It’s that time of year: Match Day has come and gone. Congratulations to all the students who matched!
Now it is time for a large number of graduating seniors to make decisions related to their first year as doctors.
If you stopped here for this post, then I am guessing you may have some concerns about making a budget for your internship year.
Though that time is long passed for me (I won’t say thank goodness, as it was a very exciting time), this question of what to budget in your first year as a doctor is something that I keep chewing over. I have written about it before, but am still trying to put things together in a better way. We will see if this year I can do better.
To read my prior attempts at answering this question, please see:
The Starting Block
At this point in the year, you should now know: where you will be training, what your salary will be, and possibly if friends or acquaintances will be in the same program or city.
It would be super helpful if you had a good idea of your current living expenses, which I’ll get to in a little bit.
If you want to take some time to review what you have been paying for food (at home and take out), transportation (car insurance, repairs, inspections, fuel), utilities, medications, clothing and “sundries” (hair care, skin care, your prescriptions, pens, papers, apps, whatever), that effort should pay off soon.
Goals
One of the biggest questions to ask yourself is: what financial goals do I want to achieve in this year?
Some people want to get ahead.
In the various physician personal finance sites, I read about ambitious doctors who plan to pay off loans, run side gigs, start businesses, and max out retirement accounts in residency. If you want to do that, great–as long as you don’t neglect your medical education, the main point of internship and residency. If you manage this all successfully, you will be in great financial shape when you finish your training.
Some people might just want to be more comfortable.
After living on loans, and maybe feeling pinched while your friends with good jobs buy houses, travel, and get new cars, you might want to have a little fun money in your pocket. You can do that, while also building an emergency fund, saving money for bigger goals (retirement/a down payment on a home/a wedding), maybe clearing some credit card loans.
The minimum goal ought to be to live on your salary.
That is to say, spend no more than you earn. If you do only this, then when you finally get the big salary bump at the end of training, you should be able to make huge financial strides (pay off debt, save lots of money, buy a house) with that step up in income.
A segue
When I was a resident, we were told that we were making the average American family income. This is still true today for many residents.
I hated hearing this; I guess I had an attitude. But it is also true that the average American hadn’t gone through a minimum of 8 years of post high school training, and didn’t need special laws to limit their work week to 80 hours.
Now that I am older, and more secure, I would interpret this comment on resident salaries as: yes, you may work much harder than the average American worker, but that’s not the point. The point is that many families are able to get by, and maybe even thrive, on this income. So it should not be crazy for you to do that as well. Even if you know you will be making a lot more in a few years.
Building your budget
Anyhoo… back to you.
Estimate your income
Start with figuring out what your paycheck will. I like this paycheck calculator, but I am sure there are others. Just put in your salary, your city, and marital status, and it will spit out your estimated paycheck. It defaults to semi-monthly paychecks, so make sure you adjust it, if needed, before you give yourself a heart attack.
Don’t take this number as gospel.
You might have further deductions, such as for health care. You might decide that you are going to put money aside for retirement.
However, this should give you a decent ball park of what will hit your bank account every payday.
Estimate your costs
This is where reviewing your spending habits earlier can really pay off.
Of course, if you are moving to another city, you may have to guess (or research!) some of your new costs. Parking and auto insurance, especially, can vary wildly.
However, if you know you spend $35 a month at the drugstore, and $350 for groceries and $50 for take out, you can plug those numbers in. Maybe with a fudge factor.
Decide on your goals
For the Financially Ambitious
If you want to get ahead financially, I would recommend following the 50/30/20 rule, first described in All Your Worth.
Under this plan, you would spend 50% of your paycheck on needs:
- Housing, including utilities and insurance.
- Transportation.
- Food.
- Required (or minimum) loan repayments.
- Health costs.
- Administrative fees (license, test registration, anything not covered by your residency program).
You would have 30% of your paycheck for wants:
- Eating out (or take out).
- New clothes.
- Cable/streaming services/movies/books.
- Travel.
- Gifts.
- Toys (new TV, phone, bicycles).
Lastly, you would use 20% of your paycheck for building wealth:
- Paying down debt.
- Establishing an emergency fund.
- Saving for big purchases such as a new car, or a down payment on a house, might go here (or in wants).
- Contributing to a retirement account.
