July has come and gone, and interns and residents should be settling in at their new positions (and salary). Not every new attending has started working yet, but many are.
This spring and summer a number of people have been looking at my posts about budgeting. Some of the more popular include:
- What Is A Good Budget For Intern Year? Obviously intended for new graduates, entering internship.
- Retrospective Budgeting: The 10% Rule . Geared mostly towards those making the jump from resident to attending.
- Retrospective Budgeting: The Live On Half Challenge. Also for the graduating resident.
For those who did not think about their budget before starting their job, or who maybe find their paycheck isn’t quite covering their bills, this post is for you.
While making a financial plan ahead of time is obviously better, sometimes that just doesn’t happen.
I must confess, I would rather that medical students actually focus on their studies, so I can totally see why you might realize you need to work on your personal finance issues a couple months into internship.
Again, residency is a time to learn everything you need to be become an excellent physician. Money management can and should take second place to learning medicine. Plus, with the promise of the attending paycheck, there is always the expectation that your attending salary should dwarf whatever you are earning as a resident. It might take a few months paying your bills as an attending to realize that you haven’t hit financial nirvana.
In thinking about financial pitfalls, I decided to divide problems up into 3 major categories: True one-time expenses, unexpected expenses, and a lifestyle your paycheck cannot afford.
You have a lot of “one time” expenses that are truly one-time
Maybe you are feeling behind because you spent all of your first and second paychecks.
You didn’t contribute right away to your retirement account, or set up a savings account. If you listen to some financial bloggers, you’ve blown it already!
Truly, though, you haven’t.
It’s true that it is best to start off strong: contribute to your retirement account as soon as you can. Set aside savings so you don’t grow into your full pay check right away.
However, it’s also true that moving and settling in are not always cheap.
I recall making a number of unexpected purchases my first month of residency. I was living in a furnished studio for about 6 weeks before moving into my house (a financial mistake). It wasn’t in the greatest neighborhood, and I kept a chair under my door.
We had a heat wave my first week, and I wasn’t going to keep the window open at night while I slept. So I had to go buy a window air conditioner unit if I was going to get any rest in the limited hours I had out of the hospital.
In addition, the “pet free” building clearly had pet allergens in the provided mattress. After a few days of wheezing, I realized I had to shell out more money for a allergen barrier mattress cover if I wanted to make it through the next month without a medical emergency.
Lastly, there was lots of going out with my fellow interns. Though this sounds like pouring water down the drain, I would say the bills from these evenings spent bonding were probably some of the best money spent that year.
I was clearly not in a position to save money that first month (or the second or third month, either).
However, many of these outlays were truly one-time expenses. I knew things would settle down, and they did. By the time the weather cooled down, so had my spending, and I was starting to save a little from each paycheck.
Moving to my first job after residency had financial challenges too: first/last/deposit on my apartment, while also making mortgage payments for 4 months on my house until it sold, was the biggest pain point, though there were others.
As long as your goal is to live below your means, don’t worry too much if your first month or two in a job is a bit more spendy.
Plan to pay out for deposits, surprises, and getting to know your fellow interns. Or partners.
Just also plan to start your savings plans in a reasonable amount of time (say, September or October), and you will do just fine.
You have a lot of “one time” expenses that you just didn’t budget for
This is a different sort of problem: you keep finding that you have “one time” expenses long after you have settled in to your new position.
I get it, it can be hard to make an accurate budget. Especially if you have had a lot of life changes. Sometimes it seems like every time you turn around, there is another surprise that needs to be paid for.
While it would be ideal for you to intuit ahead of time all of these expenses and plan for them accordingly, it is probably more realistic to make a plan to deal with the unknown.
Putting aside money every month for “emergencies,” which in this case might mean “stuff you didn’t know you had to budget for,” can help keep you from overspending or going into debt.
You may feel demoralized seeing your hard earned savings melt away for unexpected bills. On the other hand, this can save you the pain of credit card debt at 20% interest.
The trick is to also keep track of what you are paying for as “one time” expenses.
After three months, six months, or a year, you should have a better handle on which of your expenses are really one-offs, and which should be expected, and thus budgeted for.
With this knowledge, you can improve your budget, saving money for irregular bills in whatever way works for you: sinking funds, a secret savings account, a non-secret savings account labeled “irregular bills,” keeping a buffer amount in your checking account.
While it may seem like you are behind–because it took you up to a year to figure this stuff out–never doubt you are actually learning what you need know to get ahead. If you can finish your first year in a new position without a lot of new debt and with a plan to succeed in the years to come, you are still miles ahead of where you were when you started.
Of course, winning at this stage means that you didn’t plan from the first to spend all your income from your new job. You had some savings planned, which maybe you had to divert to take care of unplanned expenses.
What happens if you didn’t make a plan to save any of your salary ahead of time?
You locked yourself in to expensive items (housing, cars, schools)
Maybe you are a single doc making $180,000 per year who ended up with a monthly budget that looks something like this:
- Mortgage + escrow on the brand new doctor house: $3500 ($650,000 mortgage at 3.5%).
- Car payment (auto loan or lease) for the new doctor car: $1000 ($60,000 car loan for 5 years).
- Student loan payment: $2150 (paying 5.28% on $196,000).
