, find it challenging to cover their monthly expenses on their resident salary. As a result, they choose to defer their student loan payments until they become an attending. Although this may seem like a smart way to improve your cash flow, pausing student loan payments causes even more interest to accrue on your loans, forfeits interest subsidies you may qualify for, and prevents you from meeting qualifications for the public service loan forgiveness program. Instead of deferring your loans, come up with a plan. Look at the various income-driven repayment options and pick one you can afford. Fill out the employment certification form and take advantage of your time in residency in which you can make low payments that still count toward public service loan forgiveness.
3. Failing to ensure themselves against catastrophe. Many of us are healthy and tend to assume that things will work as we plan. Unfortunately, life has an inevitable ability to surprise us with situations we didn’t see coming. One of the best things we can do as residents is protect ourselves and our future income by setting up an emergency fund and getting disability insurance. Saving up money in an emergency fund will give us a way to cover unexpected expenses without having to take out debt. Getting an individual disability insurance policy, outside of what is already offered through our residency, will provide give us a steady monthly income if we happen get disabled from a car accident, diagnosed with a progressive medical condition, or suffer a mental health disorder that prevents us from working full time as physicians.
4. Racking up high-interest credit card debt. Many residents have such a large amount in student loans, that they have become immune to debt. They assume they can just pay it off when they get their attending jobs. Because of this thinking, many residents purchase things before they can fully afford them and end up taking out even more debt during training. They charge vacations, large purchases, travel expenses, and other unnecessary items on credit cards that end up costly substantially more money in the long run. Although we may be able to pay off our debt as attendings, it still accumulates interest while we are in residency. Plus, money spent towards credit card bills in training is less money we have available to invest and build our net worth. If you absolutely need money in training to cover things like moving expenses or childcare, then take out a low-interest personal loan with a plan to pay it back as soon as you are able, but try your best to avoid high-interest credit card debt.
5. Not using retirement accounts to build wealth. Many residents are not taught the basics of personal finance in training and may not know or understand the benefits of investing early. Perhaps they have heard of a Roth IRA or are aware that there is an option to contribute to the retirement plan at their residency, but they consider retirement a long way away and do not know that taking advantage these accounts in training can jump start their ability to build wealth and create the life they want. The truth is, because of inflation, we cannot save our way to wealth. We have to invest. Because of the power of compound interest, the sooner we invest, the sooner we build our net worth. One of the best ways to build our net worth is by investing in the stock market on a consistent basis. Because of the tax benefits, asset protection, and retirement matches from our job, investing through retirement accounts is one of the best ways to build wealth.
6. Buying a home without considering the full cost. There’s nothing inherently wrong with purchasing a house, but I’ve noticed that many residents do it for the wrong reasons. They incorrectly assume that if their projected mortgage payment is less than their estimated rent payment then they should buy a home. However, comparing rent prices to mortgage prices will give you an incomplete picture. There are transaction fees involved in buying a home (like attorney fees, inspections, and appraisal costs) that can add thousands more dollars along with the added costs of maintaining a home (like homeowner’s insurance, property taxes, and repairs) which can easily add another $400-500 to your monthly mortgage amount. The truth is, even if the rent price is higher than the mortgage price, the added fees associated with home ownership can still make renting cheaper. Be sure to count the full cost when deciding to rent vs buy.
My point? As resident physicians we aren’t expected to do everything right but avoiding these 6 financial mistakes will help ensure that we are setting ourselves up for financial success when we become attendings.
My 5 Residency Money Goals
Residency can be challenging. We are perpetually overworked, underpaid, and trying our best to make it through. Even those who aren’t resident physicians may be able to relate to this in some way. While this time has its ups and downs, we can’t lose sight of the bigger picture. We will soon be attending physicians and one of the best things we can do during residency is lay the foundation for the life and career we desire. This means doing a few things during our time in training to set ourselves up well financially. Here are 5 of the money goals I set when I started residency:
1. Figure out what’s going on with my student loans. When I graduated from medical school, I had a substantial amount of student loan debt. I remember being called into the financial counselor’s office and being told that I had over $200,000 in student loans. I don’t know about you, but I had never seen or made that much money in my life. I knew I needed a plan. I began to read about the different repayment options and tried to pick one that would give me the lowest monthly payments in residency, provide some government subsidies, and still qualify for loan forgiveness once I finished my training. I didn’t want to be stressed about student loans in residency, so I signed up for an income-driven repayment plan and had my residency coordinator sign the form needed for me to enroll in Public Service Loan Forgiveness.
