If you are a resident like I was, you probably feel a bit stuck financially. You don’t make a lot of money. You are working constantly. It seems like there are no finance plays that will move the needle as a resident.
This feeling led me to essentially write off any potential financial education during my training. As I’ve shared, I stuck my head in the sand and hoped for the best. Then, a few months before graduating, I looked my financial fears and mistakes in the face. I started my financial education and made positive changes.
Looking back, I now realize that there were a LOT of things that I could have done as a resident to put myself in a good financial place, both in training and beyond.
In sharing this list, I hope to inspire a lot of you to make these moves and avoid the mistakes that I made!
In fact, I’ll show you that these simple steps you can take as a trainee will make you over $1 million in your investing career!
Let’s get into it!
1. Pay down your debt
This is #1 for a reason: you NEED to make this a priority as a finance save resident! I paid down exactly $0 of my principal debt in 7 years of training. For 2 loans, I paid interest only for 2 years because I had run out of deferment options.
Every year, I would have to look at my ballooning loans and fill out forbearance/deferment paperwork to submit. I would get super stressed about the absurd amounts I saw and then effectively ignore them for another year. This was the worst strategy possible.
Let’s look at the math. My average interest rate is about 6.8%. At this rate, every $1 that I did not pay off at the beginning of my training is now worth $8.60 at the end of my 7 years.
This means that every $1 that I could have paid off would have saved me about $8.60 now. If I didn’t eat out one night and used that $50 to pay off my loans, I would have $430 less to pay off now. My net worth would be exactly $430 more currently.
No matter what your situation is, use every spare dollar that you can to pay off your debt while in training. Even if it seems like it’s not making a difference, you now know that it is!
2. Use your retirement accounts to optimize your personal finance as a resident!
You usually will have retirement accounts available to you as a trainee. Chances are you are not aware of this. I was even contributing to a 457(b) retirement account for 7 years and did not know it (sad, but true).
Even if you are contributing what seems like a small amount each year, the magic of compound interest is working in your favor to make you money. When you are on call in the ED all night, at least you can then imagine the money that your money is making for you. That makes things seem not quite as bad!
Assuming you are paid on a biweekly basis and average a 7% yield on your investments, let’s say you save $192 from each paycheck and put it in a retirement account of your choosing. Let’s say you do this for every paycheck over 7 years. This amounts to saving $5,000 annually. Not much. But at the end of your training, that would be $43,270.11! Now, let’s have that compound for 30 more years…it’s now over $800,000 for retirement.
As a side note, your tax bracket as a trainee will be way lower than it will be in the future as an attending. Therefore, when possible, make Roth contributions to your retirement accounts. This means that your contributions will be taxed now, grow tax-free, and will never be taxed again.
Which brings me to our next pearl…
3. Contribute to a Roth IRA
In addition to contributing to a retirement account, work really hard to contribute to a Roth IRA each year. Again, Roth contributions are taxed when you make the contribution and never taxed again. Therefore, you are taxed when you are in the lowest tax bracket you will ever be in…as a resident.
As soon as I started learning about Roth IRAs at the end of my training, I gathered all of the money that I knew I would not need for at least 20 years, opened a Roth IRA at Vanguard, and invested it. It wasn’t much money but it’s already grown over $600 in a short time.
That’s another example of inventing wealth and money making money.
I only wish I had done that same thing each year. Unfortunately, I can’t…but you can!
4. Create a resident finance anti-budget
I’m a big fan of budgeting now. Seriously. I’m weird like that. Here’s even my free budget template for you to use…
Every month, Selenid and I sit together. We open our bank account and compare each expense to what we budgeted for that month. The extra goes towards additional loan payments.
We did not do that when I was resident and she was a PhD student. Honestly, I think that was probably for the better. It would have been super depressing to realize how little money we had to spend on groceries etc. It’s easier to tolerate (and even fun) to do it now that we are making more money.
HOWEVER, you do need to track your money as a trainee. No excuses.
The best way to do this is using an anti-budget
To use an anti-budget, take a certain percentage of money out of your checking account with each paycheck. This is money allocated for loan payback, retirement savings, and general savings. Try to make this figure at least 20% of your earnings. Then, with all of the money left in your checking account, spend as you see fit without guilt or budgeting each cent.
It’s even easier to anti-budget when your savings comes out automatically before it even hits your checking account. This is what happens with your contributions to retirement accounts or automatic transfers to pay your loans. Make as much of this automatic as you can.
In training, my wife and I just basically spent up to our income with a 0% savings rate. Another big mistake.
5. Limit credit card expenditures
Commercial credit card interest is the highest interest out there. It’s way more than even your student loans. Way more. Please, please minimize your credit card use. If you are going to use it, pay off the whole balance each month. Even if there are great rewards, the amount you will pay back in interest will dwarf any points you get back.
The only exception to this rule in my mind is if you need to pay for board or exam fees and absolutely cannot do it another way. These are necessary expenses for your career.
I had to do this a few times and did not feel bad about it. I felt bad about all of the other unnecessary credit expenses that I accumulated though…
And there are alternative low interest options now that you can use like peer to peer doctor lending…
6. Rent, don’t buy (unless you house hack)
I’ve gone in detail about the decision to buy or rent a first house as an attending here.
As a trainee however, I strongly recommend that you rent your house or apartment. The real estate market is a bit like the stock market in that it tends to rise safely over the long term. However, in the short term, it is quite volatile.
