Medical residents and fellows have always been in an interesting situation. They are embarking on the foothills of their career and obtaining the skills and knowledge they need to press forward. They are likely in the most idealistic mindset they’ll ever be in their career, and they’re networking with their future general practitioners and specialists for future referrals. For many, it’s an exciting time of life.
One twist that gets thrown into the picture is the idea that they have to obtain $200,000+ of student debt – and that’s on top of their undergraduate student loans. They also give up nearly a decade of real working capital for the working knowledge and skills to move forward with their medical career. Giving up that “decade of learning” when many of their friends might be working “real jobs” often leads to higher student loans in the form of interest accrual and capitalization. This conundrum, among others, makes for a fairly tender time in a young physician’s life and livelihood. This tender time can lead a young doctor to bad decisions, which are ultimately magnified later. Here are some practical tips on some common mistakes medical residents and fellows make, and how they can avoid these mistakes.
- Failing to understand their student loans.
Student debt is such a hot topic right now, and for good reason; it’s crushing many young Americans. For a medical resident, getting through residency and/or fellowship with a crushing amount of student debt is like trying to thread a needle with one hand. It’s such a tedious and tall task in itself – not to mention you’re expected to be soaking up gobs of information during your years of training in one of the most rigorous and rewarding careers on Earth.
When I speak to residents and fellows about their student loans, I feel like there’s a haziness around the understanding of student debt. With the way the government loans are structured, the loans are so complicated. You might have a student loan package that has 6 or 7 (or more) loans wrapped into one master loan account. Because of this, many question arise. So where does your payment go? What are the payment options and which is best? Why are there so many interest rates?
I think it’s important to understand the big picture of managing your student loans before getting to the granular details. From my experience, most people approach the task of tackling student loans beginning with the details of each loan, and after they find so much confusing and conflicting information, they give up on making a plan of attack. I break down student loans for physicians into two phases: 1. Managing Student Loans and 2. Paying Student Loans.
Managing Student Loans is basically the process of juggling the payment plans to minimize the monthly budgetary expense. The government loan program has some really good ways of handling this; however, some of these management methods can hurt you later. Oftentimes, your loans will still accrue and capitalize (the interest of the loan becomes capital or turns into excess debt of the loan, which, in turn, produces more interest) during this time. The trick is to find the route that best suits you and your family from a cash flow standpoint and start there. Some pundits and experts say to pay as much of your loans as you can in residency, which is great in theory, but if you have a family and kids, life will continue to happen, and one thing I know about life is that it can be expensive. So during training – and maybe even the next few years after training – organize this phase as a cash flow management phase, and you’ll be able to develop a much more effective plan.
Phase 2 is Paying Student Loans, and it’s just like it sounds – developing a strategy to pay off the loans. For many, the thought of refinancing seems burdensome until they pay extra into their complicated pool of multiple government loans, and there often seems to be no rhyme or reason as to where the payment is actually directed. Government loans are fine, but I commonly recommend refinancing student loans while in the payment phase. The payment phase usually occurs just after training ends. I have multiple strategies for paying off the student loans, but the point of this article is to understand that while in residency, you don’t necessarily have to live in the payment phase – just in the cash flow management phase. In fact, it’s often impossible to pay $200,000+ of student debt with $50,000 of income.
- Feeling like they can’t make decisions about their future.
I think many residents and fellows follow their training guidelines and feel they can’t make an impact on their future until training is completed. A medical career is so wrought with delayed gratification that by the time many physicians feel they can start making a difference on their future, it’s so late in the process. And time is often financial plan’s greatest asset. While having a written to-do type of plan with where cash flows are supposed to be directed and goals to achieve might not be necessary while in training, a basic, big picture item/accomplishment list is a great start. In training is the time to set up the architectural structure of the plan; after training is the time to build and complete the structure.
Depending on personal factor, such as: familial situation, where the resident resides, and what’s going on with the budget, there are several things that are either super cheap, if not completely free, that can be done to positively impact the future. A few examples are to set up a living will. This is often available by each state, free of charge. Another thing is to set up your car insurance properly and get quotes for an umbrella policy. I’ve seen people save money on insurance premiums and get $1,000,000 of additional lawsuit protection. If kids are present, a will is one of the most underrated items available, especially when it comes to deciding who has guardianship rights of the kids. What I call a “band-aid will” or a “triage will” is often super cheap – around $60. But if the family situation is complicated, I suggest possibly skipping the “band-aid will” and seeking legal counsel sooner, rather than later. Lastly, sometimes a small disability policy can be activated during training for fairly cheap, all depending on age, specialty, and discounts.
The fact of the matter is that during training, residents may feel out of control, but they can take control of some of the more fundamental items that could have a lasting impact on their lives.
