How to Manage Your Finances in Medical Residency

Transitioning from medical school to residency marks one of the biggest changes in your medical career. This includes a huge shift financially, from paying student to salaried trainee. While a resident’s salary is much more than you were making as a medical student, it pales in comparison to how much you’ll be making someday as an attending physician. Add in having to pay student loans, the cost of living, and a variety of other large life events (think engagements, weddings, and children) that commonly hit in your third decade, and managing your finances during medical residency can seem overwhelming. 

The average resident can expect to earn anywhere from 50-70k a year – far short of the six-figure salary you can expect to bring in as an attending physician, and more similar to the median US household income. This makes getting a handle on your finances in residency more critical than ever. Here are seven essential steps every resident should take to gain control of their finances in residency: 

1. Develop a plan for your student loans

The number one consideration for the majority of residents should be figuring out a plan for their student loans. The first step is to take stock of your personal situation: 

• How much debt do you have? 
• What is the interest rate? 
• Is your debt federal, private, or both? 

If you have federal student loans, take the time during residency to learn about the alphabet soup that is student loan repayment programs – using a calculator like the ones found on studentaid.gov can help you compare the monthly payments, duration, and total cost of various student loan programs. If you’re in a particularly desperate financial situation, forbearance or deferment on your student loans may be an option – talking to your student loan servicer is a great place to start if you’re having trouble meeting your monthly payment obligations. 

Private student loans are not subject to the same rules as federal student loans, and generally have more limited options in terms of payment plans and timeframes. You should always consider the interest rates of private loans and whether you can refinance them to a lower rate, saving money both on monthly payments and in loan interest in the long term. 

2. Seek to limit housing expenses 

Wait a bit longer for that doctor house

While the temptation at the start of residency is to upgrade your housing situation, it’s not time to buy that doctor house just yet. Keep in mind that in residency, your needs and priorities when it comes to housing are going to be much different than when you finish. For one thing, many residents end up moving for fellowship or a job after training. Owning a home temporarily only to sell a few years later in a bad market can be a costly mistake. For another, residents working 80 hours a week may not be spending as much time at home as they’d like. That gorgeous lakefront view that made that expensive apartment so attractive initially might be something you’re seeing rarely, if at all. 

Prioritize what you really need

If you are going to spend more on housing, focus on features that simplify your life and save you time. It might not be worth it to buy a new house in a fancy neighborhood, but you may appreciate having a 15-minute commute rather than a 30-minute one. An in-unit washer and dryer can be invaluable when you’re scrambling to find an open laundromat after a night shift, and not having to scrape the ice off your car in the morning because you have a covered garage might mean 15 minutes of extra sleep. While now is probably not the time to go out and buy the most expensive house available to you, you probably don’t need the most expensive house, either. 

Consider a roommate

If you don’t have children or a partner, living with a roommate can drastically cut your housing expenses as well. Even if for just a year, roommates can help out with a variety of expenses. Housing, utility bills, internet costs, and more can be cut by half or more, depending on how many people you’re willing to share space with. If you’re in a situation where having a roommate is a possibility, getting one could drastically reduce your housing expenses. 

Learn about options like subsidized housing

Sometimes, training in a high-cost-of-living city is unavoidable. Cutting costs by taking advantage of subsidized resident housing or roommates is more important than ever in this situation. If spending less on housing isn’t an option, understand that extra money spent on housing needs to come from elsewhere in your budget – perhaps by putting off an upgrade to your med student car, or by making a little extra moonlighting one weekend a month. 

3. Don’t spend more than you can afford

Set a budget — and stick to it

Perhaps the most obvious piece of financial advice is also the one most worth repeating. Residency is the time to start setting a budget for yourself and tracking where your money goes if you haven’t been doing so already. While the temptation is to spend lavishly in the hopes that your big attending salary can eventually be used to pay off your residency habits, the tendency to spend money you don’t have yet can really come back to bite you in the end. While you’re earning an average American income, it’s best to act like it. That probably looks like living in an average American neighborhood, driving an economy or used car (or using public transit, if available in your city), shopping at the discount grocery store, and possibly going on a moderate-cost vacation or two every year (think camping, hiking, or tacking on a couple of days to the end of a paid-for academic conference). It probably means you cannot afford a brand-new car, shopping exclusively at upscale grocery stores, or international vacations and first-class airfare. While the occasional splurge is understandable, try to keep the large, fixed expenses in your life affordable – payments like rent or a mortgage, a car payment, or private school for kids should be minimized or avoided entirely until you’re making more money. 

