Last Updated on June 26, 2022 by Laura Turner
Congratulations! Graduating medical school and securing a spot in residency is a very exciting accomplishment. You are surely being
bombarded with advice about how to handle the workload and increased responsibility, however there are some shocking financial realities that are about to come your way. Preparing yourself for these hidden expenses is crucial to surviving residency financially intact.
Travel Expenses: You may have planned ahead for all of your interview travels and revisits but have you considered how much it will cost you to move? Graduating students planning to move cross-country will find that flights and moving costs quickly add up. In addition you may need to make several trips after match day to secure housing, pick a roommate and sign a lease. Even those moving relatively close
distances may want to reconsider dragging furniture and belongings with them.
To keep down moving costs, consider leaving behind old textbooks and furniture. Often it is cheaper to buy new items than to pay to move them. Many moving companies will charge by the hour, by having everything boxed and broken down by the time the movers arrive you can save yourself some serious cash. Flat rate movers can also take out the stress and uncertainty from your move. Get quotes from several moving companies and book in advance. The summer is busy time for movers and they begin to charge more as slots fill up. Don’t forget to ask what insurance requirements your building requires of your movers.
For those who own cars, consider whether it pays to keep them in your new location. In some cities a car may be more expensive than useful. When searching for apartments stay with friends or split the hotel costs with another incoming resident. If others from your medical school are heading to the same location you may be able to pool carfare and hotel bills.
Apartment Fees: Found the perfect place? Great, but can you afford it? Even those heading into hospital housing may be surprised to find the process of signing a lease differs significantly than the process of entering medical student housing. Landlords will often want a security deposit and two months rent in advance. This cannot be paid via credit card. You will need a cashiers check. Having that much money to front before you start earning a paycheck takes a lot of planning.
Start planning ahead for closing costs on an apartment. Plan to have two months rent available when signing your lease. If you are planning on renting on your own, not through your hospitals housing department, you may need 3-4 months rent.
Health Insurance: One of the biggest shocks to medical students is that when you graduate – your student health insurance ends. Check with your school to see when your insurance coverage will end and with your residency program to see when your benefits start. Often there will be a two to three week gap during which you aren’t covered. Students have even reported being told “try not to get sick” when asking their school what to do about this issue.
If you will have a gap in coverage you may be eligible to extend your insurance to cover that time. If your school is unwilling to facilitate this, you are likely still eligible for COBRA, a temporary continuation of coverage for higher rates. If you are insured through your parents you should look into whether it might make more sense to switch to your residency program insurance and how to affect that process. For others it might be more cost effective to go on your spouse’s health insurance.
When looking at your residency program health insurance coverage you may be surprised to several options. Some are better for families, some will only cover services at the hospital network through which you are affiliated and others will not have dental and vision benefits. Do not simply sign up for the cheapest option. Read what you are getting and make an informed decision.
Loan repayment: Yes you can offer defer your student loans during residency, but they will come due at some point and not all loans are deferrable. Your medical school financial aid officer should have an exit interview with you explaining how much you have in loans, what types of loans you have and which are eligible to be deferred. Private loans often are not deferrable while loans through an alumni association may be more forgiving. Be sure to understand exactly what your obligations are. Furthermore there may be consequences to deferment, such as accruing more interest while you wait.
While government loans are typically deferrable you may actually want to start repaying them. If you are planning to try income based loan repayment you may be able to start the clock on your years of repayment by paying during residency, when your income-based payments will be significantly lower. Most hospitals do qualify as not for profit institutions.
Licensing and Step 3: Some residency programs will require you take Step 3 in your intern year in order to obtain promotion from intern to junior resident. Other programs will leave the option to you, however if you intend to get licensed Step 3 is required. In addition some residents feel it is best to take Step 3 when the knowledge from Step 2 and intern year is still very fresh in their minds. This particularly holds true for those doing an intern year in medicine and then heading off to residency in a subspecialty, as much of the test will pertain to knowledge they are actively using during intern year but will not be using again during residency. The current cost for Step 3 registration is $845. In addition you will need to purchase study materials which can add another several hundred dollars.
Why get licensed? Many residents elect not to go licensed and delay the process during residency. Others who are hoping to recoup some cash by moonlighting get licensed in order to do so. Licensing fees vary from state to state and if you are not planning to stay and practice in the state where you are doing your residency it may not pay to get your license, especially without guaranteed moonlighting spots available. If you are planning to stay in the same state or have identified moonlighting activities that can help you recoup the costs of licensure this could be a good option for you.
Taxes: Even before your first official paycheck you will need to fill out tax documents for your employer to properly withhold taxes from your paycheck. Failure to withhold the correct amount can result in penalties when you pay your taxes. Married spouses who both earn similar amounts are especially vulnerable to these fees and should consider consulting with a tax preparer about how much to withhold and whether or not to file jointly.
When creating your budget remember that the salary listed in your residency program welcome packet is pre-tax. Federal and state taxes can take a large chunk from your paycheck.
Retirement Planning: You’ve gotten your first official job and all ready someone is talking about retirement planning. That’s because the earlier you contribute money to your retirement account the greater potential it has to grow. If your residency has a 401 K contribution-matching program (most do not) then take advantage of this free money! Even those without such a program should consider starting retirement planning. Residency is a great time to start a Roth IRA as your income is still low enough to qualify for one. Putting away money for your future now will help you avoid some scary surprises further down in your career.
While there are many surprise costs associated with becoming a resident there also many bonuses. For the first time in your training, you will earn a salary. Careful planning during your senior year of medical school to make your financial aid last longer and cover these additional expenses is crucial to starting this new and exciting period of your life without additional stress. With foreknowledge and planning you can sail into residency and focus on your clinical skills and not the additional hits to your wallet.
Malia Hecht earned her MD PhD in immunology in 2015 and continued on to a residency in pediatrics. She is currently a PGY-2 and considering a fellowship. She feels strongly that all residents and medical students should take care of themselves as well as their patients.