2. Pay down my credit card debt. I had credit card debt before I started residency. Most of it was accumulated before I was med student, back when I was struggling to make ends meet as a post-grad student in Washington, DC. However, I had also racked up some debt when I was starting residency. Moving from one state to another, paying the deposit for a new apartment, and affording basic expenses like food while I was waiting weeks to get my first residency paycheck was tough. I didn’t have the benefit of a working spouse or cash from my parents to lighten the burden. I didn’t realize doctors could get low-interest personal loans, so I instead charged the expenses on my credit card. My goal was to pay off this debt within the first year of residency, so I set aside money from each paycheck to pay down this debt until it was gone.
3. Save money for vacays and emergencies. One of my goals as a resident is to be able to take full advantage of my vacation time by traveling and visiting friends in other areas of the country. Before COVID, I had visited friends in Seattle and Chicago. In a few months I’m planning to attend a destination wedding. In order to afford those trips without taking out additional debt or charging the expense on a credit card, I knew I needed to plan ahead. Thus, one of my goals was to save a few hundred bucks from each paycheck into a “vacation fund” so that I could afford to take nice trips during my time off. Along with saving money for vacations, I also wanted to make sure I had money in an emergency fund so that if an unexpected expense occurred like needing new brakes for my car, a new phone, or a new laptop, I had the money to pay for them. So in addition to my vacation fund, I also had a few hundred bucks from each check put into a separate emergency fund via automatic savings.
4. Protect my income with disability insurance. As a resident physician I know my income will increase when I become an attending. (And as someone who feels underpaid right now, I cannot wait for that to happen). But even as I near the finish line of my training, I realize that a lot of the goals I have for my life—to buy a nice home, spend quality time with my family, have memorable international travel experiences, finance my [future] kids’ education, and build wealth for future generations—depend on my future attending income. Because the life I envision is so heavily dependent on my future high salary, I knew I need to protect it by getting disability insurance.
Having disability insurance means that if something unfortunate happens (like getting in a car accident, being diagnosed with a chronic medical illness, or suffering from a mental health disorder) I will still have an income high enough to help me reach my financial goals. Getting disability insurance as a healthy young resident allowed me to not only protect and insure my resident salary, but it also allowed me to lock in a lower rate with guaranteed coverage so that I would be insured as an attending physician as well.
5. Start Investing Money. With the goals I had above and an initial salary of $60,000 as an intern, I wasn’t sure I could afford to have any more money goals as a resident. Fortunately, I still decided to invest. I knew that I couldn’t save my way to wealth and that if I wanted to meet my financial goals sooner, I needed to start buying assets (things that increase in value over time). I also knew that one of the best things about investing is that my money can make even more money via compound interest and that compound interest would be more effective the earlier I start investing. So yes, even though my income would increase as an attending and money was tight when I started residency, I still made a goal to invest.
Because of the tax, student loan, and asset protection benefits, I prioritized investing through retirement accounts (like a Roth IRA and my residency 403b). I also knew that I wanted to invest money in a way that maximized the chance I would make money and minimized the risk I would lose money which meant I invested in index mutual funds like the vanguard total stock market index. Because I wanted to prioritize paying off my credit card debt, I started off as an intern investing only 3% of my income into my residency 403b. I gradually increased the percentage every few months as I paid off my credit card debt and stacked up my emergency fund until I got to my target of investing 10% of my income.
My point? Even as a resident, it’s important to have money goals. Maybe you want to pay off credit card debt and start investing. Or, maybe you want to save for a wedding or set aside money to buy a home. Regardless of what your desires are, the first step in becoming money savvy as a resident and setting yourself up well as an attending is to clearly define what you want and make some money goals that you can work toward while you are in training.
9 Reasons Doctors Aren't as Rich as You May Think
Many people think doctors are rich. While many physicians have high salaries, I can tell you firsthand that a lot of doctors are not as rich as everyone thinks. Here’s why:
1. Med School Debt. Like other young professionals, many doctors have student loans. But unlike undergrad, medical school is expensive. In fact, most med students take out at least $30,000, per semester of medical school. The average medical student loan debt is over $240,000 by the time we graduate and this balloons to over $300,000 by the time we finish training and account for the interest that has accrued. It’s a lot harder to become rich when you start off with a net worth of negative $200,000 or $300,000 after graduating from medical school.
