Financial advice for doctors at every career stage

No matter how you look at it, it’s a crazy time to be alive. The world is simultaneously in the throes of a global pandemic, an existential crisis of justice and inequality, and a strange, frustrating financial climate. It’s easy to throw up our hands and say there’s nothing we can do. But that’s just not true. During uncertain times (and frankly, all times are uncertain), it’s important to focus on what you can control.

Here are a few examples: While the global pandemic spreads, you can wash your hands, keep your distance, and wear a mask. While civil unrest continues throughout the United States, you can reach out to a friend, support a cause, and contemplate your ideas. But, what about financial uncertainty?

While financial uncertainty reigns, you can take the time to educate yourself and set yourself up for success in the future. That’s what we’re here to do today—explore some of the most important steps doctors can take to secure their financial health. Come what may, here is some solid financial advice for doctors of every stage in their careers.

Student doctors (undergrad and med school)

At this point you’re beginning the intense training of medical school. Congrats! Whether you decided on this path early and are going straight from undergrad to medical school, or took some time off, or decided to switch careers, you have a financially interesting road ahead of you.

If you are still in the beginning of your medical career, the best financial advice for you is this: Stay vigilant and avoid ignoring your financial health. With so much going on between crazy social demands, relationships, and intense study, it can be easy to get in over your head as bills keep piling up. The average undergraduate student loan debt was just over $31,000 in 2019. And while that’s an intimidating number to begin with, if you’re on your way to becoming a doctor, you can expect to add at least an additional $200,000 to that total before your medical education is complete. If you’re switching careers into medicine you may also have graduate school debt to add to the total.

It’s easy to shy away from confronting these numbers or to assume that the high salary you’ll earn one day as a physician will make it easy to pay off your debt. But, the average annual salary with a medical school degree before the pandemic ranged anywhere from $200,000 to $500,000, depending on the specialty. Even with that impressive income, it typically takes more than a decade to pay back medical school loans. On top of that, it takes years to actually reach the top salary threshold in your specialty. And, before you get there, you’ll spend about 3-7 years in relatively low-paying residency work. 

If you want to ease the pain of indebtedness, start by living frugally. As one student loan advice forum puts it, “You owe a lot of money to something, act like it. If you don’t grab it by the horns now, it could haunt you for years to come.”  Next, be sure to create a budget and stick to it. Check out these apps that could help you get a head start on your budgeting and other finance needs.

Finally, research your repayment options. Most federal loans qualify for certain forgiveness programs, interest benefits, and flexible repayment options. No matter how you dice it up, it’s going to cost a pretty penny to become a doctor. The bottom line is that undergraduate education and med school are investments. Wise investors know to research their options beforehand to plan out the best ways to pay off their loans once they reach their desired salary.

Early-career physicians (residency, fellowship, certification)

The big idea during this period in your life is to manage your debt as effectively as possible, increase your earnings, and keep an eye to the future. As your expenses grow, so will your salary—but don’t forget your debt. Just because you’re earning a bigger salary doesn’t mean it’s wise to pile consumer debt (think stuff like cars, clothes, and anything else that loses value over time) on top of good investments like real estate and your student loans, which are the types of expenses that increase in value over time.

Not only are the years between ages 25 and 35 (the typical age range of those in this category who went the traditional route) a fast-paced time in your medical education (you might be finishing up medical school, working through residency, pushing through a fellowship, or even completing board-certification), but you may also be either thinking about, participating in, or paying for a wedding, home, and/or children. Never forget that as much as your family or friends might pressure you about these rites of passage, they are optional, and only you can decide if they are right for you.

Getting married might be the most memorable day of your life, but you should always take into consideration your net worth when financing your wedding, your rings, and your honeymoon —and right now, that net worth is most likely in the negatives. It’s important to have a celebration you can afford so that you don’t have to look back on your wedding day as one you regret financially—or otherwise. Before you get married, be sure to talk with your partner about joint bank accounts, your shared financial goals, and anything that constitutes a big financial decision. It’s important to get on the same page before marriage to avoid as much friction as possible between you and your partner’s goals afterward.