Even with my 7 years of training in one city, that is considered a short time in real estate. Therefore, if you are planning to buy a property with the hopes of selling for a profit when you finish training, you are gambling. Don’t gamble.
Further, if you have trouble selling when you need to move, you will become a reluctant landlord. You didn’t buy this property as a real estate investor, you bought it as a consumer. So, chance are this property doesn’t function well as a rental. And you now are stuck trying to manage it. Not ideal…
The exception to this rule is if you decide to house hack
House hacking is when you buy a property with the plan to rent out another unit(s) or room(s). This way, your renter(s) pay your mortgage, taxes, expenses, etc. and you live for free. When you move, you simply rent out the space that you lived in and now your property is putting cash in your pocket each month.
The caveat with this is that it is absolutely necessary that you do due diligence on the property before you buy it. You need to make sure that this property is rentable and will function as you plan. Otherwise, you’re a reluctant landlord again.
7. Invest your change (and increase your net worth)
What do you do with your change?
Occasionally as a resident I would use it for bus fare. But most of the time, it sat in a drawer or in the bottom of my bag (all plastic surgeons have bags…it’s a thing).
What I wish I had been doing is investing my change. Using an app called Acorns, you can now do that. Acorns will take each purchase you make, round to the nearest dollar, and invest the change in broadly diversified, low-cost index funds according to a tailored asset allocation. For instance, buy a sandwich for $5.50, Acorns will take the extra $0.50 and invest it. You can also add a recurring contribution or add multipliers (2x, 3x, etc.) to your round-up investments.
I have been doing this for the past 2 months with a $20 recurring weekly contribution and a 2x multiplier on my round-ups. Now, I’ve got over $600 in investments from my change.
Let’s say you invest a modest $500 in change each year for a 7 year training program with average 7% return. That’s $4,327 at the end of training. Carried another 30 years, that’s over $80,000. Not bad for spare change.
Sign up today through this link and Acorns will contribute $5 free to your account.
8. Read one finance book each year as a resident
Your financial success is directly related to your financial knowledge and education. In training, your medical knowledge is obviously a huge priority. As is family and your personal well-being. Financial well-being is a major, but often neglected, component of personal well-being. Make your financial education a priority.
This can easily be accomplished by making it a goal to read at least one personal finance book each year of your training.
Here is a great place with resources to get started. Pick one and just try to read 10 pages a day – starting with the day that you actually get the book in your hands. Don’t procrastinate. You’ll be hooked in no time.
Even better, you will feel your financial prowess expanding, enhancing your well-being.
When you finish the book, lend it to a co-resident and keep spreading the word.
9. Do your own taxes
Your taxes as a trainee are generally not that complicated. I always had an accountant do my taxes. I paid them about $400 each year. It was totally unnecessary.
My last year in training I finally decided to do my taxes myself. I got a better refund than usual. This was partly due to a new kid but also due to me taking an interest and making sure things were filled out right. Remember, no one will take care of your money like you will. Also, I saved $400 that I no longer needed to pay the accountant. I paid off a small student loan with this $400. Imagine that I did this each year for 7 years. That would have been $2800 in savings and $24,080 ($2800 x 8.6) in opportunity savings had I used all of that money to pay back loans.
Seeing how taxes are done is also a great learning experience. Taxes are a set of guidelines of how the government would like you to live your life. Live according to those rules and you get the benefit of less taxes. Start a business, get married, have kids, buy a house, etc. Knowing this will benefit you in the future.
Even if you have an accountant do your taxes when things are more complicated, you should always be watching over their shoulder. Again, no one will take care of your money like you will.
10. Bring your lunch and don’t do take out
I love Paula Pant and her blog, Afford Anything. She always talks about how silly it is to focus on financial advice such as, “Don’t buy your daily latte.” She argues that these small moves don’t really help. We need to be focused on bigger things like increasing our income or investing more wisely.
Overall, I completely agree with her. We should have an abundance mindset with money, not a restrictive mindset.
But, in the specific circumstances as a finance-limited resident, I really will encourage you to bring your own lunches and minimize eating out/ordering take out as a trainee. Remember, each $1 not paid to loans becomes $8.60 after 7 years of training.
Is that $20 take-out really worth $172 in negative future net worth? A cafeteria lunch at my hospital usually cost about $9. Let’s say you work 25 days a month as a resident and buy lunch each day. That’s $2,700/year. That becomes $23,220 in opportunity savings if used to pay your loans.
In this case, it does make a difference. Try to keep this in mind.
11. Focus on becoming the best doctor you can be
This is important.
Your job in training is to learn the skills and professionalism needed to be the best doctor you can be. That always is the focus.
I’m not saying you should divert that focus onto financial health completely.
Instead, I hope these steps give you the high-yield information you need to create simple, automated habits that put you on the road to financial freedom!
There you have it. The 11 top finance moves for you to make as a resident.
If you’ve been keeping track, these very doable finance moves that you can make as a resident will easily add up to make you over $1 million in net worth over the course of your investment career. That’s insane!
Take these 10 finance steps as a resident and you will be better off than 99% of your attending colleagues, let along your co-trainees.
And you will 100% be way ahead of where I was as a resident.
PS: Don’t have a written financial plan yet? Use mine to get started!
What do you think? Did you take any of these steps as a resident? How did they help or hurt you financially? Did I miss any important moves to make? Let me know in the comment below!