- Insurance. Disability insurance, auto insurance (it went up more than you expected for a new car) and umbrella: $700.
- Retirement contributions: $1500.
- Taxes: $4150.
- Health Insurance: $100.
Your gross monthly paycheck is a nice round $15,000.
But after taking care of all of these bills, now you have $1900 left for the rest of your spending. This will most probably cover your utilities, gas, food, without difficulty.
However, if you want to travel luxuriously, indulge in buying fancier clothes, give generously (to family, friends, and/or charity), and maybe hire out some of your chores (cleaning, yard work)–suddenly, this doesn’t look like a comfortable budget.
Don’t get me wrong, $1900 can take care of a lot. But it might not cover the doctor lifestyle you were planning on when you graduated.
If you are married with children, you may have your own spending black holes (childcare, anyone?); rest assured that a person can absolutely outspend any income, if they have big dreams and aren’t paying attention to a budget.
If you have committed yourself to high fixed costs (see: house, cars, student loans), you have some heavy financial work ahead of you: you will need to widen the gap between what you earn and what you spend.
Earn More
If you are young and just out of residency, for a while you can work on earning more: work overtime, work locums tenens, build your practice and either get bonuses or just a higher income.
This is not going to be sustainable forever, but 2 to 5 years of bringing in extra income can help a lot, especially if you also work on the spending-less part of the equation.
A few large bonuses, or spending your vacations on locums assignments, and you can probably get rid one car payment, freeing up $1000 a month. If you want to do this for a few more years, you can probably get rid of your student loan payment, freeing up another $2100 a month.
An extra $3100 a month for a single person can make life a lot easier. But it will be a tough few years before you get here.
Spend less
The other side of the coin (so to speak) is to figure out how to cut your costs.
Right now, that budget has a lot of large, fixed costs you have to pay month-in, month-out, unless you want your car or home repossessed.
Until you can figure out how to cut some of the big costs, you will have to figure out how to meet all the rest of your discretionary needs with $1900 or less a month.
This is where I should refer you to all sorts of resources on living more frugally. Frugalwoods, The Frugal Physician, Chief Mom Officer, The Simple Dollar. There are a bazillion more blogs out there, just keep looking until you find a few that speak to you. You can also find books (check out your local library), or hit up Facebook groups with a focus on frugality or killing debt. The trick is to use tips that work for you, and not to fuss about ones that don’t.
If you are just looking for some quick (but not necessarily super easy) ideas, I will list a few. Some of the easiest areas to focus on are the large costs: housing, student loans, the car payment.
Housing
After reading personal finance blogs for a few years, I have a few ideas to kick around:
- Sell the house and move into a (cheaper) rental. The Frugal Physician did this very effectively. Depending on the rental market and how much you are willing to downsize, you could free up over $2000 a month with this strategy.
- Get a house mate. Or two. Or more. The trendy term for this is house hacking. If you are willing to live with someone else for a year or two, you could see an additional $1000-$2000 more in your pocket (or savings) each month.
- AirBnB. Maybe you don’t want a long term roommate. But, you are willing to play host to short term guests. This could be a way to meet people and offset some your mortgage each month with rental fees.
None of these are necessarily easy, but if you are willing to put in the work to sell your home and find another, or are okay living with someone else, you can potentially cut spending (or increase income) by $1000 or more each month.
Student Loans
While people may be resist changing their living situation because they love it, I have yet to hear someone tell me that they can’t change their student loan payment because they are too deeply attached.
If you aren’t going for PSLF, i.e. you don’t work for an eligibile 501(c) entity, refinancing your loans can help a ton.
Mathematically, it is best to refinance at a lower rate (the example here is a 5.28%) for a short time, pay large amounts every month, and get this loan paid off in 2-3 years.
However, if your budget is already overextended, you can free up some breathing room by refinancing at a lower rate, while keeping the duration of the loan the same. Refinancing with a rate that is 2% lower means that you can save $200 a month on that $196,000 loan.
This may not solve all of your cash flow problems, but it can help.
If you extend the loan duration to 20 years, your payment will drop more. However, this is not an ideal money move, and I won’t even bother to calculate how much less you will pay each month.
Cars
Cars can suck up a fortune. Between rapid depreciation, loan interest, insurance, parking and maintenance, they have a myriad of ways to cost you money.
If you find that too much of your money is going to your automobile costs, really the only way to address this is to get rid of the critter. However, unless you are living in the hospital, you will need to do something to replace your car.
Options include:
- Sell or break the lease for your expensive car, and buy a much cheaper used car. This will reduce or eliminate your car payment, and likely reduce your auto insurance as well.
- If you are part of a couple, see if you can manage as a one car family. This has saved our household plenty of money over the years.
- If your schedule allows, can you get to work in another way: bus? tram? Walking or biking will save you tons of money and help with fitness. Even the occasional Uber or Lyft ride after long shifts will be much cheaper than owning a car.
The Bottom Line
If you are paying attention to your finances, you are winning at this.
Whether you have a small bump in the road with life changes, need time to figure out what your expenses really run, or have a lot of work to do to ensure your costs do not exceed your income, as long as you don’t throw in the towel and give up, you should find yourself in a much better situation in a few years.
Those who feel they have gotten their finances under control: any suggestions for those just starting? Those who are just starting: do you have other pain points I have missed?