By Amy Rakowczyk, SDN Staff Writer
Aside from long hours and lots of studying, the other guarantee in medical school is financial stress. Unless you are fortunate enough to have a spouse whose medical education is paid for and you have funds from family or a job that will cover both of your living expenses, you’ll be on a tight budget and accumulating massive amounts of debt. That debt will be large enough to change your financial planning and lifestyle both now and for years to come.
So how do we put ourselves in the best financial position now and plan for the future? And how do we still enjoy life now during these lean years? It’s worth it to start talking about finances now!
Many people feel intimidated or scared by finances. Managing and investing money seems complicated, and budgets feel hard to make and follow. Also, most of us are afraid to find out how much money we’re actually spending! We can find temporary comfort in burying our heads in the sand, but in the long term that will cost us big bucks.
You cannot afford to ignore your finances. No matter how much money you and your spouse make in the future, there will always be opportunities to make bigger and bigger financial mistakes. The more money you make, the more you need to know about your finances.
Managing Your Money
During medical school you can think of yourself as an “average American”, so most of the financial advice out there will apply to you and can be very helpful. Some of my favorites are Dave Ramsey and his Envelope System, and “I Will Teach You To Be Rich,” by Ramit Sethi. They offer different perspectives and provide practical, effective budgeting systems and techniques. Their resources can also help you determine whether you want to put funds towards paying down debt, or saving and investing.
Dave Ramsey is famous for teaching people to completely eliminate debt and to live off a budget system that incorporates “hard stops” so that you can’t spend more money than you make—that’s his envelope system. Ramit Sethi, on the other hand, tries to simplify finances by setting up automatic systems to pay bills, shuttle money to savings and investing accounts, and generally make your finances take as little time to manage as possible, once your system is set up. For him, budgeting is about planning out how to pay for things that you want the most, not about setting limits.
Another great resource, if you haven’t already come across it, is The White Coat Investor. The website, and book by the same name, contains advice specifically tailored to medical students and physicians. Medical students and doctors have financial situations that are unlike most other professions. You’ll go from living off of loans and accumulating large amounts of student loan debt, to having a respectful but limited resident’s salary, to then tripling your income (or more) almost overnight once your spouse graduates from residency.
Once you and your spouse reach that new level of income, a lot of the financial advice out there will not apply to you. You will now be in the top 10% of income earners in this country, which puts you in a different tax bracket. You will also have different investing options available to you, and your income will make some of the more traditional investing options unusable.
It’s also extremely important to get on the same page with your spouse about money and how you’re spending it. Financial disagreements can be the source of a lot of marital stress. Take some time to discuss both of your financial priorities, concerns, and hopes now and for the future. Then brainstorm ways for you to work as a team to come up with a plan and create a workable budget. You’ll probably have to check-in with each other regularly to see if your spending habits are lining up with the priorities you’ve set. It’s not an easy thing, and it will take some work and practice, but as long as you both are committed to following through and being financially secure, you’ll be making progress.
Setting Up A Budget
A budget consists of writing down all your income and fixed expenses on a monthly basis, then allotting the remaining amount into various discretionary categories such a groceries, eating out, clothing, gifts, etc. Once you allot money into each category, the real work begins, which is tracking your spending to see if you’re meeting those amounts. This is the part where most people get tripped up. Learning to regularly track expenses and adjust your spending to meet your budget goals is a skill that takes time to develop.
Fortunately, in today’s world there is an abundance of money management programs and apps that make this tracking so much easier and more effective. There is really something for everyone, so the biggest investment of your time will likely be trying out a couple programs or smartphone apps to see which one makes the most sense for you.
You can create a traditional written budget using a spreadsheet system such as the monthly budget template in Excel or in a software program such as Quicken. A program like Quicken will not only help you setup a budget, it can track spending and automatically show you how that spending is matching up with your budget.
Other options are online programs and apps. Two popular websites that help you create a budget and track your spending are Mint and YNAB (You Need A Budget). Some people love them and some wish they had more features or customization. You really just have to give it a trial run and see if they are a good fit for you.
If you’re more of an app person, you’ll find numerous options if you do an internet search for “expense trackers” or “personal finance apps.” Some examples of popular apps are EveryDollar (by Dave Ramsey), Daily Budget, and Level. Many people like these apps due to their convenience and simplicity. We do not endorse one company over another. This is for informational purposes only.
