10 Financial Goals for Graduating Residents

I was recently approached by a colleague of mine who is the fellowship director at the program where I trained.  He ‘heard through the grape vine’ that I had an interest in personal finance.  Little did he know…I have an obsession with it!  He asked if I would have the time to create a lecture directed at graduating fellows as it applies to personal finance.  He said my objective would be to help ‘ease the transition’ into attending life.  I jumped at the opportunity.  As such, I have been spending a lot of time thinking about this particular task.  What are the most important points to touch on?  If I could only give one lecture to physicians preparing to navigate an attending salary, what would I say?  Well…I’m glad you asked.  Here are my 10 financial goals for graduating residents (and fellows)!

1. You need an Emergency Fund…period

Honestly, would this even be a proper Motivated M.D. post if I didn’t start by talking about the importance of an emergency fund?!  No…no it would not be.  So, if this is my guide for the graduating resident, then an emergency fund would make up the entire preface and chapter 1 combined!

Look, having a large sum of money strategically tucked away for unexpected expenses is a must.  This rule applies to literally anyone, physician or not.  Life happens.  Believe me.  For absolutely no rhyme or reason, the world will throw financial obstacles in your path that you need to learn to navigate.  Fortune favors those who are already prepared for this.  So, what do I mean when I say ‘Emergency Fund?’ 

What is an Emergency Fund?

An emergency fund is a sizable amount of money housed in a liquid (readily accessible) account that is solely utilized for unexpected emergency expenses.  In a prior post titled Emergency Fund: Your First Financial Goal, I defined an emergency expense as ‘any unexpected expense that must be addressed in a timely fashion and whose monetary cost would place one’s budget in jeopardy.’  This definition continues to feel appropriate to me.

How much should be in my Emergency Fund?

I generally tell people that it should theoretically amount to 3 to 6 months’ worth of living expenses.  I mean all of your expenses.  Later in this guide we will discuss the importance of having a realistic budget.   Having an honest idea of your monthly expenses will help in many ways, one of them is here.  A transparent budget will help you fully comprehend your finances and how much you spend in a month.  From this, you should be easily able to multiply your monthly expenses by 3 or 6 and determine how much you should have saved for your emergency fund. 

Building an emergency fund should be priority 1, 2, and 3!  Having this sum of money will help you mitigate financial pressure from many directions.  If you want further detailed information on emergency funds, check out my prior post titled Emergency Fund: Your First Financial Goal.  Also, if you want to understand what an emergency fund looks like in action, check out my featured post on The White Coat Investor or my post titled Life Happens!    

2. Get ‘own occupation’ disability insurance before you graduate

OK…now that we have emergency funds out of the way, let’s talk about other ways to mitigate financial pressure.  The next thing to prioritize is getting appropriate disability insurance.  I emphasize the word ‘appropriate’ here because there are plenty of unfortunate souls who get disability insurance coverage that is inadequate.

Short term disability insurance v. Emergency Fund

First, there are a few things to define here.  Short-term disability insurance is ‘generally’ defined as a temporary disability lasting between 90-270 days (3-6 months).  Now there may be other definitions, but commonly I see ‘short-term disability’ defined this way.  I personally choose to see the emergency fund as its own short-term disability policy.  If you break your arm and need time for your surgery and recovery, this generally will only last a few months.  Some employers provide short term disability for you.  If not, you will be glad you have an emergency fund to get you through this period.  There are other reasons to purchase a short-term disability policy, but we will not discuss those here.

Long-term disability insurance

What I do want to focus on is long-term disability insurance.  This is any disability ‘generally’ lasting longer than 3-6 months…or indefinitely.  It is one thing to break your arm.  It is another entirely to lose a limb or develop a chronic disease that limits your ability to perform your job.  These are the scenarios that largely make you unable to practice your specialty (or subspecialty).   Long term disability insurance policies help you secure some level of income (relative to your specialty).  I strategically used ‘relative to your specialty’ because there is often wide variation in reimbursement depending on an individual’s chosen specialty.  By obtaining an ‘own-occupation’ disability insurance policy, the policy is written strategically with your specialty or subspecialty in mind.  This is important because it may better define what ‘disability’ means, especially in regards to your profession. 

There are lectures, books, academic courses, and professions designed around this topic alone.  Therefore, I have not even scratched the surface on what is critical when buying a long-term, own-occupation disability insurance policy.  Fortunately for you I have a prior post written by a trusted insurance agent who works primarily with physicians.  That post is titled 6 Things to Ask About Your Disability Insurance Policy.  Also, if you are looking for more information on disability insurance policies, or where to get started, I highly recommend working with Rick Warren from Insuring Income.  You can reach out to him directly at info@insuringincome.com. 