Find ways to make money on the side

If you find yourself already locked into high fixed expenses, you live in a higher cost of living area, or you simply can’t avoid paying for some expensive item, making more money might be your only option. Moonlighting, if permitted by your program, is a time-honored way for residents to earn extra cash (and sometimes gain new skills or even job opportunities) on the side. Be mindful of your program restrictions on this sort of activity, as well as what you’re able to do on a trainee license and any malpractice coverage that’s provided or required. While time in residency is a limited resource, moonlighting can be a great way to accelerate paying off things like credit card debt or save up for large expenses like a wedding, vacation, or board exam. 

4. Plan and save for large, predictable expenses 

On a resident’s budget, large expenses can be overwhelming if you don’t spend months saving up for them in advance. Don’t get caught in a situation where you don’t have the money to pay for necessities near the end of training, like interview expenses for fellowship or board certification exam study materials and registration fees. When you know you have a large expense on the horizon, commit to setting aside money every month to pay for it. Doing so will build your saving muscles and reduce your financial and personal stress when the bill is due. A little goes a long way in this category. Saving $1000 for a board exam in a month might seem insurmountable, but saving $1000 in the year leading up to your exam can be done much more easily. You know these expenses are in your future – account for them when you make your monthly budget, and you’ll thank your past self later. 

5. Get familiar with your retirement accounts

For many residents, residency may be the first job they’ve had that offers any sort of retirement savings program. You should spend time reviewing your options with your organization’s human resources department to make sure you fully understand what benefits (if any) your residency offers. Making contributions to retirement early is a great way to start building wealth. While retirement seems like a long time away, consider that many of your college or high school classmates have several years of a head start on you in this category. If you’re waiting until after residency to start contributing to retirement, you might be 10 years behind them! 

Similar to student loan programs, there’s a long list of numbers and letters when it comes to retirement accounts that might be unfamiliar to you. At a minimum, you should try to understand whether your hospital offers a 401k (or a 403b) that you can contribute money to and whether the hospital will “match” contributions that you make to the retirement plan. An employer “match” should always be something you take advantage of when available, as it represents “free money” that the employer will contribute on your behalf to a retirement plan as a part of your benefits package. Failing to take advantage of that employer match is like taking a salary cut – if you don’t contribute, you won’t get anything in return!

6. Learn how to recognize (and avoid) unscrupulous financial salesmen

With their high student loan burden, high incomes, and relatively low levels of financial literacy, doctors are frequently preyed on by the finance industry as “easy targets” when it comes to selling products you don’t need. Be extremely wary of cold calls, emails, or communications from financial professionals offering to sell you products, investment advice, or inviting you to a “free” seminar or steak dinner. Most of the time, these “financial professionals” are actually salesmen who may not have your best interests at heart. If you are looking to hire a financial professional, make sure you fully understand their fee structure, whether they sell any products, and whether they are willing to act as a “fiduciary” for you – to be legally bound to put your best interests over their own. If an investment opportunity sounds too good to be true, it usually is. 

7. Protect your most important investment – yourself! 

As a doctor, the majority of your earning power is in your future during residency. As a result, it’s important to take care of your most important investment – yourself. Your ability to earn more money in the future is key to your financial success, paying off your student loans, and affording that doctor house, private school, or luxury automobile someday. You’ll want to protect those potential future earnings in any way you can. Of course, this means taking care of your mind and body to the best of your ability – getting enough rest, exercising, eating well, and seeking support and treatment for burnout, depression, or anxiety before they impact your career and personal life. 

However, it also means securing your financial future. If you have dependents like children or a spouse who would not be able to support themselves without your help, life insurance is a great way to protect them from financial ruin if you were to die. Perhaps even more importantly, residents should consider putting into place disability insurance that covers loss of income if they become disabled and unable to practice their chosen specialty as a result. You’ve worked hard to get to this point so far – make sure that your financial future is protected as a resident by putting this crucial coverage into place before you need it. 

Getting through residency is a challenge, but it’s also a great opportunity to build the financial skills it takes to succeed. Just like studying medicine, don’t expect yourself to become fully financially literate in a day. Keep these tips in mind, learn and read as you go, and you’ll be well on your way to financial success in residency and beyond.