Congratulations to the new residents who made it through the first week, I hope 4th of July wasn’t too hectic for any of you. I know that with only a week under your belts, life is still pretty crazy but I wanted to offer up some financial priorities you should focus on once you get into your groove at the hospital. Given your scant amount of time to focus on these priorities I don’t want to overwhelm anyone with a laundry list of things they “need” to do as soon as possible, but these three items should be your first priorities while in residency. They all focus on protection so that you can begin to build a solid financial foundation and not have to worry about “what if” scenarios.
Residents and those just starting out in their careers typically aren’t making up to their full potential salaries and have the majority of their years ahead of them. That means their lives need to be funded by their salaries or their disability insurance, especially as student loans won’t be forgiven if you declare bankruptcy. Getting disability insurance while a resident means it will be a bit cheaper as you tend to be younger and healthy, and won’t be classed into the same designations as what they will go on to specialize in. That means that you’ll be considered a resident and have the same insurance rates as a resident as opposed to being a neurosurgeon or family practice doctor.
The best way to think about disability insurance is as income replacement insurance. Your income is going to be vital to your lifestyle, especially at this stage, so having a protection to guarantee you income if something happens should be on the top of residents’ minds. Low Load Insurance Services provides disability insurance, but shop around if you’re not not getting an option that makes you comfortable.
The thing to remember with disability is that while everyone focuses on injury, it’s far more common that you would need to use the insurance due to an illness. Working at a hospital or clinic, regardless of the precautions you take, there’s an increased risk of catching something. By having this base covered early on, it allows for flexibility when you need to add more insurance to account for higher pay and you’ll have to go through less hassle and jump through fewer hoops when you need to upgrade your policy. There is a future purchase option rider that will allow you to increase the amount of coverage as your salary increases, which is definitely something that residents should take advantage of given their career trajectory.
If you have a spouse or children or a family member that depends on your income, life insurance is a must. The same is true if you have a mortgage as the life insurance payouts can help settle any debts you may leave behind. From my experience working for a large insurance company, many of those who worked with doctors wanted to sell them the largest permanent life insurance policy they could and then watch the money roll in through commissions, so I would advise looking at all your options. While permanent life insurance can be useful in specific situations, I have yet to meet a resident who benefits from having a permanent or whole life insurance policy.
For residents, you’re still not making the big salaries you will once you finish your program, so all you need is something cheap and easy. Term insurance is great just to make sure that you have a safety net while not spending tons of money to maintain the policy. Unlike whole life or other permanent life insurance policies where you can have investment accounts, term insurance simply gives you a set time frame (15-20-30 years) and a death benefit which will be paid out if something happens during that time frame. Low Load Insurance Services again has several options for you to look through and will be able to help you find the policy that works best for you. And finally, last but not certainly least...
There has been some speculation as to whether the backdoor Roth conversions (converting a traditional IRA to a Roth IRA) are going to be upheld, so for now I’ll talk more generally about IRAs (if you want to get into specifics, schedule a meeting and I’d be happy to go through what makes sense for you). Most new residents have been so used to the medical school lifestyle that once they start getting a salary they are tempted to upgrade their lifestyle. However, saving that money and living like a resident by starting an IRA now will build good habits such as saving as well as starting the process of automating your finances. Starting retirement savings early makes it far easier for people to reach their overall retirement goals because it’s far better to invest now than to wait, as having a long time horizon can be incredibly beneficial to growing your retirement funds.
There are many residents who have told me that while this all sounds great in theory, they simply don’t have enough money to start saving for retirement and that they’ll put more into those accounts when they finish residency. I have written several articles that address this issue like the time value of money and why building good financial habits is important, but perhaps more important is the fact that you can contribute as little as $50 per month to a Roth IRA. I know residents aren’t paid well, but you should be able to find that much money to start a retirement account, as that’s similar pricing to a decent meal with your spouse. Now, I know that budgeting can be difficult and you may not see a way to start an IRA, and if that’s the case I would love to go over your situation with you and help figure out a way to get you on the right track.
What did you think of my list of priorities for residents? Do you have different tasks that you felt were vital, or ones on my list that you skipped? Let me know what worked or what didn’t as well as any questions in the comments below.