15 Oct Five things I wish I knew about finance before going into medicine
Over the years as I speak with premed college students and medical students, I keep hearing the same recurring questions. Most of these are related to the clinical or career decisions. What grades do I need? How many honors did you get? Rarely do I get questions about being able to afford that Lamborghini after becoming a plastic surgeon, or more practically, whether they would even be able to buy a house or raise a family at age 30.
I asked those same clinical questions when I was in their shoes. By all accounts, my mentors guided me well. I became a competent physician (I think). However, no one ever told me that it was a bad idea to spend 80% of my income on rent (yes, you can do that). Now that I’m getting my finances back in order, it’s time to reflect on what I consider are the important finances that I should have asked or educated myself prior to venturing into the medical field:
- Invest in a Roth IRA. Time is on your side. I remember back in college one of my classmates raved about the Roth IRA. He must be rocking his finances now if he already knew what a Roth was back then. In fact, he told me his parents basically matched his Roth contributions so that he was making good financial decisions early in his working career. I, unfortunately, did not have that luxury. I didn’t start a Roth IRA until residency, and even then, I think I didn’t even contribute one of the years because I was short on cash. Post-tax growth is an amazing vehicle, even if you aren’t actually contributing a huge amount each year.
- Invest in a 401k/403b account. Again, the premise on these investments is that the earlier you have funds in them, the longer the funds have to grow. I did not invest in a single 401k during my training because my hospitals did not offer a match. Was it a bad move? In retrospect, I probably should have invested, although I am not sure if my hospitals offered low-cost funds either. This may eventually amount to a low six-figure amount by the time I’d be withdrawing from this account. The toughest part about investing in a 401k when you have a mid-five figure salary is that you’re really not deferring a significant amount of income tax compared to what you otherwise would have as an attending. However, you do have to realize that many people out there remain in a five-figure salary throughout their entire working careers. Those people should still definitely invest in a 401k.
- Understand where you will likely end up financially. This is broader concept. You are unlikely going to be killing it on your income when you’re done, and you need to get into the mindset that there will still be delayed gratification after your income increases by several fold. There are many steps that you have to take before you stabilize your finances, especially if you are in debt or have a family.
- Life-altering events do happen. You are not going to be immune from financially life-altering events. Disease. Injury. Natural disasters (Yup I know a doctor in Puerto Rico who still hasn’t gotten his life back together yet). Prepare yourself appropriately and insure yourself appropriately. If you have but a few pennies in your savings, you might be in trouble.
- Be prepared for the long haul. You still have a career ahead of you. Don’t hustle to the level that you’d jeopardize your health. Figure out what you really want out of life. Is the money? Is it the fame? It’s okay to set a plan, execute, and modify.
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This covers the tip of the iceberg, but it will get you started. Many of these are basic principles, but you can start building upon them.