As a resident and even medical student there were no shortage of poor, sometimes borderline nonsense financial decisions by my colleagues. Since I’m pointing the finger at others, I will also admit that I am not totally immune. I made one poor financial decision (spent more on vacation that I should have). This post will explore some of the comment ways that we blow money and why they are often poor decisions.
Taking out the maximum amount of loans when you can get by with much less
My school allowed medical students to take out just over $40,000 per year when tuition was ~$12,000 per year. Of course living expenses are a huge part of that number but there are many ways to decrease that amount. Living with a roommate, not having cable, cooking at home and not going out to bars or coffee shops are ways that I saved a lot of money. I was able to get by on about $28,000 per year. Over four years, this ended up saving me $56,000! If I would have taken the full amount and done IRB during residency that $56,000 would have ballooned to $67,000 extra..
The way the school calculates the amount needed often includes supplies like iPad or a new computer since now some courses require one. Really question if you need the new computer or the new electronic device if you already have a working one. Just because you are allowed to take out $40,000 doesn’t by any means you should without a good excuse.
Not having a roommate
Personal space is important, but getting a roommate is one of the best ways to cut back on spending. If you don’t have a family or some other good reason to live alone then get a roommate. I recall having a friend in medical school who insisted on living in the nicest apartment within walking distance to the hospital and she also stated she needed a second bedroom that she could turn into a study. Her rent was over double mine since I opted to live in a more affordable place with a roommate. Another bonus of my decision to move in with someone else is that this person became one of my best friends. If you’re able to, live with someone while in school.
Going out too often
Paying the luxury tax of eating out or drinking at a bar will add up to huge numbers over 4 years of medical school and 3 plus years as a resident. One of the easiest ways to cut back on spending is in this category as many people can find cheaper methods such as cooking at home or avoiding bars. The coffee shop has become one of the most prevalent ways medical students waste money as many go there to study or watch lectures. Medical school in many places has now an option to watch the lectures online, which I get that some people say that they go to the coffee house to watch the videos and study at their own pace. However, cur this cost down by trying the library. You’re are paying for it anyway in your tuition, so use it.
Not checking with upperclassmen what items are necessary
Talk to students one or two years ahead of you to see what materials you actually need. The best example at my school was the ophthalmoscope. Almost everyone in my class noted that this was listed in the syllabus as recommended and went out to buy one. We never actually used them as each patient room had a working one present, they just didn’t update the syllabus to say that. Each student who bought one most likely never used it again and tried to sell it to the class below. Talk to people who have been through the class you are about to go through to see if you really need what others are buying into.
Relying on credit cards for emergency fund
I understand that taking out loans is expensive, however, I do believe that students should leave some cushion of at least $500 to preferably $1000 in case of an emergency where liquid cash may be needed. Not having a small cushion and relying only on high interest credit cards is a poor way to plan for an emergency.
Skipping renters insurance
Its cheap, I paid about $10 a month to protect all my assets. I learned my lesson once when a fire burned down my parents house with all my belongings in it and I did not have insurance on my goods stored in the house. It was a total financial loss and I had to take out $3-4000 extra to go and buy new items for everyday living. It’s cheap, get renters insurance.
Choosing to ignore loans and place them in forbearance
This is not in reference to those who truly have a financial strain for a legitimate reason. There are residents who postpone paying loans to live a more expensive lifestyle in residency only to find that their debt has ballooned to almost double what it initially was. Even though you have graduated from school, have your MD and are now getting accustomed to people calling you Doc, try to live like a student if possible and pay those loans. Figure out the maximum you can pay each month including leaving room for an emergency fund and do it or enter into one of the many repayment plans.
Purchasing, or worse, leasing a luxury car
Just because you have the MD officially and maybe you started moonlighting doesn’t mean that you “deserve”a luxury car. My residency was filled with these people. Several people from each year would always make the choice to go and lease a new BMW or other luxury car. One resident even leased a range rover and then had no choice but to moonlight every month to make the payments. Paying down debt should be a priority, not a fancy car. All you need is reliable transportation which can be found for $5000 or sometimes less.
Buying flashy items
The monogrammed messenger bag, luxury watch, Italian leather shoes can all wait while in residency. There were several residents in my program who owned these items. They told me they felt that since their attending dressed this way, they should too. Looking professional doesn’t mean that one has to spend thousands of dollars on accessories.
Paying for meals while at work
Many residencies no longer offer food to their residents for free, or if they do the times that food is offered is not enough to rely on. In this case many residents end up going to the cafeteria or ordering out food to be delivered to the hospital. Make your food at home and get used to taking this into work as your primary source of nutrition. Paying for food while at work will quickly eat up what little is left of that resident salary.
