As a practicing physician for the past 10 years and as an educator of students and residents, I have learned that doctors do not realize what it takes to be financially stable. In planning our education, we plan on 4 years of college, 4 years of med school and 3–7 years of residency before we actually get to practice independently. We know up front the commitment it will take, physically, emotionally, and financially and we still go through with it. However, when it comes to finances, the same effort does not exist. Most physicians bury their head in the sand and hope it will all magically work out.
Like anything worthwhile, it takes time. Medical students, residents, and fellows often lament the debt they have, the hours they work, and the low hourly rate they command. However, they do not recognize the one the thing they do have is TIME. Time is critical to financial stability and growth. The sooner you start, the more you will have — it’s that SIMPLE.
Pay your FUTURE self first! This means 10–15% of your take home money should be going to investments that will generate future growth. For med students, this means saving a few dollars every month. For residents, it means saving a few hundred dollars every month. You may be thinking, I have so much debt, how could I possibly save? It is about building a small nest egg that has TIME to grow. It is also about developing good habits that you can utilize when you actually make more money.
Here are 5 things Savvy Docs do to build wealth over time:
1. We start saving for retirement as soon as possible.
Siphon off 10% from your pay check and have it directly deposited into a long term retirement account (such as a 401k or IRA). If 10% seems like a big amount, start with 2–5% and increase it by 1% every pay month until you reach 10%. The first month might be rough, but you’ll get used to it.
For residents and fellows that don’t have access to a 401k or 403b as part of your benefit, IRAs (Individual Retirement Accounts) can easily be set up with no minimum investments if you set up a direct deposit feature on your account.
2. We use technology to help us save money.
There are many apps out there for this purpose. Apps like ACORNs can help you save change from transactions and invest that money (this service is free for students and only $1/month for everyone else). The equivalent of this is putting all your change into a piggy bank. This is a great way to start saving.
3. We live within our means.
Sometimes, this means making sacrifices. Whether it’s to live with basic cable (or no cable at all), making most of our meals at home, or driving an old car for a few extra years, there are many ways to do this. Aim to save at least 1 month’s income (with a goal of eventually saving 3–6 months of income) — this will provide a buffer for those unexpected costs and emergencies. It’ll mean less stress in the long run and it’ll give you the confidence to save even more.
4. We splurge by investing in ourselves.
Living paycheck to paycheck and making less while working more hours than our non-physician friends can be tiring. Sometimes, you will want to splurge on yourself with new clothes, a vacation, or a new phone. Although this is definitely necessary from time to time, try to view saving as splurging on your future.
In residency and fellowship, your income will increase by an extra $100–200 per month every year — this can add up to an extra $2000! Try to live off the same income you had as an intern and put the rest of this money into savings. You’ll thank yourself later.
5. We pay off debt wisely.
Using spare money to pay off debts is a great idea, especially starting with any credit card debt or other high interest debt. You can start putting big dents into your student loans, however, you are not taking advantage of your TIME that you have. If you have to choose over making a larger payment into your student loan debt versus putting that money into a retirement fund, the latter will have the most benefit because you are giving that money time to grow over time.
Wealth building takes TIME. That is the one thing you DO have.
Join Savvy Docs. Let us help you get to where you want to be.