Buying a house is one of the biggest financial decisions you can ever make—and one of the most complex. While it may feel like buying a home is a much better financial decision than renting, that’s not always the case. Home-buying comes with substantial transaction and maintenance costs, which mean unless your property value increases at a substantial rate, it’s likely that renting will be cheaper than buying if you plan on moving within 5-8 years of purchase. Use this handy calculator to see which decision makes more financial sense for you.

Before buying, be sure to keep tabs on your credit score and pump up your numbers through responsible spending habits. Do whatever you can to pay down your debt, and research several lending options when it comes time to take out a mortgage. Taking out a home loan, like taking out student loans, is another example of the good kind of debt. If that loan carries a low interest rate and ends up making you money in the long run, it can be one of the wisest financial decisions you could make. 

Having children is said to be one of life’s greatest joys, but it’s also one of life’s greatest expenses. A good rule of thumb to consider so that you are  financially prepared for having children is that your first child will cost you between $10,000 and $15,000 per year and a little bit less per child after that. Many working couples also find that after housing, childcare is their biggest expense. Family healthcare premiums are also likely to increase, climbing to about hundreds, if not $1,000 or more, per month in some cases. Be sure to budget for these numbers before you have children to avoid surprise expenses down the road.

Fortunately, children can also reduce the amount you are expected to pay in taxes. For example, a family of 4 with 2 children is allowed a certain amount in  standard deductions from their federal income tax, and personal exemptions in their tax returns for each child. Some parents can even qualify for the Child Tax Credit and the Child and Dependent Care Tax Credit, which can be worth a few thousand dollars annually.

Mid-career physicians and beyond 

By now, you’ve probably done it—become a doctor, that is. It was a long and winding road, a huge financial investment, and one heck of a learning curve, but here you are, helping people live healthier lives. Kudos to you!

At this point in your life, you’ve probably paid your dues—both the literal ones, like student loans, and the metaphorical ones, like putting up with some borderline hazing during your training. Now it’s time to put your money to work for you.

First, make sure your retirement funds are healthy. If you don’t know how much you need to save for a comfortable retirement, you’re not alone—more than half (56%) of Americans don’t know how much to invest.

Here’s one way to look at it: To sustainably generate a ~$50,000 household income (in today’s dollars) solely from investments in your mid-60s, you would need more than $1 million in retirement assets. You’re on track for that if you have about $100,000 in tax-advantaged retirement assets (including 401k, IRA, etc) by the time you’re 30 years old.

But, as a physician, you were probably still in debt up to your eyeballs by age 30, so here’s a better checkpoint for you. By the time you reach age 45, you’ll need somewhere around $250,000 in tax-advantaged retirement assets.

Use this time in your life to invest in the future. Once you’ve figured out what you’ll need to retire comfortably and have made the necessary changes to your savings (give this handy retirement calculator a try), it’s time to start thinking about other ways you can make your money work for you.

Investing in stocks gives you a share of ownership in a private company, providing current income from dividends as well as potential price appreciation. Financial experts suggest only investing about 5% of your income in stocks, where you can expect to make up to 30% or lose up to 15% of that investment in a given year. Those who hold onto stocks for the long term can expect to earn about 6% after inflation, but it might take up to a decade to realize that advantage.

Investing in real estate is another great way to put your money to work, but unlike financial investments like stocks, real estate investments bring serious maintenance costs, both in time and money. Your challenge is to find a property that has either great rental income potential, good resale potential, or both.

Weathering uncertainty

All of these financial decisions are made more complex by the uncertain times we’re living in. But, the bottom line is that building strong finances is all about practicing good habits—they’re your best defense against uncertain times.

As you forge through the trials and tribulations of becoming a doctor and practicing medicine, never forget these financial golden rules:

• Build a budget and stick to it

• Set realistic goals

• Build an emergency fund

• Save more, spend less

• Don’t forget about retirement

• Pay down high-interest debts

• Remember that health is wealth

Still, be sure to also keep in mind that while this advice can help you achieve better financial health, it is by no means exhaustive. There’s no such thing as a one-size-fits-all financial plan, because your financial goals are unique and achieving them will require a unique approach. In the end, the only person who can decide which route to take is you.