“Some things in life money can’t buy, for every thing else… there’s student loans.” – This is one of my favorite #LifeofaMedStudent tweets. It certainly rings true as well. It seems there is no limit to the amount of loans one can take out these days and med school is a time when financial planning is often put to the back of the long list of worries. Here are five tips to keep your financial house in order even during the tough medical school years.
1. Student loans are NOT free money – live like a medical student!
I wasn’t kidding when I said the amount of loans you can receive borders on unlimited. The average medical school debt is now around $200,000 at graduation and rapidly climbing. Just last week, I was eating lunch with a group of 5 other residents – and my $185,000 (now $220,000 with interest) in student loan debt was the lowest in the group – BY NEARLY $100,000!!! The highest was in the low 400s. I have a couple that I’ve known for a bit, each went to a private undergrad college, then medical (her)/law (him) school – combined they were over $600k in debt on their wedding day. The numbers get so big, it is easy to forget they are even real. I remember in medical school frequently being like “oh well what’s another $1000” here or there. When you get to the finish – that money IS real – and puts a big dent in your life. That $1000 here or there adds up – and then at 6.5% interest – really adds up over the rest of medical school and residency.
Live like a medical student! You are not a doctor. You are a college student trying to get an advanced degree. Act like it. You don’t need a BMW. The penthouse apartment downtown is for people who actually HAVE money. Those Gucci glasses can wait. That all inclusive trip to Mexico – it better be for humanitarian purposes. Seriously, save money at every chance you can. I’d give anything to back and make a few less splurging purchases as a medical student. Those have added up, and while my student loan debt ended up around “average,” it still is a phenomenal amount of money. As I set my budget as an attending next year – I’m planning to pay off the eventually $300,000 including interest in 5 years – I can’t help but think of what that $60,000 per year could have done for me and my family. That’s a real amount of money – something much more meaningful than that latest 65 inch 4k LCD TV ever will be. Speaking of student loans…
2. Consider your student loan burden in regards to your specialty choice
This is never popular advice, especially to those who believe money should be a secondary consideration in medicine. We all know you don’t go into medicine for the money (or if you did this advice is EVEN MORE important). However, as student loan debt increases I think it’s an significant consideration when choosing your residency. It’d be fair if the hardest working pediatrician made more money than the laziest interventional cardiologist, but life isn’t fair and medical compensation sure isn’t either. The truth is specialists, especially those in procedural fields, often double or triple the salary of those in primary care. If you are one of those who has the $250,000 plus in student loans, I truly believe you should consider that when choosing your field. Yes, board scores can limit your choices, and yes please don’t go into something you hate. But if you “like” family medicine and “like” anesthesia, the $200k more per year salary in anesthesia is going to make will drastically improve your ability to pay down student loans. And before someone comments – yes the Public Service Loan Forgiveness program (and other programs like it) can help – there is always worry these could cease to exist and even when they work perfectly, never take away the full financial impact of massive student loan debts. Be proactive and rely on yourself! Consider the benefit of future income levels when picking your specialty.
3. Get a credit card
What? You just said to limit frivolous purchases and watch spending! Yes, but I still want you to get 1 credit card during medical school. Once you are a resident, you’ll likely run into times you will need a credit history to make a purchase and if you haven’t yet started yet to build credit on your own, medical school is the time. Use the credit card sparingly and make sure to pay if off IN FULL every month. Think of it as a debit card that you pay at the end of the month – if you don’t have the cash to pay for something, don’t buy it.
Personally, I made it through college and 3 years of medical school without ever having a credit card in my name. I had a debit card and then my parents credit card for emergencies. Neither of those build a credit history. I also had very few recurring bills. I didn’t get a credit card until just before medical school graduation. When I went to physician loan companies to finance our home, I was severely limited by the fact many of them require 2 years of credit history minimum. This, I found, was not a negotiable condition and it narrowed my lending options significantly. We can debate whether buying a home during residency was even a smart choice, but I could have had more competitive options had I developed a longer credit history. Whether you buy a house, car, or any other object that requires a credit check – you’ll need credit history. The easiest way to start is opening a credit card and paying it off in full every month.
4. Near the end of Medical School – Get disability insurance
Once you’ve made it to graduation day and gotten those big letters added after your name, you have a lot of opportunities which open up. The good news is, almost any opportunity you can find yourself in after medical school likely pays pretty well. Even residency, for it’s grueling hours, pays better as an individual than the average HOUSEHOLD makes per year (just don’t divide it by the hours you work). What this means is that nearly overnight, your length of training and credentials make you instantly valuable – the kind of value that needs protecting from an insurance standpoint. Most insurance companies will allow you to purchase disability coverage starting in that 4th year of medical school and I’d strongly recommend looking into it. Towards the end of my 4th year – I added a policy for $2000/month own occupation coverage for about $60/month. $2000 dollars a month isn’t going to set you for life, but if something happened and I couldn’t have completed my anesthesia residency, I would have at least had some small financial relief. Own occupation coverage is immensely important because that allows you to make a living doing anything else and still receive the benefit if one cannot practice their primary occupation. I’ve now doubled that coverage in residency and will eventually have about $15000/month coverage as an attending. You’ve worked too hard to not protect your time. The rest ends and outs of disability insurance are beyond this post – but maybe for another day. When choosing an agent – get someone who specifically deals with physicians and insurance products. There are some important areas of distinction that only a agent comfortable with physicians will be aware of. Check out our sponsor page and specifically Physician Financial Services if you want recommended a great company.
5. Start educating yourself in finances early
If you are like I was in medical school – you had no idea about finances, insurance, budgets, retirement plans, stocks, bonds, etc, etc, etc. I truly had no idea. Even through most of residency my working budget was simply keep it more money in than out every month. You cannot count on medical schools or your residency to teach you the basics of finance. Worst of all, there are a lot of “salesmen” out there who will take advantage of this just as your begin earning an income. Take charge of your own finacial future! And luckily, today with many blogs specifically targeting physician financial issues – there is no limit to how much you can learn. Start slowly, and just read a few things here or there throughout med school. Before graduation – make it a goal to have read at least one financial book – I recommend The White Coat Investor: A Doctor’s Guide To Personal Finance And Investing. Keep tabs on a couple of blogs for more detailed information as you get into residency. Some great blogs out there include:
- Whitecoatinvestor.com – basically any and all physician financial topics.
- Physicianonfire.com – tilt towards financial independence and early retirement.
- Passiveincomemd.com – how to invest in passive income sources to take control of your financial future.
By the time you are an attending you will have the money and the knowledge to take control of your financial life. And if you start learning early enough, hopefully you can avoid the major financial mistakes I made before I was more financially educated.
Any other financial tips for medical students? Disagree with any of mine? Add your thoughts in the comments below!
Lawrence B. Keller, CFP at Physician Financial Services:
Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF has been in the insurance and financial services industry since 1990. Unlike medicine, which has a standardized path that physicians must take to gain the education, training and experience requirements necessary to obtain board certification, the insurance and financial services industry does not. Working with an agent that is familiar with the underwriting of both disability and life insurance policies for physicians can all but guarantee a smooth underwriting process in which the desired outcome is likely. While he might not be a doctor’s first phone call regarding their insurance needs, he is often their last. www.physicianfinancialservices.com
Check out the other great companies that help sponsor our page here: #LifeofaMedStudent Recommended Sponsors
Disclosure: PFS is a paid sponsor of #LifeofaMedStudent and has a financial relationship with the site.