For the less ambitious
The easier option is to save 10% of your paycheck right away. Hide that money from yourself, either in a separate savings account or (and) in a retirement fund.
You can spend the rest, though it would probably be a good idea to put a little more aside each month to take care of the inevitable emergency.
The Minimum
If you really want to live it up as much as possible in residency, but not fall into debt, you will need to budget very well. Your goal will be to enjoy your money as much as possible without spending more than you make. This will involve making very precise plans for your money, making not sure to overlook those irregular (yearly, or twice-yearly) expenses like car insurance, not to mention emergency or surprise costs.
I don’t really enjoy budgeting that much.
My advice would be to put money aside each month as a slush fund, to save you if your spending is higher than thought. Or you could look into sinking funds, special savings for expected expenses.
Pick an acceptable cost for housing
One of the most important factors, in planning budgets, is controlling your housing costs. In my sample budgets from last year, each intern had vastly different budgets–and different flexibility for spending–based mostly on their rent. Their student loans, or lack thereof, didn’t have much of an effect if they were in income based repayment plans.
Probably the safest way to calculate your housing budget is to subtract your other costs from your allotted income, and then see what’s left.
The financially ambitious intern
For example, with an average monthly paycheck of $3500, the financially ambitious intern knows he will have $1750 per month to pay for his needs. He has done some research, and estimates he will owe $250 per month on his student loans through income-based repayment (you can try this calculator here). Transportation costs are $350 a month, food another $300 per month, and he estimates he spends another $150 per month on random, yet required, items.
He now sees that he can afford $700 a month for housing (that’s rent and utilities), if he is going to stick with his goals.
Depending on where he moves, this may mean sharing an apartment, or living in a not so nice part of town. (Please don’t live somewhere unsafe! You will be working odd hours; whatever money you have saved isn’t worth getting mugged, or worse.)
Of course, if he does find an acceptable housing situation that meets his budget, that means he will also have this money for other goals:
With a thousand dollars a month to spend on wants, our intern can eat out plenty, or travel (when travel is OK), or buy a new iPhone every month, if he wants to. If it turns out his budget for his needs wasn’t quite accurate, he should have no trouble taking care of an extra $50 a month.
All this, and he is saving money as well. He should have a decent emergency fund after a few months, and can probably save for retirement too.
The less Financially ambitious intern
On the other hand, the less financially ambitious intern isn’t quite up to all this budgeting. She will save 10% of her salary off the top, putting $350 a month into a savings account until she has a good emergency fund. After a few months, she will instead put this money in a retirement account.
She also has done some research to estimate her costs, and sees she will owe $250 per month for her student loans, and $350 for her transportation. Based on her current spending, and some perks she wants to be able to afford in her new place, she estimates she will be spending another $1000 a month to live in a style she would like to become accustomed to. She isn’t totally sure of her estimated costs, so she is building in a $200 fudge factor into her monthly budget.
With $1350 for housing (rent + utilities), she will likely live in a nicer place than our other intern. If her budgeting is off a little, she can cover it. She won’t have quite as much money for splurging, but if she really enjoys her new home, then maybe she will think it is worth it.
At the end of a 3 year residency, she will have about $12,000 saved (more if she invests it), though not quite as much as our ambitious fellow.
In any case, she will be in a good place to make financial progress with her attending salary. After 3-7 years of living within her means, she should have no trouble–if she wishes–paying off her student loans and/or finding a down payment for a house and/or socking away lots of money for retirement once her income increases.
The minimum should not be the goal
I don’t actually recommend that you plan to spend all your money each month.
Like many of the games of Price Is Right, getting as close as possible to a number without going over carries a high risk of losing.
Also, I think building your savings muscles early is a good exercise.
I would recommend following the plan of the less financially ambitious intern above. If things are going very well for you (no emergencies), you could spend some of your savings for treats. You may, though, find that having a nice little nest egg coming out of residency is more appealing once you start saving.
TL; DR
Still too long, didn’t read? Here is the short version:
- Figure out your monthly salary.
- Decide how much you want to save in residency (20%? 10%, cut it super close?).
- Estimate your expenses, it helps if you have information on your spending habits already.
- Take #1 and subtract #2 and #3. This is your budget for housing (including utilities).
- Go conquer internship!
Thoughts? Comments? Disagreements?