3. Get term life insurance before you graduate too

Only one more insurance related topic before we move on.  I know the topic of insurance does not necessarily drive traffic to my website, but it remains one of the most important ways to protect yourself from unexpected financial pressures…this time for your loved ones. 

Unfortunately…bad things do happen to good people

It is never enjoyable to write about our mortality.  Unfortunately, in medicine, we become all too acquainted with it.  It is not easy thinking about a scenario where our family is forced to carry on without us.  Sadly, this does happen.  Physicians die unexpectedly and, if not prepared, it can leave families with mountains of debt and colossal losses in income.  Do not put your family in this position. 

Don’t wait, act now!

You will never be as young as you are at this very moment.  You will also (likely) never be as healthy as you are when you are in residency.  That is why I preach the importance of purchasing a term life insurance policy now, when you are young and healthy.  Obtaining a policy at this point in your life generally means you will not be flagged for any (or few) pre-existing conditions prior to obtaining the insurance policy.  This makes the process of obtaining and retaining life insurance coverage easy. 

How much life insurance do I need? It depends…

The next question that often arises has to do with the amount of coverage.  Many important voices in the field of physician personal finance have varying opinions on this matter.  How much coverage you think is needed to financially protect your family is dependent on multiple variables, including family size, number of dependents, debts, mortgage costs, spousal income, etc.  Fortunately for me, the Physician on Fire has written a great article that addresses many of this topic’s nuances.  That article is titled A FIRE-Minded Approach to Life Insurance, and you can read it for free by following that hyperlink.  The point here is again simple.  Don’t waste time.  Get term life insurance right now, before you graduate, when you are at your healthiest. 

Lastly, a word to the wise… avoid whole life insurance policies.  Avoid anything that pairs your savings and investing with your life insurance policy.  Too many conflicts of interest.  Just don’t. 

4. Make a budget and stick to it

As we begin to migrate away from insurance, let’s circle back to important pillars of personal finance.  It sounds so simple right?  Just make a budget.  Simple… Well, I am here to tell you that for the individuals who think this process is simple…they are likely doing it wrong. 

Creating a budget that adequately reflects the complexities of your spending is an accomplishment.  It takes time to sit down, open all of your financial accounts (banking, checking, credit cards, debit cards, etc.) and capture every single expense you make in a months’ time.  And yes…I mean that literally.

Your budget should be as comprehensive as possible

When my wife and I first built our budget, we opened all of our accounts, wrote down each expense, and put a name beside how we would ‘categorize’ the expense.  After going through approximately 3 consecutive months’ worth of this process we developed an idea of the average cost in each category (i.e. rent/mortgage, utilities, internet, streaming services, groceries, coffee, restaurants, car insurance, phone bills, entertainment, pet expenses, the list goes on and on…)  From here we found a spreadsheet tool we could share in real time (we chose Google Sheets…Microsoft Excel works great also) and we built our budget.

Make budgeting habitual

In practice, before retiring each evening, I log onto my computer, open my credit card accounts and enter each purchase into its respective category for that month’s budget.  This allows me to capture all the day’s expenses.  (Disclaimer: I make all purchases using my credit card then pay it off immediately.)  I have been doing this daily for well over five years now.  It has become a habit.  As my life evolves, so too does my budget.  This is important because I then have a better idea of what my monthly expenses are.  This is even more important as it allows me to augment my emergency fund to reflect my current expenses.  Trust me, 3 month’s expenses for a family of two is drastically different than for a family of four (with both children under two years of age). 

Make a realistic and honest budget.  Update it daily.  Review it at the end of each month.  Celebrate where you stayed under budget and learn from where you didn’t.  If you would like a comprehensive tool for budget building, I have already created a FREE tool for you!  Just subscribe to The Motivated M.D.’s email list and it will be delivered to your email. 

5. Create a financial plan

A financial plan is a roadmap you create for your current and future self.  In more concrete terms, a financial plan clearly and completely documents your financial priorities in order of importance.  In a greater sense, it acts as a guide for your overall financial philosophy.

Financial plans can (and should) include what is important in your financial life, from debt elimination to savings and investing.  My financial plan starts by commenting on the importance of creating and maintaining a shared budget.  It then proceeds to outline my prioritization of retirement contributions as well as putting a predetermined amount towards debt elimination. 

I previously wrote an article called How to Write a Financial Plan.  I encourage all of you to read that post.  Not only does it go into significant detail outlining why a financial plan is vital to your overall success, you also get to see my personal financial plan!  That’s right, I have uploaded my written plan as an example.  I am not implying that my financial plan is by any means perfect… far from it.  But it does show how I choose to prioritize my spending and hopefully is just the motivation needed to help you write yours.

