You didn’t know when you went into medical school that you would have to be your own financial planner. However, it’s not that tough if you plan right and you plan ahead. The key is to start with a budget and write it down on paper so you can look at it every week, advises ASCP Chief Financial Officer Bobby Lendi, MBA, CPA. “I have a spreadsheet that I use, where I list what I’m going to take home each payday and the bills I have to pay. I look at that every two weeks. It’s easy to do and it doesn’t take a whole lot of time.”
Once a budget is in place, Lendi offers two pieces of advice to fellows-in-training or physicians who are new in practice. The first pertains to student loans. Most physicians will come out of school with $100,000-plus in student loan debt.
Pay Down Student Debt & Payroll Deductions to a Retirement Plan
“That debt is going to be at five or six percent. So one of the first things I recommend, when putting a budget together, is to aggressively pay down student loans. It can save you tens of thousands of dollars over the long term if you can pay it off early.”
The second recommendation is to take advantage of investing opportunities through your employer. Most new physicians will be working at a hospital or a university that will offer a 401K-type plan and will also offer to match employee contributions. “If you put in five percent and your employer matches it at five percent, that’s like having a five-percent raise. Don’t overlook that,” Lendi emphasizes.
In most cases, you’ll have the flexibility to pick the funds you want to invest in through your employer. Each fund usually has a cost associated with it. There is no reason to pay for high-cost funds. One of the best investing strategies put forth from investment gurus is to invest in low-cost index funds that mimic the overall stock market like an S&P 500 Index fund. “These funds give you exposure to five hundred different companies that follow the S&P Index, and they are not actively managed. So, you don’t have to pay a manager,” Lendi says.
Planning for the Future
It may seem counterintuitive, but now is the time to also start planning for the future. You should already be planning for when you buy a house or want to start a family. “When you have your budget in black and white, you’ll really be able to see what you can afford when it comes to buying a house,” Lendi says. “That number will be different from what lenders say you can afford. Their figure will be likely much higher than what you actually can afford when you’re looking at your budget.”
Meanwhile, Lendi also advises people to plan their future family around their expected levels of income. “A lot of my friends started their families right out of college. I started my family in my 30s and had two children back to back. After the first full year of daycare, I received a statement from the daycare facility for taxes. It showed that I had paid $27,000 for two kids in daycare. There was no way this would have been affordable if I had started having children in my twenties. Children can be expensive, so plan ahead,” he says.
All of this may be a lot to think about when you are still completing a fellowship. Yet, it doesn’t have to be that difficult. Ten years ago, you would have had to sit down at a computer and type out your budget and expenses. Today, a vast number of mobile apps are available to download, in some cases for free, that act as your very own personal financial assistant. “These apps are built for the majority of the population who aren’t financially savvy. There are so many apps you can pull down and find one you like, and that can be a good first step,” says Lendi.