2. Prolonged Schooling. Doctors spend many years in school. Many of us start school at age 5 and don’t finish all the schooling and training needed to be a doctor until we are in our late 20s or 30s. Because of this prolonged schooling, doctors don’t start earning money until much later in life. While people in other professions have full time jobs with benefits and guaranteed salaries in their 20s, many doctors are living off of student loans. This means we can’t earn money, save money, or invest money in our twenties like many other people can. As a result, we have a delayed start to building our net worth.
3. Residency and Fellowship. After medical school we spend years in additional training working as residents physicians in which we are paid an average of $60,000 a year to work 60-80hours per week. In other words, we are full-time doctors, with full medical licenses getting paid a little more than minimum wage per hour. And this is mandatory. Every practicing physician must go through residency. The length of residency depends on the medical specialty, but it ranges from 3 to 7 years. Once residency ends, many physicians go through additional training called fellowship which means they spend another 1 to 3 years getting paid this lower rate.
4. Specialty Hierarchies. There are wide variations among physician salaries after residency. Pay can range from $120,000 a year to $600,000 a year and beyond. The amount of money a physician makes is heavily dependent on one’s primary medical specialty. Specialties that do more procedures (like surgery and radiology) tend to generate more RVUs (revenue value units) which results in higher insurance reimbursement rates than specialties that do fewer procedures like family medicine and pediatrics. Specialties like plastic surgery and dermatology that are more cash-based and offer cosmetic services tend to generate higher salaries as well.
5. Taxes. Once doctors finally finish training and start making higher salaries, they are often in the highest tax brackets. This means a large chunk of their earnings is deducted from their pay before it ever hits their bank account. Unlike many of the rich, who are able to shield a lot of their income from taxes by making real estate investments or business dedications, many doctors are employed as W-2 workers which is taxed at a higher rate. Along with higher tax rates, and fewer tax shields, doctors are often phased out of many of the subsidies that benefit the middle class and are ineligible for tax breaks and refunds enjoyed by the rest of the population.
6. Overspending from Delayed Gratification. After spending many years in school and training, doctors have a great deal of delayed gratification. Many of us want to buy a home, start a family, purchase a new car, take a nice vacation, and make other large purchases. After so much delay, it can be hard to resist the urge to do all of these things at once. Many physicians finance expenses, take out debt, and purchase things before they have all the money needed to do so. This exponentially increases the debt we already have and delays our ability to build wealth.
7. Mid-level Influx. Physicians cannot ignore the impact of mid-level providers. While nurse practitioners and physician assistants are valuable providers who can help increase access to care, they have been used by healthcare corporations as a cheaper alternative to care. Although physicians and mid-level providers are both immensely valuable, the influx of mid-levels has decreased the job options and lowered the pay range for some physicians. For example, instead of hiring two physicians to work in an urgent care, a company may instead hire one doctor and one mid-level provider.
8. Big City Saturation. Physician salaries vary widely in certain parts of the country, but not in the way one might think. In most jobs, people in larger cities get paid more to compensate for the higher cost of living. The opposite tends to be true in medicine. Because larger cities usually have more entertainment options and educational opportunities with large hospital systems that have more jobs for physicians in niche specialties, many doctors want to live in or near a major city. This creates physician oversaturation in these areas. Because the supply of doctors is so large in big cities, the demand for doctors in those areas decreases which results in lower salaries. As a result, doctors tend to get paid less when they move to larger cities. Along with taking a pay cut to live in a desirable area, many of these big cities often have a higher cost-of-living and tax rates which further decrease a physician’s take-home pay.
9. Lack of Financial Literacy. Despite our intelligence and skill when it comes to medicine, many physicians are never taught about money. Physicians spend years in school, often without ever having a salaried job, then go through residency where they are overworked and underpaid. They then finish training with a massive pay increase and zero guidance on what to do with their money. Many physicians spend too much too soon, and fail to save or invest enough of their income to build wealth over time. Unfortunately, many who doctors who seek professional help by hiring a financial advisor are often taken advantage of. Many are charged high prices for bad advice and are often tricked into purchasing inefficient financial products or investing money in subpar ways which further delays their journey to building wealth.
Thus, doctors aren’t as rich you may think. Some of it is our own fault, some of it is a system failure that impacts us greatly.
Tell me, what are some reasons you think doctors aren’t as rich as everyone thinks? Do you have any ideas on what we should do to overcome these hurdles?