In the first installment of this three-part series, I summarized the current state of financial fitness among early-career medical professionals in the United States. I also reviewed a few general changes in philosophy that can help you begin to improve your financial health starting today. The response to that blog has been largely positive; and in the days after its posting, I received text messages from friends/colleagues expressing their desire for specific measures to take in the last year of fellowship — or first few years of independent practice. This blog post will, therefore, focus on specifics.
LAST YEAR OF TRAINING: “FINISH STRONG”
- Buy individual disability insurance before June 30th. Health is wealth, and you should protect your most valuable financial asset (as a resident/fellow, this is plainly your future earning potential) in the event that you’re incapacitated in any way. Disability insurance essentially pays you a set amount of income per month while you are unable to work. This set amount depends on the plan you choose – typically expect to spend 2-4% of the income insured. Premiums depend on your current age, health, income, etc. This is why it’s important for you to lock yourself into a plan now, while you’re making significantly less income and still exercising 4 times a week. Most university-based hospitals offer group policies that are essentially generic plans from one insurer for all employees who opt-in as part of their compensation plan. I advise you, however, to find an insurance agent on your own. This individual will find provide you with all the options on the marketplace, with specialty-specific plans that can travel with you if you leave your current/future employer. You can also increase your policy (i.e. the monthly payout) as your income increases throughout your career without having to repeat a medical exam or questionnaire. (further reading)
- Have a lawyer review your contract/offer. One way to really start off on the wrong foot is to have a contract that limits your earning potential and adversely affects your work-life balance. Have a legal professional who deals specifically with physician contracts in your state, and better yet in your county/region of the state. Some employers, for instance, will offer an attractive base pay with an unattainable RVU requirement in order to receive that shiny new base pay. Things to ask about: fairness of non-compete clause, stipulations regarding with/without cause termination, work RVU requirement, bonus structure, and feasibility, 401k match, tuition/education benefits. Things to look up: MGMA DataDive survey results for your specialty and city, AMA Physician Practice Benchmark survey results for your specialty and city.
- Open a low fee, high-interest checking/savings account. If you’re like me and you’ve had the same checking account since you were a freshman in college, it may be time to reevaluate if that’s the best option for you. There are so many great low/no-fee options out there for you to direct deposit your new paychecks into. There are also options that allow you to invest in the market easily, or offer credits for doing so. Ultimately, what you want is for your bank accounts to protect and grow your money rather than slowly bleed you of it. I personally recommend taking a look at Charles Schwab but here are some other outstanding options for you to consider.
FIRST YEAR AS ATTENDING: “GET YOUR LEGS UNDER YOU”
(Image: Attack of the Cute)
- Enjoy it. You’ve put in years and years of tireless effort to finally get to this point. While your college roommates were buying homes, cars and building investment portfolios, you were spending endless nights in the library or on the wards. Make a bucket list today, and make an effort to check one of those things off each year. Maybe it’s a safari in Tanzania, or it’s the Rolex that your grandpa/grandma always wore. Go for it. You deserve it.
- Physician mortgage loan. Most people want to own a home eventually. It’s part of the American dream. It also makes sense financially (let’s play a game: calculate the total amount of rent you’ve paid from age 18 until now…then keep track of that number each month until it stops growing). So what exactly is a physician mortgage loan? It’s a special benefit provided by banks across the country that allows early-career physicians (usually < 5 years out of training) to secure mortgages of up to ~$900k with 0-5% down payment. In any other situation, with such a low down payment, the borrower would pay a fee to the bank to ensure that they won’t default on the loan; this is called a PMI (Private Mortgage Insurance). In order to secure one of these mortgages, you need to typically have a credit score of 700 and a signed contract showing your anticipated salary. That’s right, NO PAY STUBS. Many physicians actually close on their home before they even begin working. With the 15-20% that you’re saving on a down payment, go ahead and pay down those student loans.
- If married with loans, file taxes as separate. It always comes up during tax season whether married couples should file jointly or separately. For most couples reading this, one or both partners is a physician. The average physician income in somewhere around $200,000 per year. The average physician’s student loan debt is also somewhere around $200,000. Assuming that your situation is somewhere around the average, it usually makes sense to file separately. The main downside to filing separately is that the current tax code includes credits that are only available to couples filing jointly. However, most or all of these credits only pertain to household incomes well below that of even a single income physician household. The benefits of filing separately pertain to income-driven loan repayment programs and other income-based plans you may have. If you file your taxes separately, your lender will consider only your income (not your spouse’s) in calculating your monthly payments. This can significantly reduce your monthly payments!
It’s important for physicians to tend to our financial fitness as we tend to our physical fitness. Just like everything in life, practice makes perfect. Try saving 20% of your resident/fellow salary this month. Practice trading stocks using a simulator like Investopedia’s.
If you’re going to be an attending in July 2020, plan out how the rest of the year looks for you financially, so it won’t be such a surprise when you get there. Lastly, read about the mistakes that these financially savvy physicians made here. Learning from others’ mistakes is just as good as learning from your own.
That’s all for now! Please feel free to tweet me or email me any particular questions you have, and I’ll try to answer right away as well as incorporate them into future posts.
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