As a new doctor, your financial situation offers unique possibilities and poses unusual challenges. Doctors tend to have high incomes, with the median wage for physicians and surgeons surpassing $208,000 in 2017, according to the Bureau of Labor Statistics (Note: For a break down by specialty – Medscape’s 2018 Salary Report). But they typically spend four years in medical school and three to seven years in residency before making this salary. Not to mention, they rack up significant student loan debt along the way. If you’re a new doctor, you might not know where to start when it comes to managing your finances. Before you spend your first paycheck on a new car or trip to Tahiti, make these five smart money moves for new doctors. 1. Come up with a plan for your student loans Although most doctors enjoy a high income over the course of their careers, they also must take on a significant amount of student loans to earn their degree. The Association of American Medical Colleges found the average medical school debt for 2016 graduates was over $189,000. Plus, your loans might have grown bigger if you put them into deferment while you were in medical school. Once you graduate and repayment kicks in, it’s important to devise a plan for managing your debt. “The first and most critical step for any new physician is to really understand their current situation,” said Ryan Heider, vice president and financial adviser at Cirrus Wealth Management. “That means block out a few hours, get your laptop out and write down all the pertinent financial facts. This first step is really about education and creating a logical starting point.” After writing down your loan details, figure out how long it will take you to pay them off. If you can swing extra payments, you could get out of debt ahead of schedule. On the other hand, if your bills are burdensome, consider applying for an income-driven plan, which adjusts your payments along with your salary. Finally, check to see if your work qualifies for a loan forgiveness or student loan repayment assistance program. Whatever your strategy, make sure you’ve weighed your options and found the right student loan repayment plan for your budget. 2. Build a 3- to 6-month emergency fund Once you start earning money, make it a priority to funnel some of it into an emergency fund. Most financial experts recommend saving enough to cover three to six months’ worth of living expenses should you lose your job. “An emergency fund is the foundation by which the rest of your financial house is built,” Heider said. “[It] provides comfort and confidence to physicians as they start their careers.” Not only will an emergency fund help you through unexpected circumstances, but it will also provide a financial cushion if your new job isn’t what you thought it would be. With solid savings on which to fall back, you’ll have the freedom to change jobs if you find yourself in a subpar situation. 3. Start saving part of your salary for retirement Since doctors are in school for so long, some of them get a late start when it comes to saving for retirement. But that doesn’t mean you can’t catch up. “For a physician, planning for retirement is not as difficult as you may think,” said Craig Thompson, president of Asset Solutions. “The two keys to a successful financial retirement are to save a substantial portion of your income, and once you get close to retirement (10 years), you need to develop an effective risk management strategy.” Whether you have an employer-sponsored 401(k) or your own individual retirement account (IRA), start automatically setting aside part of your income every month. The earlier you can start saving for retirement the better, since the effects of compound interest become more powerful over time. 4. Consider refinancing your high-interest debt Along with making extra payments, you could pay off your student loans faster through refinancing. When you refinance with a private lender, you could snag a lower interest rate than you have now. You can also choose new repayment terms, whether you want to shorten your terms to pay off debt sooner or lengthen them to lower your monthly bills. Plus, refinancing allows you to consolidate multiple loans into one, making your bills easier to track. That said, refinancing isn’t the best move for everyone. If you refinance federal student loans, for instance, you turn them private, meaning you lose access to income-driven repayment plans and federal loan forgiveness programs. If you’re relying on federal protections, it’s probably not a good idea to refinance your student loans with a private lender. But if you’re confident about your ability to pay back your loans, refinancing could be an effective way to save money on interest. 5. Avoid the temptations of lifestyle inflation After all the hard work and sleepless nights of medical school, you might be ready to spend your hard-earned income. But if you’ve got a ton of student debt hanging over your head, it could be in your best interest to continue living like a medical student for a few years longer. “Most new doctors come out of school with huge student loan balances that tend to take decades to pay off,” said Jason Cabler, a practicing dentist who blogs about personal finance at Celebrating Financial Freedom. “One of the best things I recommend for new doctors is to live on half their income for a couple of years as they begin practicing, while aggressively paying off their loans.” Although this might take careful budgeting — and some serious willpower — living below your means will help you get rid of debt sooner. Once your loans are no longer hanging over your head, you’ll be able to enjoy more of your salary. Focus on paying off debt so you have money for other goals As a doctor, you’ve vowed to follow the Hippocratic oath: “First do no harm.” By making these smart money moves, you can avoid harming your personal finances. Even though it might be tempting to increase your spending when you start making an income, you’ll be better off if you deal with your debt first. By throwing everything you’ve got at your loans, you’ll be much closer to a life of financial independence. Source
