As someone married to a physician I happen to have many friends in the medical field. Most doctors have to go through a brutal residency program. The medical residency takes between three and five years. Residents have a very busy working schedule, aggressive learning plan and spend long hours in the hospital. They shift every 3 to 6 months between different subjects and medical practices. Their salaries are usually in the 40-60k range, while their student loan balance is still growing with compounding interest. As a financial advisor, I would like to suggest 10 ways to grow your savings during medical residency. Naturally, I have to give credit to my wife for contributing to this article.
1. Consider a location with low cost of living
When you apply for medical residency, one way to save money is to pick a location with low cost of living. If you decide on a residency in New York City or San Francisco, you can expect your living expenses like rent and food to be much higher than if you are in Charlotte or Denver for example. $10 bucks don’t go a long way in the Big Apple but might fit your daily budget in a smaller town.
2. Find out if your hospital provides subsidized housing
Many hospitals provide subsidized housing. A lot of these apartments are conveniently located near your hospital, and you will save money on rent and transportation. Also, you might be able to get an extra 15-20 minutes of sleep just because you are right next door.
Often these spots are limited. Check if you qualify and apply early. Don’t wait until the last minute.
3. Get a roomy
If you spend six out of seven days in the hospital, you might as well have a roommate. You can split the bills. If you are in good terms with your roommate, you can even shop together at Costco or Sam’s club. They sell in bulk at very competitive prices. If you have a buddy to split the large packages, you can save a lot of money on your meals and other necessities.
4. Set up a budget
This is an important one. Medical residents get an average salary for the number of hours spent in the job. Since you won’t have much time later on, before you start your residency, do your budget. Go over your salary from the hospital and your basic expenses. Make sure that all numbers add up. Also, start setting up an emergency fund. You never know what life will present.
5. Manage your student loans
Do not ignore your student loans. If you are not required to pay them during residency the interest on the loan will still accrue and add to the amount you have to pay later. Try to refinance your high-interest loan with a lower rate one. If you can’t refinance it, try to pay the interest regularly.
Not paying your interest will have a huge compounding effect on your loan balance, which will substantially increase the amount you owe once you leave residency.
6. Manage your credit card debt
Now when you finally started making some money, you can look at your credit card debt. Credit cards are a convenient way to pay for things, but they often carry a huge interest. I hope you don’t carry any credit card debt, but if you do, now is an excellent opportunity to start refinancing or repaying the high-interest balances.
7. Maintain a good credit
A good FICO score will save you a lot of money in the long run. People with high credit score get lower interest on their personal, car loans, and mortgages. A lousy credit score can even hurt your job search. Yes, many employers check that.
8. Don’t splurge on expensive furniture. Go to Ikea or Craigslist
If you must buy new furniture, do not splurge on expensive ones. Remember, you will spend the next four years in the hospital. You don’t need expensive furniture to collect dust. If you want to have something decent go to Ikea, look on Craigslist or ask other senior residents, who are graduating soon.
9. Start retirement savings
This recommendation is critical. Doctors launch their career at least ten years after the average person. Therefore they start saving for retirement much later. The new physicians miss ten years of potential retirement savings. You don’t have to be that person.
401k / 403b
Most health systems offer some variation of a 401k or 403b plans. Take a full advantage of them. Your contributions are tax deductible. You won’t owe any taxes on your savings until you start withdrawing money from the plan.
If your hospital does not offer any retirement saving plans (very unlikely but possible), you can always open a Roth IRA account. Roth IRA allows you to invest up to $5,500 every year which will grow tax-free until retire. You will never pay any taxes on your gains and dividends as long as you keep the money in the account until you retire. Roth IRA has one caveat. You can only contribute the maximum amount if you make less than $117,000 per year. The chances are high that you will make a lot more after leaving residency and starting your practice. Therefore, you won’t qualify for Roth IRA later in your career.
10. Find freebies
Look for free stuff. There is no shame in that. There are many local free concerts, free museum nights, restaurant specials and happy hours. Look for them in your area or local newspaper or website.
Your hospital will regularly offer sponsored programs with free lunches or dinners. Go to some of them. You may learn something, meet interesting people and get a free meal.
Find out if your hospital has a gym. Regular workouts will keep you in shape and help you get through the long hours.