Doctor Money: Physician Finance Habits You Should Start Right Now

Adopting the right personal finance habits can both help you improve your money management skills and set you on a path toward financial success early in your career. From creating a loan repayment plan to paying your future self first, we’ve gathered some of the most effective habits that can help you improve your financial wellness.

Top 5 physician finance tips

Here are five of the most important financial tips that all doctors should know.

1. Create a loan repayment plan

Creating a loan repayment plan is an important step toward paying off your student debt. You have two different options, depending on which type of loan you took out:

• Federal student loan consolidation: With federal student loan consolidation, you’ll combine multiple federal loans into a single loan with the Department of Education. Federal consolidation will simplify how you pay your loan each month, but it won’t lower your interest rate. When you consolidate, your new interest rate is simply the weighted average of the rates of your pre-existing loans. Consolidating federal loans might be a good idea if you’d like to pay just one monthly payment and/or need to qualify for federal loan protections, forgiveness, and repayment options.
• Private loan consolidation: With private loan consolidation, you’ll consolidate your student loans via refinancing with a private lender. Each lender has different rules about eligibility, so it’s important to do your research to see if you qualify. Private loan consolidation can also simplify your loan repayments and potentially give you a lower interest rate, though this will depend on your credit history. Note that if you’re also lengthening the repayment terms, your interest rate could go up. Some lenders will charge you an origination fee, and you’ll need to pass a credit check before you can start consolidating. If you are refinancing any federal student loans with a private lender, you will no longer be able to take advantage of any federal benefits, including but not limited to: COVID-19 payment relief, Income Based Repayment (IBR), Pay As You Earn (PAYE), or Revised Pay As You Earn (REPAYE), and Public Service Loan Forgiveness (PSLF). For more information about the benefits of these federal programs and other federal student loan programs, please visit https://studentaid.gov.

2. Regularly track your finances

Making a habit of regularly tracking your finances can help you make informed financial and budgetary decisions. The following steps won’t take long and are perfect for busy doctors who want to keep an eye on their financial wellbeing:

• Keep tabs on your credit score: You can receive a free credit report every 12 months from each of the three major reporting bureaus (Experian, Equifax, and TransUnion) at annualcreditreport.com.
• Calculate your net worth: You can determine your net worth by calculating your assets minus your liabilities. Remember that net worth isn’t your salary – it’s the value of all of the assets you own. You can have a high salary but a low net worth if you spend most of what you make.
• Track your total cash flow: Tracking your after-tax income and expenses each month can give you a sense of how much you’re spending (see below).

3. Create and follow a budget

Creating and following a budget can encourage mindful spending and act as a powerful antidote against lifestyle creep – an issue common among new doctors who start spending beyond their means after finding themselves with significantly higher incomes than they had as residents. Continuing to live like a resident and following a budget can be smart tactics to avoid falling into this trap.

Here are a few tips on how to create a budget:
a. Estimate your monthly after-tax income.
b. Create a list of your monthly expenses. Include both fixed expenses, such as rent, and variable expenses, such as groceries.
c. Compare your income to your expenses. If you’re making more than you’re spending, you can funnel the extra money toward important savings, such as retirement.
d. Adjust as necessary: If you’re spending more than you make, you may need to tweak your budget and cut back on discretionary spending.

4. Begin investing

Start investing now to take advantage of the power of compound interest. Compound interest is when your money starts making its own money and is a valuable tool in combating inflation. There are a myriad of investing options, from low-cost index funds to maxing out your Roth IRA contribution.

5. Pay your future self first

Lastly, you’ll want to pay your future self first. This means putting money aside for things like an emergency fund and retirement savings. If you’re worried about having the willpower to save for your future, consider automating some of your savings. That way, a small portion of your paycheck can be allocated to your future self each month, no action required.

In summary

Adopting effective financial habits will help you maintain and improve your financial health and get you closer to achieving your financial goals. Even if you haven’t tried any of these before, there’s no better time to start than now.