by Andrew Doan, MD, PhD
SDN Contributor
Students spend years learning chemistry, organic chemistry, physiology, and the health
sciences to achieve their goals of becoming a doctor, nurse, pharmacist, or health care professional. After all of the didactics during college, medical school, or professional school, one of the most important skills students are not taught is money management skills.
Many students have trouble distinguishing between wants and needs, and without basic skills to manage money, students can find themselves deep in debt. With higher income potential, people without adequate knowledge of money management can get into significant financial problems even after obtaining their high-paying job. For instance, I have physician colleagues in their sixties who own luxury homes and live lavish lifestyles. But because of money management problems, these physicians have filed for bankruptcy.
I have not always been wise with money and budgets. However, I’ve learned a lot about accounting, financial management, and investments after medical school through my involvement with investment clubs, building home-based businesses, and starting a publishing company. My wife and I have also led financial management home study groups for our church. After talking to students and residents about money management, I realized that many students and young physicians do not know how to handle money.
One factor is that many students have parents who wanted only the best for their kids and, in most cases, provided it. Students may not have to exercise fiscal responsibility when parents are providing financial assistance.
Here are 10 money management tips to help you get started in the right direction for a more financially secure future. Although students may not have high incomes, one major advantage most students have is time. Time can be used to make more money by utilizing compound interest. Start using these tips, save more money, and make your money work for you.
- Save your money: Money will work for you when you save. Saving $20 per week in a money market fund that yields 5% interest will give you $13,472 in 10 years. In 40 years, you will have $132,403.
- Use cash accounting: My wife and I use cash to pay for our weekly expenses. When the cash is gone, then we don’t spend. Use your credit cards sparingly because it is too easy to “charge it.”
- Pay your credit card balances in full: More than a third of those who owe more than $10,000 on their credit cards have household incomes under $50,000. Pay the entire balance in full. Let’s consider how using credit cards can cost you a lot of money. Instead of saving $20 per week, you decided to spend $20 per week, purchase a new TV and gaming system, a new computer, and some furniture on your credit card. You’ll have a balance of about $3,500. Because the credit card gave you one year interest free as a promotion, you don’t make any payments for the first year. Then you pay the $50 per month minimum payment. With an annual percentage rate of 15% and minimum payment of $50 per month, it would take you 162 months (i.e. 13.5 years) or $8,100 to pay for your purchases. If you default on your payments, credit card companies will increase your interest to as high as 29%. Now your minimum payments are $85/month for 194 months, which costs you $16,490 to pay off your $3,500 balance. Avoid helping the credit card companies make money from your spending by paying your credit card balance in full.
- Make a budget: The only way to know how much money you can save and spend is to make a budget. This way you can keep track of your money.
- Shop for the best deal on a checking account: Look for no-cost checking. Better yet, if you open a money market account, then you can write checks and use your bank card to withdraw from the money market account. Currently, money market funds are paying about 5% interest a year and some are also insured by the FDIC.
- Set limits on entertainment spending: Look for cheaper alternatives to the ski trip to Aspen, going out to the movies, and going to the clubs.
- Look for scholarships: There are thousands of scholarships available. Find them and fill out an application.
- Don’t eat out all the time: Eating out can be a huge money pit. Budget for dining out, and try to cook at home to save money.
- Walk or ride your bike: During my ocular pathology fellowship at UCLA, I biked 4 miles to work everyday. I saved a ton of money on gas when prices were above $3 per gallon!
- Get a part-time job with tips: Jobs with tips can pay very well. Remember to set some of your earnings towards a savings plan and do not simply work for spending cash.
These basic principles in money management can help you get on the right track to financial freedom and greater wealth. With discipline and knowledge, you’ll be more prepared to spend, save, and invest your higher incomes when you start your career.
Great tips. A few things I would like to add. If you have a job that allows you to do direct deposit, allocate a certain amount to a separate savings account each pay period. This way you never see the money and don’t even factor it in to your weekly budget. I use an online ING account.
What makes it difficult for students in health careers is that we won’t necessarily have an income for many years. It’s makes it tougher to save when you are living off of loans.
If it were only that easy. With the high cost of going to college these days, a person is bound to go into debt. A full-time load (12 credits or more) of classes takes up a lot of time in a person’s schedule during the week. It’s even harder for a person majoring in the sciences to find a decent part-time job to work during the week than it is a person majoring in communication, history, arts, math, English, and several other areas a person can major in. Some of the other majors that eat up a lot of time during the week is nursing and education. Most students that are $2,000 or more short in their tuition each semester will need to find alternative ways to pay for their tuition and other bills (that is if mommy and daddy aren’t flipping all of the bills for them).