Not signing up for extra shifts if internal moonlighting is an option
This can not only lead to more experience and better training when you graduate residency, but can have huge financial benefits. In this post about my budget, I talk about how I was able to save an extra $28,000 in less than one year of moonlighting alone. If you have the option to sign up for moonlighting where malpractice is covered, this is an easy decision…do it! If moonlighting is not an option for whatever reason then take some advise from Future Proof MD about how to create extra income in residency.
Invest in something that was pitched in the physician lounge
Almost never will a good investment come from some tip someone heard in the physician lounge. Someone always seems to think they know the next biotech company that is “about to pop” or a stock that is a sure thing. These are all red flags for you to avoid this investment. Another red flag is the most common investment that I have seen most doctors go into, restaurants and or bars. Most of them fail within 3 years so save your money. Owning a restaurant or side business is a full time job and takes a lot of work that doctors often times don’t have. Stick to what you know and only put your money at good investments, preferably tax saving investments and not bad ones. I worked with a doctor who invested in a development on the Texas/Louisiana coast line before hurricane Katrina. Once the hurricane was all over, the Army Corps of Engineers came in and designated that area a no build zone.He claims he lost $115,000 on this investment which will inevitably delay his retirement. To this day he was trying to sell it to others for $15,000 to recoup some of his costs but last I heard he had no takers.
Buying the McMansion
You’ve finished a decade or more of training and now that you’re done all of a sudden some doctors feel the need to own a very large house. Never take what the bank tells you that you are approved to borrow without doing your own research. This in many ways is like the student loans as above. If you can get by with much less, please do so. Its becoming exceedingly rare for someone to buy their “forever” house and actually live in it for 30+ years. Buy the house you need now and for the foreseeable future. Many advocate for 2-3X gross income for max loan and chose 15 year over 30 year if possible. Calculate the numbers yourself and figure out what you are comfortable spending on a house. Remember to leave room for retirement and savings.
We all need R&R but going around the world several times a year or even every other year can be financially draining. This for many will be something that is a struggle to cut back on as the new trend for the younger generation is spending on experiences and not luxury goods. Learn to travel cheap but yet nicely. I made the mistake of overspending on my vacation intern year and convinced myself that it was not a bad decision when it really was. During my intern year after a 4 months of wards, 1 month ER and 1 month ICU I was exhausted and booked a trip to Costa Rica for my upcoming vacation. This trip was not a frugal one, I wanted to be on a private beach and booked one of the nicest resorts in the town that I was staying. All in I ending up spending way too much money on this vacation. As a result I briefly paused paying my loans for 2 months to build back up my emergency fund. It was an expensive lesson learned.
Getting a Divorce
One of the surefire ways to derail even the best retirement plans is a separation and divorce. Relationships take work. Don’t forget to put some work into the caring for your significant other. They may have been there during the rough times and everyone needs acknowledgement of being appreciated and loved while in a relationship. A ounce of prevention is worth a pound of cure, meaning that small gestures every day go a long way to avoid expensive counseling.
Taking expensive hobbies to extremes
Maybe you’ve always been into boating but sometimes these hobbyist decide that its time to buy a large boat or small yacht. Boats are the best example of a very expensive luxury item that has continued high recurring fees. Engines break, docking fees continue to increase, and lets not forget to continue registering the boat as well. All take time and money for write my coursework. Really sit down and see if you can afford the luxuries of expensive hobbies before deciding to go all in. Many times doctors leave out the recurring costs or costs of maintenance that can quickly add up.
Not putting any money away for retirement
Physicians start out behind many other individuals in terms of age when we start saving for retirement. Once an attending, doctors should be maxing out 401k and start an IRA. It’s not uncommon for physicians even despite the high level of income to be far behind on retirement contributions to meet their expected needs. The earlier one starts saving the better.
Spending too much money on the kids
Everyone wants the best for their children but some take this to extreme by spending too much relative to their net worth and disposable income on their children. Even for a doctor, that out of state school with out of state tuition for all 3 of your children will most likely mean delayed retirement if you plan to cover all costs. By all means, continue to give your children support. However, don’t let this lead to financial ruin or delaying financial independence. Your children eventually become an adult and its best to let them lead their own life.
Not having adequate insurance or buying the wrong insurance
Insurance is something no one likes to think about but not having it can lead to financial ruin. Not having the correct type or amount of: disability insurance, life insurance, liability insurance, and more can be costly. See what kind of asset protection you need. Keep in mind that you and the income you bring in is an asset to the family. If not for yourself then have proper insurance so that your family is protected in a worst case situation.