The bottom line: Tight budgets can leave you feeling like you’re constantly sacrificing. With medical school being four years plus at least three years of residency, that’s a lot of years to put things you want on hold. You also don’t want to totally throw caution to the wind and splurge. That can cost you tens of thousands of dollars in the long run, especially if you are splurging with loan money. Really, it comes down to balance—the balance between budgeting and feeling like you can still enjoy life, without sacrificing too much. Don’t wait ten years to actually do something you really want to do, just be smart about it by having a plan. Ask yourself, “What’s most important in my life and what can I limit?” For example, if your house is a higher priority than travel or going out, spend the money to live where you want to live. The hard part is that you can still have a lot, but you can’t have it all.
A Place To Live
Typically, one of the largest expenses (aside from tuition payments) is rent/mortgage. Smart decisions in this area can save you tons of money. You’ll have to sacrifice some space, comfort, and aesthetics, but it will greatly help keep that loan amount down during medical school and residency. What options are available to you? Can you live in married student housing or share a space with other renters?
The other big question is: should you buy a house after medical school? The White Coat Investor will tell you that for most people, the answer is no. He has a great post on his blog listing ten reasons that residents should not buy a house. I recommend considering his points before you make your decision.
Regardless, if you feel like you want a home after all those years of renting, it’s good to weigh what’s most important to you and your spouse. Is having a home going to add to your quality of life enough that you won’t mind doing maintenance and paying for extra expenses during the stress of residency? If so, buying may be worth it. Also, if you’re both working and have dual incomes, or if the length of your spouse’s residency is longer, it may make sense to buy. It depends on your individual financial situation and your quality of life factor.
I highly recommend attending a loan repayment seminar that most medical schools offer during fourth year. They will go over all the repayment options including deferment, forbearance, loan forgiveness, and payment plan options. They’ll also help you calculate exactly what you owe, how much interest you’re accruing, and what your loan payments will look like under different programs. Here is a helpful website from AAMC that you can already start looking at.
If you have a least one child already and are living mostly off of your spouse’s loans, you may be able to take advantage of government programs such as Medicaid and various food assistance programs during medical school. People have mixed opinions on whether or not to use these programs, so just consider whether you are eligible to take advantage of them and what that would mean for your family. If you’re concerned about the financial cost of having children during medical school or residency, please see my article, “Having Children During Medical School.”
A Financial Team
After medical school and residency, you will have a large income, but also a large amount of debt, just when you want to take on more debt in the form of buying a house, car, etc. Start considering the idea that you will need to hire a team of people to help you manage your finances and set up legal protection for your assets—including lawyers, accountants, and financial advisors. They can help you put a plan in place before you graduate from residency addressing how you’re going to attack the student loan debt, catch up with your peers on investing for retirement, avoid a tax season disaster your first year of making a large income, and how you can maximize your income.
Start asking around now for who this team might be for you. Consider asking your spouse to reach out to an attending who seems to be financially savvy. One way to find some would be to look for the attendings who have set up a private practice before—whether or not your spouse plans to set up a private practice. Setting up a practice takes a lot of planning and teamwork, and the doctors who have done it will have some clue about utilizing a team of financial professionals.
In regards to financial advisors, look for someone who is experienced working with physicians and their unique financial situation, and in general, avoid buying investment products that come with a commission fee that goes to the broker. This type of setup is notorious for setting up a conflict of interest.
How will you budget, save money, pay your loans, and prepare for that future income jump? How can you have things that you want now while being smart and setting yourself up for financial freedom in the future?
The best thing you and your spouse can do now is start becoming financially educated before leaving medical school and begin taking steps to setup a system that works for you. Start small by reading a book or posts about finance (i.e. Dave Ramsey, Ramit Sethi, The White Coat Investor, etc), then read another one and another one. It’s not hard stuff. It can seem boring, but it’s incredibly important. Once you have read a couple finance books or posts, you’ll have some foundational knowledge that will allow you to make informed decisions and have informed discussions with your financial institutions and advisors. Start small, you can do it!
About the Author
Amy Rakowczyk is a medical spouse, mother, writer, singer, and former voice instructor. She currently resides in Galveston, TX with her husband and two young daughters. She enjoys helping other spouses navigate the world of medicine and actively participates in support groups and activities. Her husband is a Family Medicine resident at UTMB Galveston and did his medical training at The Ohio State University.