6. If you have educational debt…understand your options

Educational debt has always made me feel like I am drowning.  My wife and I started with a combined debt of approximately $670,000!  I will spare you the many avenues we considered for eliminating our debt.  Ultimately, being a dual income physician household, we decided to refinance our educational debt and pay it down as fast as possible.  However, there are many options for your consideration when developing a debt elimination plan. 

Public Service Loan Forgiveness (PSLF)

The most talked about option generally takes the form of loan forgiveness, or Public Student Loan Forgiveness (PSLF).  For individuals who utilized federal student aid to pay for college or medical school, the government has a loan forgiveness option for qualifying individuals.  There are nuances to the PSLF route, including having qualifying loans, being employed by a qualifying institution, having the correct repayment plan, and certifying your payments.  It can be complicated and overwhelming to fully understand. 

Fortunately, The White Coat Investor (studentloanadvice.com) has some great tutorials on how to navigate these waters.  Further, there is plenty of information on StudentAid.gov.  The takeaway is this: You enter a repayment structure that requires a minimum payment based on your income.  If you are in a certified repayment plan, then you have to make a total of 120 certified payments (10 years) and the remainder of your debt is forgiven.  I am drastically oversimplifying this, but that is the gist.  It’s a great option for some, not all. 

Refinancing your student loans

Another option is to refinance your student loans.  If you are in a similar position to me, then likely your federal student loans carry a high interest rate.  I consider any interest rates greater than 6% to be high.  If your debt-to-income ratio is (or will be) low (approximately 1-2) then refinancing your debt to a private lender, for a much lower interest rate, could save you tens of thousands of dollars…maybe more!  If you refinance your loans with a private lender, understand this will exclude you from ever being able to pursue PSLF…so it comes at a cost (literally).

There are more options than you realize

Lastly, understand that there are a multitude of loan reimbursement and assistance programs offered with different career paths.  Private and community-based hospitals will often offer loan assistance as a recruitment incentive.  The Veterans Affairs hospital system can qualify certain ‘difficult-to-hire’ positions as Education Debt Reduction Program (EDRP) eligible.  This qualifies the position to be eligible for up to $200,000 in debt assistance over 5 years for employees.  Further, most branches of the military offer positions that trade debt reimbursement for time serving as a military physician.  There are multiple ways to eliminate your debt.  Make sure you understand all the options at your disposal. 

If you are interested in options for refinancing your student loans, here is a great article on How to Refinance Your Student Loans.   

7. Appreciate the opportunity costs of where you choose to live

Location, location, location!  Where we choose to pursue careers, or ‘settle down’ can have huge effects on our well-being.  However, this can often be a double-edged sword.  Take me for example… I live in a beautiful coastal city.  We have the beach just minutes from our home.  There is a bustling restaurant scene, live music, and a large hospital system that employs a substantial portion of the city’s population.  It has proven to be great for my mental and physical health.  How can you not get outside when you are surrounded by such breath-taking scenery while residing in a coastal climate. 

Unfortunately, it seems like every other human in the country feels the same!  Individuals are flocking to our town in droves, driving up the cost of living.  This has lasting effects given high inflation as the buying power of the dollar decreases.  Further, many incomes fail to keep pace with current inflation and the increasing cost of living.  The overall effect is that ‘doctor money’ has less of an impact in a high cost-of-living area. 

It is important to appreciate the effect that location has on many aspects of life.  While certain areas may be worthwhile for your physical and mental health, they may have ramifications on your wallet.  Make sure to factor this into your decision-making process when applying for jobs. 

8. Understand the pros and cons of academic medicine

Just as important as determining where you will practice is in what forum you will practice.  There are many different employment models physicians can be exposed to.  From working in private practice to being self-employed and everything in between, you will be faced with a plethora of options.  One such option may involve employment opportunities at an academic hospital system.  This generally means you will be responsible for providing education for individuals in all aspects of their training. 

Money or work-life balance…or both?

There are important benefits and drawbacks that come with choosing to practice in academic medicine.  I can speak from experience here.  Given the structure of medical education in the United States, most individuals (regardless of chosen specialty) will receive a majority of their training from an academic institution.  As a resident, you are likely employed by one currently.  This will largely sculpt your view of what medicine ‘looks’ like.  However, not all careers are structured this way.  Many physicians shed the academic hierarchy for hybrid models, community-based employment, or private practice.  This often boosts one’s income but can lead to work schedules that prioritize patient volume as a means of income generation.  Not necessarily a bad thing, but important to understand nonetheless. 