- Trying to live up to anyone else’s standards.
One thing that’s always made me cringe is when I hear, “But she’s a doctor, she can afford that,” or, “A doctor has to have a nice (insert material item).” Even during residency, the outside world thinks that doctors have the world handed to them; and this is the farthest thing from the truth! Doctors are regular humans with super-human efforts and unbelievable sacrifices. And oftentimes, those efforts and sacrifices lead to great salaries and incomes later. A doctor shouldn’t let anyone else spend their money.
I could write for days on this topic, and I feel like I’ve probably seen it all here. I’ve seen medical students driving new BMWs, using student loan disbursements to pay the car payments, and justifying it with, “Hey, I’m gonna be a doctor.” If a resident (or attending, for that matter) lets someone else dictate their earnings, spending, lifestyle, or self-image, that person will likely never feel in control of their life and never be satisfied.
Ultimately, in my opinion, there’s a balance to this. There’s life now, which is important and shouldn’t be ignored. There’s life later, which needs to planned for responsibly. Balancing the two is often a tough task. Generally speaking, I think the “life later” aspect is (and rightfully so) ignored during residency. But the life now sometimes becomes so important – in self-image and lifestyle – that the “life later” is already doomed. In short, don’t let anyone else make decisions about your personal life; I think that’s advice we can all carry around.
- Not talking about money wins and woes.
I’ve always joked that hospitals hosted more money-driven discussions than anywhere else. I think this occurs, mostly from attending to attending – possibly from attending to resident in a guiding/teaching kind of way. I think there’s sometimes a disconnect from resident to resident about truthful money conversations. I’m not talking about just being broke, either. When there’s a struggle – like making small salaries in residency and managing large amounts of student loans – talking about that struggle is cathartic. There’s no badge of honor for gritting through medical school, residency, and fellowship and not being honest and open.
Enrolling in PSLF (Public Student Loan Forgiveness program) is a money win (maybe... if it works!). The minimum payment on IBR (income-based repayment on student loans) being $0 and still counting as a qualified payment is a win. Paying rent late, eating Ramen noodles every night, looking through the couch for spare change to pay the nanny (we actually did this) is a woe. Just being open and honest and human is such a good thing, and medicine needs more good things. I think medicine has this mindset of “I’m going to work harder and longer than anyone, and I’m going be smarter, more independent and the best doctor around, and I’m going to push through all these hardships and obstacles.” This mindset isn’t necessarily negative, but I think the residency experience is missing some humanity.
- Not having their own financial philosophy in place.
Of all the things on this list, this is the biggest. Having a financial philosophy is the most critical line-item for a resident’s future. A financial philosophy is a fundamental and hierarchical purpose of what money does. It ranks the most important objectives of money, goals, and desires in a succinct, step-by-step action plan. During residency is the time to put this together. When large incomes are just a dream is when a resident can truly evaluate what’s important to herself or himself. So when that first attending physician paycheck arrives, there’s already purpose behind it.
One thing that’s never explained to residents is that residency isn’t the toughest financial time in a doctor’s financial life; it’s the first two to four years after training that’s the toughest and most crucial to financial freedom and success. The first few years after training are when the physician’s lifestyle is developed and defined. That’s when the physician often matches their lifestyle to their income, and then there’s no saving, no excess, and the idea of someday having money remains just an idea. Mortgages, car loans, student loans, credit cards, etc. all take a toll on those first few paychecks. The lack of liquidity, and the lack of a plan will allow for more debt to creep in (and stay!). Knowing what to do with money from a foundational level provides such clarity.
Here is an example I give many of my residents and fellows. Here’s a financial philosophy based on cash flow I came up with while my wife was finishing her fellowship, and I wish I had it when she started residency. I tell every resident to take this information and change it to their own. I tell them to sit down with their spouse, if they’re married, and develop the proper order for these items, and add or subtract anything that doesn’t belong. Once residency is finished, continue to abide by the philosophy set out, but make changes accounting for the increased income.
Paul’s Financial Philosophy During Residency
1. Create a Budget
2.Protect Against Unforeseen Disasters
3.a. Develop Liquid Savings
3.b. Eliminate “Bad” Debt
4.Save 15% or more of income
5.a. Eliminate Long Term Debt
Setting these 5 things during residency and fellowship can make all the difference in getting started and keeping on the right path, financially speaking. The burden of financial stress can take a toll, and residency is already stressful enough. Keeping a spouse informed and aligned about intentions with money is crucial to any career path – especially medicine – with oftentimes difficult workloads and continuously rigid tasks and hours. Residents establishing themselves as leaders in their own financial matters will also provide framework for their colleagues and friends. It’s important for residents to make sure to focus on the big picture because the minutia and details will almost always derail their efforts to stay the course for which they originally set sail.