A good number of people who go straight to college right out of high school are from a family that is somewhat wealthy. As a result, a lot of the students have their parents paying for their education. This doesn’t teach the student what a hard earned dollar bill feels like. So they go and charge their credit card with outrageous purchases (my roommate purchased a big screen TV just to put in his room..he never watches it).
Another aspect that you have to take into account is the ignorance of college students today. A high percentage of college students have the attitude that they need to go out and party hard as a college student. Thus, they spend all of their money on alcohol and drugs. I know of one student that is the daughter of my boss and she spends a good 200 dollars a weekend on alcohol and food. That is just one weekend. So when she runs out of money she just goes to her dad and asks for more money. The dad complains about his daughter asking for money all of the time BUT HE KEEPS GIVING THE MONEY TO HER.
The average tution at a Big Ten school can run a person well over 15,000 dollars a year when you factor in school tution, rent (or room and board), and a meal plan. Going to a private school can easily run a person 25,000 dollars a year.
I have had situations when I was a college student were I had to apply for a credit card just to pay bills after my car broke down. I had to pay 600 dollars in car repairs and still had the bills to pay for that month. As a result, I had to use the credit card to pay for my car repairs. I won’t ask my parents for help because I’m an adult and I will work my way out of the tough times.
What makes a man is how he acts in the times of crises. When I graduated college I had over 50,000 dollars of loans to pay off. Instead of going straight to a professional school, I worked for a year and got all of the school loans paied off by working three jobs (2 were home-based).
This ought to be common sense, and it is down right depressing that it’s not. Thanks for putting out that list. Maybe you can do another one about 401ks, traditional vs Roth IRAs, etc… get some of these kids thinking about their future now.
O, one more thing I thought of after reading some of the other comments: you can definitely work full time while going to school full time. For example, I’ve been working full time while taking 12 or more credit hours per semester (last semester was 16 credits). This not only allows you to max out your Roth IRA and contribute at least enought to max out your employer’s free 401k match, but also makes it nearly impossible to spend money you don’t absolutely have to. If you get up at 6am to go to work, and get home from class at 11pm or midnight, you don’t need to worry about spending money at clubs, etc. Just pack several meals with you at the beginning of the day and you’re done spending money. Also, the weekend comes along and your days consist of studying, writing papers, trying to get ahead on next week’s classes. You can go to Panera Bread and get a bottomless cup of cofee for about a buck fifty. Free internet access. Spend all day studying.
I disagree with #2. I use a credit card for EVERYTHING, but I treat it as cash. If I don’t have the money to buy that item right now, I don’t buy it. The reason I charge everything is because of cash back credit cards. I get 1% cash back on everything and 5% cash back at grocery stores, convenience stories, cash stations, and the bills that I pay. I get a $50 check in the mail every few months for the cash back I have earned. To me, that seems smarter. The cash you spend is just gone. This way, you get some of it back.
Dr. Doan, do you recommend any books on this topic…as in good introductory books?
I’d say the biggest point here is to not spend money eating out. I’ve wasted thousands of dollars (read: over $1k) on food alone. Biggest waste of money EVER.
Eating out is a big pit-Also, if you’re using your ATM card for everything, it’s easy to lose track of all the little 3 and 4 dollar purchases. And they add up very quickly..
Can you tell me more about number 1, the money funds? Also, being a student, how are ways I can invest the little that I have?
I disagree with saving, if you are already creating debt. Students taking out loans are silly to put $20 away if instead they could be taking out $1000 less in loans/yr, especially if those loans are private. If your loans are subsidized, then maybe saving is a good idea.
Credit card debt is higher for those with lower incomes because they need credit cards to be their safety net because their incomes are low. Like the above poster who needed to repair his car. It’s not a financial planning problem, it’s a lack of money problem. Get more money to fix the problem.
“Make a budget” should have been #1 on the list. Everyone should sit down every 6 months or so and write down how much their living expenses are, and then see how much is left over for the less predictable stuff (need a suit for interviews, gotta get a gift for the girlfriend’s birthday…).
Undergrads: GET A JOB. Not just for the cash, but for the experience, you’ll be glad you got out into the real world. Try to go off campus or do something with non-students.
Cars are money pits.
Good advice, except with no disposable income it’s hard for us to put money away when we are taking out loans.
I would be more interested to see an article on how to manage money AFTER earning income (i.e. residency). You said you started a publishing company? How did that work? Or a small business? How can we maximize our incomes through business ventures?