View your reimbursement through a per hour lens

I ultimately wrote a piece highlighting the risks and benefits of medical academia in an article titled The Pros and Cons of Academic Medicine.  Here I comment on a few key concepts.  One, oftentimes careers in academia can sacrifice higher earnings in pursuit of a schedule that offers more control over your work-life balance.  Second, it can be refreshing to supervise and provide education to physicians-in-training while allowing them to clinically steer your service.  Lastly, do not be fooled by the difference in income when choosing a career in academic medicine.  While the income may be less, often the hours are disproportionately less.  If you view your reimbursement through a per hour lens, you often get paid competitively in comparison to your private practice colleagues.

9. When negotiating your contract, either hire help or ask lots of questions

Ah contract negotiation.  I cringe just typing this out.  This is a topic that has never been presented to me in an interesting or enjoyable fashion.  All that said, prioritizing your best interests is critical to protecting your well being as well as your earning potential.  Having someone in your ring can provide both time and money in your favor. 

Given the duration and structure of medical education, residents often have little to no experience negotiating a contract.  Generally, the most experience we obtain is akin to medical school interviews and ‘The Match’ process.  This is drastically different than negotiating the nuances of reimbursement, protected time, benefits, administrative duties, etc. 

If you are someone who has navigated these waters before, then feel free to continue to advocate for your own best interests.  However, if you are similar to many other resident graduates entering the workforce, then employing a contract negotiator can be almost necessary.  The upfront cost of employing a contract negotiator will pale in comparison to the benefit you will receive on the back end once your contract is signed. 

10. Live well below your means your first few years out

My final financial goal for residents on the precipice of attending-hood is to live well below your means for a while.  This is sound financial advice in general.  You are about to receive an income (likely) higher than anything you have previously.  Your income will increase between 3- to 6-fold (again, depending on specialty). 

The ‘golden handcuffs’

It has become almost stereotypical…The physician who makes $400,000 and finds a way to still live paycheck to paycheck.  You laugh, but it is unfortunately quite common.  Far more common than you realize.  Do not fall into this demographic.  Just think about it…You have been living on a resident income for years now.  Yes, there will likely be things that you need to purchase once your income increases.  Maybe you need more childcare?  Perhaps it’s time to upgrade your home?  Maybe that beater you have been driving is on its last leg?  No matter what the expense, work diligently to live on less than you make. 

All of these goals are attainable if you live below your means

This will prove critical if you plan on tackling all the previously mentioned goals.  If you need to build an emergency fund, you’re going to need to find that money somewhere in your budget?  If you live below your means, you can put away 3 month’s living expenses easily on a six-figure salary (especially if you ‘live like a resident’).  Plan on maxing out your retirement contributions?  Are you hoping to eliminate your debt as fast as possible?  All of these goals are expedited by living on less and spending the rest wisely. 

Last word of advice here.  If you plan on making a large purchase shortly after graduation, i.e. a house, a new car, a plot of land, pretty much any big ticket item…sit on it for a while.  Just give it a few weeks.  Life has a way of showing your where priorities should be at the moment.  

Take home points

I have been writing on physician personal finance for some time now.  I have posted on each of these individual goals in some form or fashion before.  Never have I collected a list that I feel so confident in, however.  I was fortunate enough to be surrounded by like-minded physicians when I was in medical school and residency; all pursuing self-education on personal finance.  This curiosity was further piqued when I discovered The White Coat Investor and Physician on Fire. 

I do not claim to be an expert, but I am a normal physician just like you.  I am plagued by long work hours that limit how I can fairly distribute my time between family, friends, and interests.  As my family and career have grown, it has limited my time in all other aspects.  I have found the most efficient way for me to indulge my hobbies (both financial and personal) is through the form of personal finance blogging.  This is the culmination of this passion. 

I hope you have found these goals helpful and practical.  To those of you preparing for graduation, I wish you nothing but the best for your future endeavors.  If you hold your finances to the same standard with which you hold your education, you will do just fine.  As always…

Stay Motivated!

The Motivated M.D.

I hope you have enjoyed this article titled 10 Financial Goals for Graduating Residents.  If you did, it would be incredibly helpful if you would share this article with others.  You can find the ‘share’ buttons located to the left hand of this article (on desktop) or at the bottom of the page.  It would also be helpful if you would follow us on social media.  Our social media accounts are located at the top of the right-handed side bar.  Thanks again!

What are the financial goals you have set for yourself prior to graduation?  We would love to hear from you in the comments down below. 

Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.