Top Two Ways to Live Within Your Means: For Medical ResidentsMarch 7, 2017
Medical students, residents, physicians, and anyone looking to save money as they move up or along their prospective career ladder — it is time to heed these four words of advice: “Live like a resident.”
If you are familiar with The White Coat Investor, you’ve probably heard this sound advice repeatedly, but what does it mean? While primarily targeted at medical residents who are about to graduate from residency (and likewise move up substantially in pay scale), it is actually great advice for anyone who wishes to learn how to make a budget and live within it. If you are likely to receive a significant boost in income — whether now or in the near future — you should try to maintain a budget that falls in line with your previous — or lower — income. By learning to live modestly and well below your current earnings on a routine basis, you are more likely to have more money to spend in other ways, such as paying down student loans, paying off other debts, going on vacation, pursuing a hobby, retiring early, investing, and simply doing something just for the fun of it.
Creating a budget and reserving a portion of your earnings for future goals can help individuals, particularly medical residents, make the leap from low to high earnings in a manner that allows them to enjoy some of their hard-earned success both now and in the future.
#1 Live Modestly From the Start
Whether you are in residency or working in a short-term, lower-salary job, living modestly and within your means is an important habit to acquire. For medical residents, this means that you should not live like an attending physician when you are a resident. Do not be tempted to buy things you cannot currently afford by spending as if you are already earning the wages associated with your future job title. Even though you know that you will likely be earning more in the near future, this style of spending is an easy way to accumulate debt, additional loans (car, home, personal), and possibly lower credit scores. Following this advice early, however, can help you set up great financial planning habits, such as paying off debts, saving for a retirement plan or investments, being able to go on vacation, and any other long-term financial goals that you may desire.
#2 Live a Modest Lifestyle After Climbing Your Career Ladder
Once you begin earning higher wage, whether you are now an attending physician or working in some other higher-earning profession, consider maintaining a modest lifestyle. Opting for a smaller house or a less expensive car, or simply continuing to maintain the budget that you followed in residency previous position, can help you achieve this goal. Why you should do this, however, is the best part. With a climbing income and fairly stable expenses, you will have more money coming in that going out, and therefore, more money to pay down student loans, to add to your blossoming retirement account, to invest, or to enjoy with your family. If you want to maintain your modest budget while experiencing more of what you are passionate about, consider setting aside more of your budget for this category. For example, if you want to travel the world, keep everything except travel expenses at your residency-level budget. If you have a growing family and need a bigger house in a nicer neighborhood, consider relocating to an area that is less expensive, or cut back on expenses in other categories so that your mortgage does not consume too much of your extra capital. Regardless of your situation, there is a plan that can work for you.
While you are paying down your student loans in this phase, consider this potentially money-saving strategy — refinancing for a lower rate! Refinancing student loans (and consolidating multiple loans) into one loan, ideally with a lower rate, could help you save countless, hard-earned dollars. If you want to see how much you could save, check out our loan calculator or talk to a representative at Education Loan Finance.
Live for Today. Plan for Tomorrow
Physicians are often already accustomed to experiencing delayed gratification, having trained for years longer than most to ultimately obtain a higher income. Without their early working years to obtain and save wages, physicians who are in residency or just out of residency should take precautions to save and budget their income wisely. The bottom line is, “five times the pay doesn’t equal five times the lifestyle,” and while physicians eventually do typically make more money than many other professions, they also have more professional expenses (CMEs, professional licensing, and more), often higher overhead expenses, and higher student loans. Financially planning for these factors and formulating a well-informed way to maintain a modest budget, at least for the first few years after residency, can go a long way in securing a peaceful financial future.