Sincerely,
Dwyane
I agree with dwyane. As healthcare professionals despite out “high” incomes. (Not high enough). There is constant pressure for reducing our salaries in the near future. We need to diverse our money into other business ideas, real estate, to diversify our income incase the sh*& hits the fan in the future. I am not wealthy and have been able to contribute 4K a year into my roth during my last 4 years of pharmacy school. I worked hard with 2 pharmacy intern jobs while in school and saved my money. Its definitely not impossible, ud be suprised how fast you can waste 333.33 a month on other stuff.
Medical education forces people to live like crap on credit cards and mom and dad if lucky.
It isn’t glamourous.
Look guys, there are ways to pay off debts and to make enough $$ not to have to borrow!!!If your attitude is right it is possible to make money while attending school. Why is it nobody ever talks about increasing income instead of saving or barrowing “or” starving. E-mail me and at least talk about it
Dave’s got something to sell. Avoid him.
I live mostly on loans. My summer jobs pay my living expenses for the summer. I have no parents to support me. My cost of attendance is way below the cost of living in my area. I can’t borrow more than my cost of attendance. That leaves credit cards – or one credit card with an incredibly high limit. They saw me coming.
The public service announcement above didn’t contain any new information for me. I started pharmacy school with no debt beyond student loans, but I can’t manage the cost of living in my area at this level of tuition without credit cards.
Saving money? I don’t have $20 a week to save. Eating out? My idea of eating out is Wendy’s twice a month. I have no car. I have no gym dues. I pay very low rent for my area. I wear clothes until they fall off my body (kind of). I get my hair cut every three months at $13 a pop. I avoid my PCP because I’m afraid it will cost me more money – fortunately nothing catastrophic has happened since I am, after all, 42 and my risk of illness increases by the minute.
Yes, it could be said that I asked for this by seeking a expensive training at mid-life. Some might even criticize me for not having savings. I answer that by saying that I was driven into this life by a sour economy. I moved in this direction to meet a dream. I have no regrets. However, I never worried like this about money when I was simply unemployed because there were savings available – there are no savings now.
America abuses the people it expects to serve them at a later date. I don’t expect to live the high-life while in school, but it would be nice if my basic needs were met while I’m in training. Student loan debt is part of what’s wrong with the American healthcare system. Platitudes like the ones above are not helpful.
Also, can i get a response from the neurosurgen? listen to him.Harold Melvin on January 6th, 2008 3:45 pm
I am a neurosurgeon and make about $550,000 a year after taxes. Believe me, physicians should not worry about a subsidy. Get over the greed, you schmucks!
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anyone on this comment live in oklahoma? i am thinking of applying there to OU.
Also, like when in high school, The ACT, the only section, you had to know to do good was the math part. The other sections you couldn’t really study a lot for.
same way, what courses should i put a lot of emphasis in so that i can do excellent on the MCAT?
what courses do i have to have before taking it? hope someone can help.
Hello,
I am workign on getting out of devbt right now!
I have about $12k in credit card debt, and I have tried the transfering balances, a private loan, a consolidation, and everything that I can think about, but without he savvy, knowledge of how things really work, I find myself in a financially challanging situation. i am in medical school and I work about 30 hours a week, which is quite difficult, but I am just not sure what to do, if you have any suggestions, please help?
Thanks for the responses and discussion, as well as future topic ideas.
In regard to “not saving” because you have subsidized loans or student loans, I would say you need to save too. If loans are subsidized, then you are not paying interest on your money. Thus, any interest you are making on savings is a bonus. I am not advocating taking loans to “invest”. Instead, I am encouraging students to learn the “good habits” of saving early. When you learn good habits and can be a consistent saver, even with $20/month, you will increase your “good habits” when you make more money. Treat your student loans like borrowing from your future salary and as today’s salary/income. Thus, if you spend less of your student loans yearly by cutting back, then put it into a money market fund or a good investment. Learn to make your savings grow. When you must pay back your loans, then you can decide whether to keep your savings growing or pull your savings out and pay your loan back with extra payments. Your decision will be based on your student loan interest. The interest rates are very low right now (compared to 8-10% when I was in school), so you may be better off paying your student loans back over 10 or even 30 years if the interest rates are ~4%. This barely keeps up with inflation.
The take home message is start good saving habits early as these good habits will serve you well when you make more money. Good luck!
Andrew Doan, MD, PhD
I completely agree with the above.
Especially
* Don’t use credit cards
* Don’t eat out
* Avoid debt and pay it quick, use only cash you have.
Americans are in debt and financial problems simply because, they want too much. If you are able and willing to convince yourself you can be poor AND happy, you’ll be richer than most you know, and burning money on stupid things before you know it.
No doubt we all have our “wants”, but knowing your priorities and planning ahead WILL pay off.
Everything costs more and we get paid less.
eating out is fine as long as you only do it in your dorm room